The rate of income tax for the firms below Rs 5 core turnover is reduced by one percent.
Cap on benefit of deductions for research, benefit of section 10AA to new SEZ units over next two years, should lead to higher tax outgo for businesses. “The reduction in corporate tax rate has to be calibrated with additional revenue expected from the incentives being phased out,” said Arun Jaitley. However, he did not give a timeline to reduce the corporate rate of tax over a period of time.
Also there was no mention of a timeline for Goods and Service Tax which is a long overdue demand from the business sector. It not only brings down the effective rate of tax but also makes it easy to move goods across country and further makes it easy to do business. Businessmen asking for timeline for implementation of GST are disappointed. Removal of Minimum Alternative Tax (MAT) is another demand that did not materialize.
The demand to increase the service tax exemption limit to Rs 25 lakh too went unheard. Existing limit is Rs 10 lakh was set in 2008. It was reviewed upwards twice in 2007 and 2008 – increasing service tax limit from Rs 4 lakh to Rs 10 lakh.
Interest rates in the economy are still high, and banks are starved for capital because of their battered balance sheets. Expectation was that the government would stick to the path of fiscal prudence. Finance minister opted to stick to fiscal prudence and held on to fiscal deficit target of 3.5%. This should push down the interest rates in the economy. As the interest burden for the businessman goes down, the risk taking ability for the businessman too will go up, which will increase investments in the economy.