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The GoI, in 2013–14, had announced an ‘investment allowance’ of 15 per cent to the companies investing Rs. 100 crore or more in plant and machineries. This was valid up to March 2016. This move was aimed at
promoting investment in the industrial sector as part of the fiscal stimulus programme started in wake of the global recession.
Meanwhile, the government started a process of ‘corporate tax rationalisation’ linked to ‘phasing out various incentives’ availed by the companies (calibration process). In its first phase, in 2016-17, two changes were implemented regarding the corporate tax liabilities of the companies:
(i) New manufacturing companies, incorporated on or after March 1, 2016, will have an option to pay 25 per cent (plus surcharge and cess) corporate tax. To avail this, the companies will not have to claim profit- linked deductions, accelerated depreciation and investment allowance. For the other companies the rate of tax to remain 30 per cent (plus surcharge and cess).
(ii) One per cent cut in the corporate tax for the small companies. The companies which had turnover up to Rs. 5 crore till last year will now pay 29 per cent corporate tax (plus surcharge and cess). This is seen as an alternative to the existing investment allowance scheme.