The Finance Minister is set to present the full-term Budget of the re-elected government on July 5.

The Budget is expected to introduce some bold reforms to address the existing challenges of economic slowdown, rural distress, job creation and disruption in the financial sector.

In its first term, the corporate tax rate was reduced from 30 per cent to 25 per cent for companies having a turnover of up to ₹250 crore. The Centre implemented certain reforms aiming to fight corruption, such as introduction of black money law, mandatory e-audits, increased use of technology, reduced tax litigation by withdrawing low-value tax litigation.

The next step

Some of the key challenges before the Finance Minister in this Budget are increasing disposable income of consumers, boosting infrastructure, generating employment, and increasing foreign investment and capital generation in the economy.

To increase disposable income and consumer spending, the government should increase the basic tax exemption limit to ₹5 lakh, rationalise the slab rates, increase the deduction limit under Section 80C to ₹2 lakh, and increase the standard deduction/tax-exempt allowances in line with the current inflation and cost of living standards.

To balance the impact of the gradual phasing out of tax incentives, the corporate tax rate was brought down to 25 per cent for certain companies. However, the Dividend Distribution Tax (DDT) levied at 20.56 per cent still leads to higher tax incidence for corporates. Large investing countries such as the US, the UK and the Netherlands have reduced corporate tax to boost their economy and promote job creation. To spur economic growth, the tax rate should be reduced across the board for corporate and non-corporate taxpayers to 25 per cent along with suitable reduction in the DDT rate to 10 per cent.

To boost employment generation in the country, the threshold for employment-linked deduction under Section 80JJAA should be increased from ₹25,000 per month to ₹50,000.

Also, to promote exports, the sunset clause in Section 10AA should be extended by 2-3 years, or alternative export incentives should be introduced. In order to boost manufacturing, a weighted deduction of 200 per cent on R&D expenses should be restored. To promote growth of capital formation in the country and encourage the ‘Make in India’ initiative, higher depreciation should be reinstated for large capital expenditures, and investment-based incentives such as those provided in Section 32AC should be extended.

The clarification on the methodology to compute the amount of loss brought forward or unabsorbed depreciation as per books of accounts — for the purpose of claiming deduction while computing book profit under Section 115JB — would also help.

Further, the rate of minimum alternative tax should be rationalised in line with the reduction in corporate tax rate.

Agrawal is Partner, Deloitte India;Garg is Manager, Deloitte Haskins & Sells; Pasari is Deputy Manager,Deloitte Haskins & Sells