Budget 2019 expectations: Industries distress in hefty corporate tax expenses; demand a 5% relief; this is what you need to know

Budget 2019 demands: Speculations and demands are grabbing headlines with regards to what should Prime Minister Narendra Modi led government does in their interim Budget 2019 which will be presented on February 01 by Finance Minister Arun Jaitley. Now one of the major development industries are eyeing is in regards to corporate taxes, as they have not shied away in showing distress to hefty expenses they bear for pay high tax rates to Income Tax Department. Considering that this budget will have an impact on Lok Sabha elections 2019, many are expecting Modi government to go all in with various reforms even including corporate tax. 

Archit Gupta, Founder and CEO of ClearTax said, “Even though India is home to a booming startup landscape, enterprises currently face hefty tax-related expenses. This leads to a high production cost as well as increasing costs of the product/service. “

Therefore, Gupta says, “ It also results in a lower surplus (to reinvest or expand) subsequently.”

Hence, in Gupta’s view, businesses are hoping for a 5% reduction in the current 30% corporate tax irrespective of the turnover.

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Let’s understand to what is corporate tax structure of India currently.

A domestic company whose gross turnover is up to Rs 250 crore, then they fall under the tax bracket of 25%. 

Whereas, a company whose gross turnover exceeds the Rs 250 crore-mark, they are supposed to pay a hefty 30% tax on their income. It would be these companies who demand a 5% relief, however, if the government does bring in cut under 30% tax rate by 5% then they will be at par with companies earning up to Rs 250 crore turnover. Hence, it would be keenly watched to whether the government plans to bring in relaxation in this corporate tax. 

Apart from that, there are surcharges as well on the companies. If total income exceeds Rs 1 crore but not Rs 10 crore, then there is 7% of tax calculated on domestic company/ 2 % of tax calculated on the foreign company as per above rates, as per ClearTax report. 

On the other hand, if total income exceeds Rs 10 crore - then 12% of the tax calculated on domestic company/ 5 % of the tax calculated on the foreign company as per the above rates.

Not only this, but there is also a burden of a further 4% tax in the form of education and health cess. 

Well if this is not enough, then all companies are also required to pay a Minimum Alternate Tax (MAT) rate of 18.5% on the profits they book. This is also liable for foreign companies as well. 

The tax woes further continue, as companies are also needed to pay tax on dividend they distributed to their shareholders in the fiscal year. Up to Rs 10 lakhs dividend is tax exempted in the hands of shareholders, however, companies will have to pay about 20.56% taxes. 

From the above, it can surely be said that businesses are in desperate need for relief in taxes they pay during Budget 2019.