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Business News/ Markets / Stock Markets/  Bond yield surges as government announces cut in corporate tax rate
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Bond yield surges as government announces cut in corporate tax rate

At 11.31 am, 10-year bond yield rose 15 basis points to 6.79%
  • India will cut corporate tax rate for domestic businesses to 25.17%
  • Rupee gained 0.5% to 70.97 a dollar, while benchmark Sensex Index rose 4%, or 1445.53 points, to 37,539. (Photo: Bloomberg)Premium
    Rupee gained 0.5% to 70.97 a dollar, while benchmark Sensex Index rose 4%, or 1445.53 points, to 37,539. (Photo: Bloomberg)

    Mumbai: The yield on the 10-year government bond surged as much as 22 basis points, its biggest jump in 31 months, on Friday due to concern of higher fiscal slippage after finance minister Nirmala Sitharaman announced a cut in corporate tax rates for domestic companies.

    At 12.23pm, 10-year bond yield rose 23 basis points, the maximum gains since 8 February 2017, to 6.849% from its previous close of 6.638%. Bond yield and prices moves in opposite directions.

    "Tax cut will negatively impact the bond market as the revenue forgone due to the tax rate reduction will make it difficult to stick to the gfd/gdp budgeted target", said Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities.

    Fiscal deficit likely to surge at least 70 basis points to 4% of GDP in 2019-20 as a result of cut in corporate tax cut.

    Sitharaman said the government was aware of the consequences of the revenue hit due to the measures announced today. The finance minister said the revenue loss to the exchequer will be 1.45 trillion in 2019-20. In the Union Budget presented in July, Sitharaman had slashed fiscal deficit target to 3.3% of GDP from 3.4% estimated in the interim budget presented in February

    India will cut corporate tax rate for domestic businesses to 25.17%, including surcharges, and will be applicable to companies not availing incentives. The current corporate tax rate is 30%.

    The government has also cut the minimum alternate tax rate to 15% from 18.5% for companies that continue to avail exemptions and incentives.

    The announcements come in the wake of a downturn in the economy, with India’s GDP growth slowing to a six-year low of 5% in April-June.

    Meanwhile, rupee and equity markets surged. Rupee gained 0.5% to 70.97 a dollar, while benchmark Sensex Index rose 4%, or 1445.53 points, to 37,539.

    In the year so far, the rupee has weakened 2.2%, while foreign investors have bought nearly $6.46 billion in Indian equities and $4.31 billion in debt.

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    Published: 20 Sep 2019, 11:40 AM IST
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