COMPANY LAW
| Corporates to welcome 30 Percent cap on tax but increase in MAT rate a dampener Thu, 26 Aug 2010 19:10:19 GMT |
| The Economic Times Corporates to welcome 30% cap on tax but increase in MAT rate a dampener The draft bill for the Direct Taxes Code (DTC) now cleared by the Union Cabinet and set to be tabled before Parliament on Monday, it seems almost certain that the DTC deadline will be met. While the revised discussion paper released earlier for public discussion did indicate a calibration of tax rates to make up for the loss in the tax kitty, little did the individual taxpayer expect that the tax slabs would largely be aligned to the current slabs! Preliminary news reports indicate that the basic exemption limit has been marginally increased to Rs 2 lakh (Rs 2.5 lakh for senior citizens and women). Currently the exemption limit stands at Rs 1.6 lakh (Rs 2.4 lakh for senior citizens and Rs 1.9 lakh for women). The tax slabs as announced on Thursday have been have been fixed as: 10% for income between Rs 2 lakh and Rs 5 lakh, 20% for income between Rs 5 lakh and Rs 10 lakh and 30% for income over Rs 10 lakh. Currently, the lowest tax rate is 10% for those earning income between Rs 1.6 lakh and Rs 5 lakh and 20% for those earning income between Rs 5 lakh and Rs 8 lakh. The highest marginal tax rate stands at 30% for income above Rs 8 lakh. The DTC had made some bold announcements of reducing the tax rates for individuals. For instance, the maximum marginal rate of 30% would have applied only on income above Rs 25 lakh. However, it should also be recalled that DTC had called for the EET (exempt-exempt-tax)regime, which was largely diluted by the revised discussion paper. With the continuance of the EEE (exempt-exempt-exempt)system in most instances, it is likely that the tax rates could not be reduced to the extent as originally intended. On the corporate tax front, it appears that the tax rate has been increased to 30% (including education cess and surcharge) from 25% proposed in the DTC. The current corporate tax rate is 33.22% with surcharge and cess. While corporate stakeholders would have welcomed the trade-off between increased tax rates and abolishing of minimum alternate tax (MAT) on gross assets, but the continuance and increase in proposed MAT rate is seen as a dampener to the overall spirit of the corporate taxpayers. In fact, the decision to continue the levy of MAT itself is a questionable one, in view of the fact that the DTC proposes to do away with most tax of the profit-linked exemptions/ incentives currently available to corporate taxpayers. The intention behind levy of MAT was originally to bridge the gap between the taxable profits and the book profits in case of corporate taxpayers, which claimed tax incentives or in case of capital intensive companies due to high tax depreciation in the initial years of incorporation. Now with most of the profit-linked tax exemptions/ incentives proposed to be abolished, having a MAT rate as high as 20% of book profits seems myopic. Further it remains unclear whether the carry forward and set off of MAT credit will continue, as the revised discussion paper was silent on this issue. |
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