This is what US tax cut means for India Inc.

The US corporation tax rate has been reduced to 21  per cent  from 35  per cent . This is expected to prompt many MNCs to relocate their operations back to the US.

Although US President Donald Trump couldn’t achieve his target of 15  per cent  corporate tax rate, the 21  per cent  tax rate would project the US as a more attractive investment destination.

This could also see major changes in the transfer pricing policies of US MNCs in remunerating its Indian subsidiaries. Likewise, the Indian MNCs operating in the US, especially in the IT sphere, would like to keep more profits in the USA rather than in India. This will help them minimise the overall tax burden and use these profits to expand their businesses globally.

Other developed countries would be closely following these developments. In fact, Japan has already announced expanded tax credits and incentives. Hence, to remain competitive in the global market, there would be increased pressure on the Narendra Modi government to cut corporation tax rates here. In the 2015-16 Budget, Financial Minister, Arun Jaitley had promised a reduction in the corporation tax rate, from 30  per cent  to 25  per cent , over four years. He is now expected to move faster on his earlier commitment.

Nonetheless, the tax reduction to 25  per cent , excluding the exemptions, would hit the exchequer by Rs. 70,000 to Rs 80,000 crore; which is about 13  per cent  of the current year's corporation tax collection.