The Central Government has foregone an estimated Rs 98,999 crore in revenue during the financial year 2023-24 due to corporate tax incentives and deductions, Minister of State for Finance Pankaj Chaudhary informed the Rajya Sabha in a written response, according to a report.
Responding to a query by Aam Aadmi Party (AAP) MP Raghav Chadha, the minister provided data on corporate tax revenue foregone over the past five years. The figures reveal a consistent pattern of revenue loss due to tax concessions aimed at stimulating investment and industrial growth. In FY 2022-23, the government waived Rs 88,109 crore, while in FY 2021-22, the amount stood at Rs 96,892 crore. The figures for FY 2020-21 and FY 2019-20 were Rs 75,218 crore and Rs 8,043 crore respectively.
The revenue foregone for the current fiscal year, 2024-25, is yet to be determined, Chaudhary stated.
Gradual Corporate Tax Rationalization Since 2016
The minister highlighted that the government's strategy has been to reduce corporate tax rates over the years while phasing out exemptions and incentives. This began with the Finance Act, 2016, which lowered the corporate tax rate to 29% to spur economic growth and job creation.
In 2017, the government reduced the rate to 25% for smaller domestic companies with turnover up to Rs 50 crore. A major shift came in September 2019, when the base corporate tax rate for existing companies was slashed from 30% to 22%. Newly incorporated manufacturing firms set up after October 1, 2019, were offered a 15% rate, provided they did not avail of other tax exemptions.
Most recently, under the Finance Act, 2024, the corporate tax rate for foreign companies (excluding special-rate categories) was brought down from 40% to 35% to further incentivize foreign investment and job creation in India.
Balancing Growth and Fiscal Responsibility
While the tax foregone figures indicate a significant impact on the exchequer, the government maintains that these reforms are part of a broader plan to foster a business-friendly environment, drive domestic manufacturing, and boost employment. The corporate tax reductions are intended to make India a competitive investment destination while simplifying the tax regime.
However, with the revenue foregone nearing Rs 1 lakh crore in FY24, experts believe the government will need to balance its growth objectives with prudent fiscal management, especially in the run-up to ambitious infrastructure and welfare commitments.
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