Finance Minister Nirmala Sitharaman slashed down the corporate tax rates, from 30 per cent to 22 per cent. Such major step just before the keenly-waited festive season can be considered as a game changer for the Indian companies. This tax deduction can be expected to be an analgesic for companies. The decision could make companies more competitive by bringing corporate tax rates on par with prevailing rates in other countries.
The solar industry has termed the announcement, as a ‘big’ positive move. The tax cut would boost investor sentiment and confidence. The foreign inflows into the equities would rise and there would also outflows from the debt segment.
With the new directives, the companies availing no exceptions will need to pay only 22 per cent. And it will encourage start-ups, companies in the manufacturing space as those registered after October 1 this year and start their operation before March 31, 2023, will need to pay only 15 per cent taxes.
The tax cut would leave corporates with enough money holding in their hand, and the move in turn could be used in three ways by the companies. Companies could utilise the surplus amount into their businesses, may expand its manpower or there is a possibility that they will be reluctant to make fresh investments in capacity building and so on. Commercial orgnaisations are entitled to claim accelerated depreciation on the capital expenditure made in installing solar systems.
Due to the tax cut, companies will have additional cash in hand which they could invest in solar systems. On the other hand, investing in roof top solar systems could prove to be double profit for the companies. Commercial solar system would decrease the business expenses.
Lower electricity bills increase the profitability of the company. In this way, a commercial solar system
would prove to maximize the full potential of the lower tax rate.
Many corporations demanded earlier this year to slash the corporate tax to be at par with the tax of other south Asian countries. Hence the reform has been widely welcomed by the solar industry as the lower corporate tax rate could positively impact the financing of commercial solar systems and also encourage investment.
The critics have called it a downturn. But such policy moves are in the positive direction to boost speedy execution of projects and enable Government to achieve its ambitious infrastructure growth target, including renewable energy sector.
The reduction in tax to 15 per cent for new manufacturers will influence entreprenuers to invest in start-ups and infuse innovation in manufacturing and R&D in the solar sector. This can minimize the gap between rising demands and domestic supply of solar equipment as the current manufacturing capacity in India will be scaled up.
Further, the corporations could also pass on the benefits to the end consumers.
The manufacturers and marketers will try to attract consumers with pleasing schemes. This in result will convince the consumer and positively imact the buyers sentiments.
As the demand for solar will grow, it will have a direct impact on the GDP growth of the country.
(The writer is an entrepreneure)
