Contrary to expectations, the new tax code cleared by the Cabinet virtually retained the minimum alternate tax (MAT) that corporates need to pay on their book profits at the current level. The proposed two percentage point hike in the tax rate to 20% would be nullified by the removal of surcharge and cess.
Most tax analysts had expected that MAT rate could see an even steeper hike in the DTC regime as the policy in recent years has been to align the MAT rate with the corporate tax rate.
The extant 18% MAT rate turns out to be 20% due to the surcharge and cess. But the Street was not exactly overjoyed with the information that the corporate tax rate in the new regime would be 30% sans most exemptions, instead of 25% proposed in the original draft of the direct taxes code (DTC). The Sens*x lost 228 points on Friday.
More and more companies would now start paying MAT as the rate differential between it and corporate tax has narrowed down. Also, there is little room left for most companies to claim exemptions, except some in specified infrastructure industries.
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