SAJJAD PURVEZ - Corporate tax: Relief on surcharge, MAT raised marginally

28-Feb-2011 | News-Press Release



Corporate tax: Relief on surcharge, MAT raised marginally news  
28 February 2011

Finance minister Pranab Mukherjee has proposed a lower surcharge limit on corporate tax of 5 per cent against the existing 7.5 per cent even as he retained the corporate tax for domestic firms earning total annual income of over Rs1 crore at 30 per cent.

Presenting the Budget 2011-12, Mukherjee proposed a hike in the Minimum Alternate Tax (MAT) to 18.5 per cent from the existing 18 per cent of book profits.

He also widened the ambit of the minimum alternate tax to include developers in Special Economic Zones (SEZs).

He said the aim is to phase out the surcharge on tax over a period of time so that it does not affect overall mobilisation

The government had reduced surcharge on corporate tax while hiking the rate of MAT in the previous budget as well.

"My initiative of phasing out the surcharge continues. I propose to reduce the current surcharge of 7.5 per cent on domestic companies to 5 per cent," Mukherjee said while presenting the Budget for 2011-12.

"By the measure to ensure equal sharing of corporate tax liability, I propose to levy MAT on developers of the Special Economic Zones as well as units operating in the states," Mukherjee said.

To encourage Indian companies to repatriate profits from offshore subsidiaries, the Budget has proposed a lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary. "I do hope this will allow funds to flow to India," Mukherjee said.

The General Budget 2011-12 also proposes an extension of the investment-linked deduction to businesses engaged in the production of fertilisers.

Mukherjee expects the step to give a boost to production in the agriculture sector.

Such deduction will also be available to those who develop affordable housing under a notified scheme.

The Budget also extends the additional deduction of Rs20,000 for investment in long-term infrastructure bonds for one more year.

Besides, the Budget has raised the weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology for scientific research to 200 per cent from the earlier 175 per cent.

The finance minister also announced the creation of special vehicles in the form notified infrastructure funds to attract foreign funds for financing infrastructure.

Interest on the borrowings of these funds will be subject to a reduced withholding tax rate of 5 per cent instead of the current 20 per cent. Incomes of such funds will also be exempt from tax.




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