New Delhi: Corporate India’s effective tax rate decline for the first time in six years, even though there were no significant industry-wide changes in the overall statutory tax rates for that year, the Union budget 2020-21 documents show.
The effective tax on profits of companies, or the actual taxes paid after availing various exemptions and deductions allowed in the Income Tax Act, 1961, dipped about 165 basis points in 2018-19 to 27.84 per cent from the preceding year after rising continuously for six years. The effective tax rate for all companies printed at 30.4 per cent when the dividend distribution tax was included, but that was also much lower than the statutory tax rate of 34.6 per cent, which included all cesses and surcharges.
Corporate entities that had annual pre-tax profits of Rs 10-50 crore saw their tax liability dip the most, as the Centre lowered the statutory tax rate for companies with an annual turnover of up to Rs 250 crore to 25 per cent in Union Budget for 2018-19. The effective tax rate for such small companies consequently declined by 141 basis points to 27.68 per cent. Despite that decline, their effective tax rate continued to be higher than the 26.01 per cent paid by the companies with pre-tax annual profits in excess of Rs 500 crore. The effective tax rate for large companies fell just 29 basis points in 2018-19.
