Economy

Budget 2019: These are the expectations on personal and corporate taxes

Updated : January 23, 2019 11:22 AM IST

In order to be compatible with international standards, revision in highest tax slab rate may be carried out.

Corporate tax rates may be brought down to 25 percent for all the companies irrespective of the turnover of the company.

Budget 2019: These are the expectations on personal and corporate taxes

The Narendra Modi government is due to present the interim budget on February 1.

Here are some expectations on the personal and corporate tax fronts.

Personal Taxation

There were minimal changes to the income tax slab rates since the government had come into power in 2014. Considering the fact, the minimum income not chargeable to tax rate may be increased to Rs 5 lakh.

In order to be compatible with international standards, revision in highest tax slab rate may be carried out. Accordingly, income beyond Rs 20 lakh may be chargeable to 30 percent tax or the highest personal income tax slab may be reduced to 25 percent from 30 percent. Further, a levy of surcharge on individuals may be abolished.

We can expect the government to consider revising the limit provided in section 80C since the limit of Rs 1.5 lakh was revised earlier in Budget 2014. An increase in section 80C limit will help in incentivising savings and also provide more room for tax saving.

Restriction imposed on setoff loss from house property may be removed or may increase the amount of loss to be set off against other sources (At present, loss from house property cannot be set off more than Rs 2 lakh).

TDS on sale of property under section 194IA – Minimum threshold may be increased to Rs 1 crore from Rs 50 lakh.

Corporate Taxation

With many key global economies significantly reducing their tax rates on corporates, especially the US reducing the corporate tax rate to 21 percent, there is a need for India to consider across the board rate cuts for businesses. Accordingly, corporate tax rates may be brought down to 25 percent for all the companies irrespective of the turnover of the company.

In order to enhance the make in India campaign and promote indigenous research and development, the weighted deduction for expenditure incurred in relation to scientific research and development as provided under section 35(2AB) may be extended for a further period.

Disallowance under section 40(a)(i) on payments made to non-residents may be restricted to 30 percent, similar to 40(a)(ia). This will ensure parity between payments made to residents and non-residents.

In order to support the SME sector which is currently suffering from cash crunch post demonetisation and introduction of GST, tax holidays or tax breaks may be provided for the sector with a prescribed limit on turnover.

In order to promote foreign investments in India, the government may consider elimination of/reduction of rate of dividend distribution tax.

To attract more investments in SEZ, the sunset clause on tax holiday benefit for SEZ units may be extended by 3-5 years.

The rate of minimum alternate tax (MAT) and alternate minimum tax may be reduced to 12 percent to 15 percent (from existing 18.5 percent).

Section 115JAA may be amended to provide specifically that, successors in case of amalgamation or demerger or any other form or reorganisation should be eligible to claim benefit of MAT credit.

Restriction on shareholding imposed in section 79 may be removed in case of reorganisation where a holding company transfers share of its subsidiary to another subsidiary since the ultimate owner remains the same.

In case of units of REITs listed on a recognised stock exchange, holding period may be reduced to 12 months and brought in parity with listed shares.

In order to promote investments in startups (covered in section 80-IAC) and boost the economic growth, the government may consider abolishing angel tax which is currently taxed at 30 percent on the investments made in excess of fair value.

Currently, in case if a company is converted to LLP, there is no enabling provision to carry forward of losses on conversion. Accordingly, section may be amended to provide for carry forward and set off losses upon conversion of a company to LLP.

In order to boost the investments, investment allowance as prescribed under section 32AC may be reinstated.

Hitesh Gajaria is head of tax at KPMG in India.

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