Corporate income tax of SMEs with turnover less than Rs 5 cr should have been lowered to atleast 25%: Experts

New Delhi, Feb 29 (KNN) Announcing the tax proposals in the Union Budget today, Union Finance Minister Arun Jaitley said that the corporate income tax rate for the next financial year of relatively small enterprises i.e companies with turnover not exceeding Rs. 5 crores (in the financial year ending March 2015) is proposed to be lowered to 29% plus surcharge and cess.

The new manufacturing companies which are incorporated on or after 1.3.2016 are proposed to be given an option to be taxed at 25% plus surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.

Responding to this, a policy expert from apex industry body for MSMEs, FISME, Debashis Bandopadhyay said FM has proposed to  reduce the rate of Corporate Tax from 30% to 25% over the next 4 years.

“While the Government claims that this will lead to higher level of investment, higher growth and more jobs, this will turn out to be a zero sum game for the Corporate sector.

Because the process of reduction will be accompanied by rationalisation and removal of various kinds of tax exemptions and incentives for corporate taxpayers as already declared by the Government and reiterated in the Economic Survey,” he said.

Sachin Goel, a Chartered Accountant, said that reducing the limit from 30% to 29% is very marginal change.

“It should have been reduced to at least 25 per cent which was demanded by the industry. From 30% to 29% would not make much change for the industry,” he said.

Jaitley further said boosting employment generation through economic growth is a main objective behind these proposals. Other objectives, he said, would be for incentivizing ‘Make in India’, to promote measures for moving towards a pensioned society and for promoting affordable housing.

Such provisions to boost economic growth and employment include-100% deduction of profits for 3 out of 5 years for start-ups, during April, 2016 to March 2019, with certain riders. Similarly to promote innovation, a special patent regime with 10% rate of tax on income from worldwide exploitation of patents developed and registered in India was proposed.

On this, Lukesh Sethi, another Chartered Accountant from the national capital said that the announcements have come in order to further boost Make in India initiative.

On the announcement that the new manufacturing companies which are incorporated on or after 1.3.2016 would be given an option to be taxed at 25% plus surcharge and cess, Sethi said that the tax would come out to be around 27% after the surcharge.

Government would of course not want to reduce its revenue, Sethi added. (KNN Bureau)