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Corporate tax exemptions with sunset clauses may not be renewed
September, 11th 2015

In order to phase out exemptions and move to lower corporate tax rate, the CBDT is considering not to renew tax exemptions after expiry of sunset clause.

"In several cases of tax exemptions the sunset clause is expiring in next couple of years. The tax department does not want to put an abrupt end to the exemptions, but may not renew them after the end date," a source told PTI.

Finance Minister Arun Jaitley has already announced that the Ministry will come out with a roadmap for phasing out exemptions in next few days as part of the exercise to bring down the corporate tax rate to 25 per cent from 30 per cent in the next four years.

The source further said that the department may decide to put a sunset date in open-ended tax exemption schemes to give time to the corporate to adjust.

In such cases, a specific date will be provided on which the exemptions would cease, the source added.

According to the source, the Central Board of Direct Taxes (CBDT) is also working on cleaning up of the Income Tax Act, which contains even those tax exemptions which have ended and are not available to the corporates.

Once the views are finalised by the Minister, amendments to the Income Tax Act would be taken up in the Budget session of Parliament.

"Government is proposing to phase out exemptions on corporate tax beginning next year. These may be accompanied by a marginal reduction in corporate tax rate," the source added.

Jaitley, in his first full-year Budget in February, had proposed to lower corporate tax rate to 25 per cent over four years. However, he had not provided any roadmap for reducing it.

The Minister had said that the basic rate of corporate tax in India at 30 per cent is higher than the rates prevalent in the other major Asian economies, making domestic industry uncompetitive.

Moreover, the effective collection of corporate tax is about 23 per cent after taking into account various exemptions.

"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," Jaitley had said.

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