Businesses claim more tax breaks as accelerated depreciation than all deductions by individuals

Tax breaks availed by businesses under accelerated depreciation in 2016-17 are estimated to have cost the government more than the sum total of all deductions claimed by individual tax payers for the first time since 2013-14, the Budget documents show.

Deductions under accelerated depreciation claimed by companies in 2016-17 cost the Centre over ₹66,350 crore. Similar deductions claimed by businesses organised as firms, association of persons or body of individuals amounted to another ₹1,279 crore.

In comparison, individuals claimed ₹64,848 crore as deductions under various heads, most of which was claimed for various savings and expenditure under Section 80C of the Income Tax Act, 1961.

Accelerated depreciation is allowed as an incentive to encourage companies to make new investments in specific industries and areas. It allows businesses to write down the value of their plant and machinery at a faster rate for the purpose of calculating profits under the tax laws than is allowed under accounting standards. The revenue impact of accelerated depreciation is the difference between the depreciation debited in the profit and loss account of the companies and that allowed under the Income Tax Act, after applying the statutory tax rate of 34.4 per cent.

An analysis of tax returns filed by businesses and individuals till the end of November 2017, by the Revenue Department, shows that the revenue impact of the deductions, incentives and various deferrals claimed by companies in 2016-17 was worth ₹1,30,184 crore. However, after applying minimum alternate tax (MAT) on profits of some companies, the net impact of these incentives and deferrals on government revenues reduced to ₹86,145 crore. The revenue impact of the similar deductions and deferrals claimed by other businesses such as firms was estimated at ₹4,847 crore and that included about ₹2,090 crore as deductions given to cooperative societies.

Other than accelerated depreciation, businesses get tax incentives under various other heads, including export profits for units in special economic zones, expenditure on scientific research, generation, transmission and distribution of power and development of infrastructure facilities. The Tax Department estimates the revenue impact of these four incentives to companies at ₹49,593 crore in 2016-17. The impact of the same incentives availed by other businesses was ₹750 crore.

The analysis shows that the impact of deductions claimed by individuals under section 80C was a little over ₹45,000 crore, and that’s about 70 per cent of all deductions claimed by individuals — salaried, independent professionals and individual businessmen.

Even though it seems that businesses are collectively getting greater tax benefits, the revenue impact of concession to individuals has jumped 110 per cent between 2013-14 and 2016-17, from ₹30,771 crore to ₹64,848 crore, due to increase in tax deduction extended by Finance Minister Arun Jaitley in the first three Budget he presented. During the same period, the revenue impact of the tax incentives to companies rose only 43 per cent before adjusting for MAT. The revenue impact net of MAT was 49 per cent.

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