Around 1,000 companies would save nearly Rs 37,000 crore due to recent corporate tax rate cut, according to a Crisil report on Sunday.
A study of nearly 1,000 companies, spread across 80 sectors, which cover over 70 percent of the National Stock Exchange's market capitalisation indicates that effective tax rates had risen over the past five years.
These companies, including oil & gas and financial services, account for nearly one third of the tax paid by India Inc. "Our analysis indicates these companies could see tax savings of Rs 37,000 crore, or nearly a fourth of the total savings anticipated by the government," the report by Crisil Research said.
Segments linked to consumer would benefit the most given higher effective tax rates of over 30 percent, it said and added, exports-linked sectors, such as IT and pharma, on the other hand, would benefit the least, accounting for only 5-6 percent of potential savings because they already enjoyed low effective tax rates.
Finance Minister Nirmala Sitharaman reduced the corporate tax on companies with a turnover of up to Rs 400 crore to 25 percent in the Budget presented on July 5. This brought down the effective tax rate on over 99 percent of companies to 27.8 percent (corpoarte tax inclusive of surcharge and education cess).
For the rest less than 1 percent, the effective rate remained at 34.94 (on 30 percent corporate tax rate). This category of large turnover companies, such as Reliance Industries, Tatas, Aditya Birla Group, are the biggest beneficiary of Sitharaman's latest tax breaks.
"Tax benefits will also vary within sub-segments. For instance, with the consumption space assessment of automobile manufacturers that account for 50 percent of volumes sold indicates that tax cuts may have limited benefits because of already lower effective tax rates. But auto component manufacturers, which bear higher effective tax rates, may see maximum gains," as per the analysis of 70 firms that account for 20 percent of the market.
The Finance Minister on Friday announced Rs 1.45 lakh crore fiscal stimulus that includes slashing corporate tax to 22 percent from 30 percent, cutting down the minimum alternate tax (MAT) and lowering tax to 15 percent for companies putting fresh capital into manufacturing.
The reduced corporate tax rate of 22 percent would apply on domestic entities that don't avail any exemptions and incentives. Also, these companies will not be required to pay any MAT. Effective tax rate in this case would be 25.17 percent, including cess and surcharge.
Tax experts said reduction in the corporate tax would benefit large companies, like Reliance, Tata, Vedanta and Adani, more than medium-sized firms.