Budget 2013: Navigating growth amidst challenges: PwC

PwC

While presenting the tax proposals in the Budget 2013-14, the Finance Minister set the context by stating that the underlying theme of his proposals is to bring clarity in tax laws, stability in tax regime, provide a non-adversarial tax administration and a fair dispute resolution mechanism. Against this backdrop, the Finance Minister tabled the direct tax proposals that seek to keep the tax rates stable, provide boost to the manufacturing sector, rationalize certain tax provisions and provide for widening of the tax base. However, it fell short of taxpayers exceptations neither in resolving issues arising from tax on indirect transfers, retrospective amendments, nor in accepting majority of Shome’s recommendations.

Tax rates: Though, the basic corporate tax rate has remained unchanged at 30 percent, however, the Finance Minister has proposed an increase in applicable surcharge for income beyond a certain threshold. A comparison between existing and proposed effective tax rates (for domestic as well as foreign companies) is as under: Basic rate for MAT remains unchanged at 18.5 percent. However, where the total income exceeds INR 100 Million, the applicable surcharge would be 10 percent (5 percent for FY 2012-13). Therefore, in such cases the effective tax rate would be 20.96 percent (20.01 percent for FY 2012-13). The applicable rate for DDT is proposed to be increased to 16.995 percent from the existing rate of 16.22 percent.

Individuals/ HUF: No change in the slabs/ tax rates. A surcharge at 10 percent on the tax amount will be levied on individuals whose total income is more than 10 Million INR. Thus, the marginal tax rate for such individuals would increase from 30.9 percent to 33.99 percent.

For Individuals-

Tax rebate: Income-tax slab rates for individuals remain unchanged. However, a resident individual whose total income is less than 500,000 INR, a tax rebate of up-to 2,000 INR is proposed to be given. Consequently, resident individuals with taxable income up to 220,000 INR will not have any tax liability.

Life insurance premium: The Budget proposes to raise the permissible premium rate to 15 percent of the sum assured (existing 10 percent) in the case of persons suffering from disability or specified diseases for claiming deduction under the overall cap of 100,000 INR for investments and for claiming exemption for amounts received from life insurance policies. This will be applicable for policies to be issued on or after 1 April 2013.

Deduction for contribution to health Schemes: Under the existing provisions, a deduction of up-to 15,000 INR per annum is available for health insurance payment made by an individual for any contribution made towards the Central Government Health Scheme. It is proposed that this deduction would be extended to other health schemes of the Central and the State governments that are similar to the Central Government Health Scheme.

Deduction for investment in equity savings scheme: Under the existing provisions, a one-time deduction of up-to 50 percent of the amount invested (subject to a limit of 25,000 INR) in notified equity shares savings scheme is provided, if the individual’s gross total income does not exceed 1 Million INR. The scope of these provisions is proposed to be widened to cover investment in units of equityoriented mutual funds also by a new retail investor whose gross total income does not exceed 1.2 Million INR. The deduction is proposed to be allowed for three consecutive years.

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