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Government releases roadmap for phasing out corporate tax exemptions; no weighted deductions from April 1, 2017
November, 21st 2015

Keeping up the reforms momentum, India has a announced a detailed plan to phase out tax exemptions and bring down corporate tax rate to 25% from 30% now.

The apex direct taxes body, the Central Board of Direct Taxes, has said profit linked, investment linked and area based deductions will be phased out for both corporate and non-corporate tax payers.

It has said the provisions having a sunset date will not be modified to advance the sunset date. Similarly the sunset dates provided in the income act will not be extended.

In case of tax incentives with no terminal date, a sunset date of March, 31, 2017 will be provided either for commencement of the activity or for claim of benefit depending upon the structure of the relevant provisions of the Act.

There will be no weighted deduction with effect from April 1, 2017

In his February budget speech, Jaitley had announced that the government would cut the corporate tax rate to 25% while phasing out incentives.

A regime of exemptions has led to pressure groups, litigation and loss of revenue," the finance minister had said. "It also gives room for avoidable discretion. I, therefore, propose to reduce the rate of corporate tax from 30% to 25% over the next four years.

Even though the basic rate of corporate tax is 30%, the effective one is much lower at 23% because of incentives. Globally, corporate tax rates are much higher than those for personal income tax. In India, the income tax rate is as high as 30%.

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," Jaitley had said.

In FY15, the government is estimated to have had to forego Rs 62,400 crore in corporate taxes on account of various incentives, up from Rs 57,800 crore a year ago.

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