Arun Jaitley may end tax exemptions, corporate tax in his Budget 2016

Like last year, this time also Finance Minister Arun Jaitley may cut down corporate tax rate by nearly one per cent. In this Budget 2016-17, Jaitley may end certain exemptions availed by the industry.

In Budget 2015, Jaitley had announced phased reduction in corporate taxes over four years to 25 per cent from present 30 per cent.

"To begin with, one per cent cut in the corporate tax rate, gradual phasing out of accelerated tax depreciation and a sunset clause for the tax deductions, coupled with reduction in MAT, will set the tone for this year's Budget," KPMG (India) Partner Tax Vikas Vasal said.

Economic Laws Practice Partner Rohit Jain said since the government is pushing domestic manufacturing, in the next Budget it would be a challenge to do away with exemptions.

"The reduction could be one per cent or so in the next Budget. The minister might put an end date to certain exemptions and pave the way for gradual withdrawal," Jain added.

Currently, there are various tax concessions under the Income-Tax Act, 1961. The prominent ones are accelerated depreciation on various assets; weighted deduction for capital expenditure incurred on various projects; weighted deduction for expenditure incurred on manufacture or production of specified articles; expenditure incurred on scientific research; various skill development projects etc.

"In an event of a phase out approach, a reduction of 1-1.25 per cent in the corporate tax rate could be expected," Deloitte Haskins & Sells LLP Partner CA Gupta said.

The Finance Minister had earlier said:"We lose out on both counts, i.e. we are considered as having a high corporate tax regime but we do not get that tax due to excessive exemptions. A regime of exemptions has led to pressure groups, litigation and loss of revenue.

"It also gives room for avoidable discretion. I, therefore, propose to reduce the rate of corporate tax from 30 per cent to 25 per cent over the next four years."