Corporate India will save around Rs 5,150 crore (Rs 51.5 billion) because of the proposed lowering of the corporate tax rate from 35 per cent to 30 per cent.
Companies listed on the bourses stand to benefit by around Rs 4,430 crore (Rs 44.3 billion), while unlisted companies will save Rs 720 crore (Rs 7.2 billion).
The effective saving for the corporate sector has been compiled on the basis of taxes actually paid by companies in 2003-2004.
A study by the Business Standard Research Bureau shows that 2,895 listed and unlisted tax-paying companies paid Rs 31,014 crore by way of corporate tax in 2003-2004.
The 2,400 listed companies which reported an aggregate net profit of Rs 31,014 crore (Rs 310.14 billion) in 2003-2004 will save Rs 4,430 crore because of the tax cut, while the remaining 495 unlisted companies, with a total net profit of Rs 5,033 crore in 2003-2004, will save Rs 720 crore.
Public sector undertakings, together with nationalised banks, will be the biggest beneficiaries of the proposed tax cut.
The aggregate savings for PSUs and state-owned banks works out to Rs 2,500 crore (Rs 25 billion): banks will save Rs 980 crore (Rs 9.8 billion) and the PSUs will save Rs 1,520 crore (Rs 15.2 billion).
Says Rohan Phatarphekar, country director, tax and regulatory services, Grand Thornton, " Although it was expected that corporate taxes would be reduced, that it would be done against the increase in surcharge was a surprise. Despite the increase in surcharge, the net effect would be a saving in corporate tax. However, this has to be kept against the background of depreciation that has been reduced."
The Oil and Natural Gas Corporation, the largest tax payer among listed corporates, stands to save around Rs 622 crore (Rs 6.22 billion) from the cut in the corporate tax rate.
ONGC paid corporate tax of Rs 4,350 crore (Rs 43.5 billion) for 2003-2004 on a profit before tax of Rs 13,622 crore (Rs 136.22 billion).
Another oil company, Indian Oil Corporation, stands to save Rs 325 crore (Rs 3.25 billion) from the corporate tax rate cut.
The State Bank of India will be the third largest beneficiary, with potential savings of around Rs 178 crore (Rs 1.78 billion), followed by HPCL (Rs 146 crore), BPCL (Rs 122 crore) and GAIL India (Rs 120 crore.)
Among private sector companies, Tata Steel will be the largest gainer with savings of around Rs 131 crore, followed by ITC (Rs 122 crore), Reliance Industries (Rs 50 crore), Hero Honda (Rs 47 crore) and Grasim (Rs 42 crore).
Referring to the changes in depreciation norms, Pranav Sayta, partner, subservice line, corporate tax, Ernst & Young, said, " The present provision that stands as of now provides for a general rate of depreciation of 25 per cent on plant and machinery. The new provision will have an adverse impact in the initial years after the acquisition of plant and machinery."
However this is only a timing difference and gets recovered over the years. The finance minister has increased the additional depreciation for the first year from 15 per cent to 20 per cent of the cost of new plant and machinery, which is now not subject to a 10 per cent increase in installed capacity, he said.
Thus a corporate will get 35 per cent depreciation on new plant and machinery for the first year. This minimises the adverse impact of the reduction in the rate of depreciation for the first year, he added.