After an overhaul of indirect taxes, Finance Minister Arun Jaitley is expected to give a roadmap to direct tax reforms in his Budget for 2018-19 next week.
The government has already formed a task force to draft a new direct tax laws. The task force, which was set up immediately after Prime Minister Narendra Modi had given a call to re-draft the Income Tax Act, is expected to give its report by May. But the finance minister is likely to give a direction to how the government is targeting to move on the glide path.
The new direct tax code will incorporate the international best practices after having studied the direct tax system prevalent in different countries, sources close to the development told DH.
Since the corporate tax and income tax account for 51% of the total tax revenue, Jaitley is also expected to tweak these two. On the income tax side, the expectations are that the finance minister will increase the size of standard deduction from Rs 2.5 lakh to Rs 3.5 lakh, as the government is looking for avenues to widen the tax net. Currently, income up to Rs 2.5 lakh per annum is exempt from tax for individuals.
On the corporate tax side, the finance minister is likely to lay down a plan a US-like tax reforms, which are, of late being held as the most significant in the past 30 years. In the US, the government has proposed a sharp cut in corporate tax rate from 35% to 21% to make investments attractive.
Jaitley in his Budget for 2016 had announced a phased reduction to 25%, the current fiscal space may not allow that for the time being.
However, the finance minister may give a glide path to achieving that in order to encourage investment and promote growth in manufacturing sector which aides to the government's flagship programme of Make in India.
Speculation is rife that Jaitley may propose implementation of international best practices on taxation side in his Budget. Just before leaving for Davos for the World Economic Forum, the Prime Minister has called for making a policy framework in India that is in accordance with the global standards.
In their pre-Budget meeting with the finance minister, India Inc too had suggested revamp in corporate tax rates to make India an attractive destination.
Chances are that Jaitley may even propose tax concessions to those industries which promise to create a certain number of employment in a specific period.
