Will Jaitley tinker with income-tax slabs?

The Interim Budget this year is being considered on par with a full-fledged Budget and expectations are that there could be new tax provisions.

Convention says that there should not be any proposal to amend tax laws in the Interim Budget, but rules do not debar the same.

The last three interim Budgets, P Chidambaram’s in 2014-15, Pranab Mukhejee’s in 2009-10 and Jaswant Singh’s in 2004-05 followed the convention, though Chidambaram did announce some changes in the indirect taxes and they were implemented with notification issues on the same day. Basically no changes are proposed as they will create distortions if a different party/coalition comes to power after the elections and reverses the changes made earlier. If it happens, then there could be problems for the tax payers. Also, there is an issue of morality and the Government going into election sticks to that.

Now, the big question is will Finance Minister Arun Jaitley stick to convention or break the tradition considering this Government has changed many traditions such as advancing the Budget day from last working day of February to the first working day and merging the Railway Budget with the General Budget. Considering this, the buzz is that he might raise the exemption limit for income tax to appease the salaried class or provide more tax relief under different schemes. However, a section of the Government believes that Jaitley might stick to a vision for tax law changes rather than proposing changes.

Meanwhile, experts feel that the Finance Minister might do some tinkering and according they have placed their expectations.

Corporate tax rates

According to Rakesh Nangia, Managing Partner, Nangia Advisors, considering that worldwide corporate tax rates are being lowered, there should be a non-conditional application of tax rate of 25 per cent on the profits earned by domestic companies. “The concept of significant economic presence (SEP) introduced last year, requires specification of threshold to make the provisions effective. Also, the government should provide definite meaning to the term ‘systematic and continuous’ included in the definition of SEP to eliminate subjectivity,” he suggested.

Rajesh Gandhi, Partner, Deloitte India, also echoed similar sentiment saying that for India Inc, one of the primary expectations, in line with the vision of the Finance Minister, will be reduction of the corporate tax rate to 25 per cent for all corporate taxpayers irrespective of the turnover threshold. A reduction in tax rates on book profits i.e. MAT/ AMT, which is only about 5 per cent lower than the normal tax rate should also be more than welcome. “Various stakeholders are also looking forward to clarifications and certainty on issues such as taxability on issuance of shares to residents (in case of start-ups) and non-residents at a premium, rationalisation of prosecution provisions for foreign companies where tax liability has been duly discharged,” he said.

Amarpal Chadha, Tax Partner at EY India, feels that despite being the Interim Budget, the wider expectation is that it will be a friendly-budget for the individuals with more opportunities to save tax. “Considering the increased inflation and lending rates, to increase the disposable income, the Government may consider an increase in the basic exemption limit, higher deduction for housing loan interest, increased deduction limit under section 80C which includes among others, housing loan principal repayment, contribution to Provident Fund, tuition fees etc,” he said.

COMMENT NOW