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New Delhi: India’s largest corporations have benefited significantly from reduced tax rates introduced under the concessional tax regime in 2019, saving an estimated Rs 3.14 lakh crore in taxes over five years, a data story by The Hindu has shown. Additionally, revenue foregone through various deductions granted to companies has exceeded Rs 8 lakh crore over the past decade, according to an analysis of tax data.
Before the tax reform, domestic companies with an annual turnover of up to Rs 400 crore were taxed at 25%, while others faced a 30% rate. The 2019 policy overhaul slashed the corporate tax rate to 22%, provided companies waived certain deductions under the Income Tax Act. Newly established manufacturing firms were offered even lower rates under specific conditions, reported The Hindu.
Experts note that this move reflects a preference for a simpler tax system with reduced rates; however, concerns persist about its impact on government revenues and broader economic outcomes.
Suranjali Tandon, associate professor at the National Institute of Public Finance and Policy, told The Hindu that while lower rates simplify the tax system, the evidence of increased private sector investment remains mixed, especially since the tax incentives coincided with the pandemic. “The profitability of companies has allowed them to create reserves and invest in current assets. In part, the anticipated demand can influence the decision to make capital investments,” she said.
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R. Nagaraj, distinguished senior fellow at IIT Bombay, criticised the move as disproportionately benefiting the business community, citing parallels with the Laffer curve arguments popularised during the Ronald Reagan administration in the US. “We do not have any evidence of this working anywhere in the world, especially not in India,” he told The Hindu.
Analysis of the BSE 500 index shows that until FY19, the effective corporate tax rate for these firms averaged over 30%. This rate dropped to 21.2% by FY24 under the new regime. The top 10% of these companies consistently enjoyed lower effective tax rates compared to the overall average.
The savings estimate of Rs 3.14 lakh crore was derived by projecting pre-2019 tax growth trends, assuming a compound annual growth rate of 11.5% for tax payments and comparing it to actual collections post-reform.
In addition to the tax rate cuts, companies have availed various deductions under the Income Tax Act, including those for donations to charitable trusts, political contributions, scientific research and undertakings in northeastern states. These concessions have cost the government Rs 8.22 lakh crore in revenue between FY13 and FY22, according to budget documents.
Zico Dasgupta, assistant professor of economics at Azim Premji University, emphasised the need for a cost-benefit analysis of these tax concessions. “Since tax concession also means forgone expenditures by the government, it seems to me that the more important policy question pertains to a cost-benefit analysis of providing greater tax concession,” he told The Hindu.
While the reduced tax rates were intended to spur private investment and foster a globally competitive business environment, the broader impact remains inconclusive. Experts caution that the resulting decline in the corporate tax-to-GDP ratio could constrain the government’s ability to finance developmental expenditure.
