Finance Minister Nirmala Sitharaman on Friday announced reductions in corporate tax rates for domestic companies and new manufacturing firms in a fresh bid to promote economic growth. The changes to taxation laws were made through an ordinance.

The government will forgo a revenue of Rs 1.45 lakh crore per year due to the slashed corporate tax rates, Sitharaman said.

Domestic companies will now have an option to pay income tax at a rate of 22%, provided they do not avail of any other incentive or exemptions. New domestic manufacturing companies can pay 15% corporate tax with the same condition, if they are incorporated on or after October 1, 2019, and start production no later than March 31, 2023.

Both rules will apply in the ongoing fiscal year. Adding all surcharges and cesses, domestic companies will be levied an effective tax rate of 25.17% after the changes, with new manufacturing firms paying even lower, at 17.01%, Sitharaman said. The reduced tax rate for manufacturing companies will help boost the Make in India campaign by bringing in investments, and will also boost employment and economic activity, she said.

Companies are levied corporate tax at a rate of 30% presently, with an effective tax rate of 34.94%. Firms that currently avail of exemptions will be eligible for the new options once their tax holiday period ends, the finance minister said.

Within minutes of the announcement, the benchmark share indices surged more than 4%, with the BSE Sensex rising over 1,650 points at one stage. At 11.40 am, the Sensex was up 1,490.93 points at 37,584.40, while the Nifty 50 was up 434.20 points at 11,139. The Goods and Services Tax Council, chaired by Sitharaman, is also meeting in Panaji on Friday.

The government also decided to not levy the enhanced surcharge introduced in this year’s Union Budget on capital gains arising on the sale of equity shares in companies liable for securities transaction tax. Sitharaman said that companies will now be able to spend on incubation, national laboratories, Indian Institutes of Technology and National Institutes of Technology as part of their obligation to spend 2% of their turnover on corporate social responsibility.

These measures were part of a series of announcements by Sitharaman to revive the economy.

The previous mega announcements in recent weeks were designed to encourage private sector investment and bring further stability into the banking system through several public sector bank mergers. Another, on September 14, included a Rs 50,000-crore export incentive scheme and a Rs 10,000-crore special window to provide last mile funding for unfinished housing projects.

India’s economic growth rate had slipped to 5% in the April-June quarter, the lowest in over six years. In the last few months, core sectors such as automobiles and manufacturing have witnessed a progressive slowdown in growth due to weakened consumer demand and dearth of investments.

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