After an overhaul of indirect taxes, Finance Minister Arun Jaitley is expected to give a roadmap for direct tax reforms in his Budget for 2018-19 next week.
Since Corporate Tax and Income Tax account for 51% of the total tax revenue, Jaitley is expected to tweak these two. On the Income Tax side, the expectations are that the finance minister will increase the exemption bracket for standard deduction from Rs 2.5 lakh to Rs 3.5 lakh. Currently, income up to Rs 2.5 lakh per annum is exempt from tax for individuals.
On the corporate tax front, the finance minister is likely to lay down a plan for 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%, but 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 aids the government's flagship programme of Make in India.
Sops for jobs
Chances are that Jaitley may even propose tax concessions to those industries which promise to create a certain number of jobs in a specific period.
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, Prime Minister Narendra Modi had called for a policy framework in India that is in accordance with the global standards.
The government has already formed a task force to draft new direct tax laws. The task force, which was set up immediately after the Prime Minister had given a call to re-draft the Income Tax Act, is expected to submit its report by May. But the finance minister is likely to give a direction to how the government intends 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 told DH.
In their pre-Budget meeting with the finance minister, India Inc too had suggested revamp in Corporate Tax rates to make India an attractive investment destination.