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Finance Ministers of India

Pranab Kumar Mukherjee
(1982-1985, Feb 2009-May 2009, May 2009-Continuing)

Pranab Kumar Mukherjee is a prominent leader of India National Congress. He has...
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IndiaInfoline arrow Budget arrow Industry Expectations

Reduce corporate tax rate: Dr Suresh Surana

India Infoline News Service / 12:34 pm , Feb 25, 2010

The Banking and Financial Sector in India has acted as the growth engine for the economic development of the country. Certain key expectations of the Banking and Financial Sector from the Budget 2010 are listed below:


Venture Capital Fund – Pass through Status


It is expected that the venture capital funds registered with SEBI should not be liable to pay any tax on income received by them for, without any restriction of investment in any specified businesses as they are only collective investment vehicles. However, presently, section 10(23FB) of the Income Tax Act, 1961 (the Act) restricts exemption only to income earned from investment made in a venture capital undertaking (VCU) engaged in specified businesses. This is consistent with the draft Direct Tax Code wherein financial intermediaries like Venture Capital Fund etc. are treated as pass through entities.


Provision for bad and doubtful debts 


The deduction for provision made by banks towards bad and doubtful debts should be allowed in accordance with guidelines issued by the RBI. Currently, the deduction for provision towards bad and doubtful debts is limited to 7.5% of total income and 10% of rural advances for Indian banks (5% of total income for foreign banks). Also the said provisions should be extended to Non Banking Financial Companies (NBFC) registered with the Reserve bank of India.


Foreign Direct Investment in Insurance Sector


At present, Foreign Direct Investment (FDI) is restricted up to 26% in the Insurance sector under the automatic route subject to obtaining license from Insurance Regulatory and Development Authority. This FDI limit should be increased to 49%.


Indefinite Carry forward and set off of losses to Insurance companies


Currently, Companies are allowed to carry forward and set off loss for 8 years from the end of the relevant assessment year. However, the Insurance sector should be allowed to carry forward and set off the loss for an indefinite period, as envisaged in the Draft Direct Tax Code Bill.


Reduction in Corporate Tax Rate


The present effective corporate tax rate of 33.99% comprises of basic rate of 30%, surcharge of 10% on basic rate and cess of 3% on basic rate and surcharge (30%+3%+0.99%). It is expected that the surcharge and cess will be abolished this year for corporate sector reducing the effective corporate tax rate to 30%. This will be a step in the direction of moving to the target tax rate of 25% envisioned in the draft Direct Tax Code.


Disallowances under Section 14A


Section 14A read with Rule 8D deals with disallowances of expenditure incurred in relation to exempt income. As dividends from domestic companies are exempt from tax and banks have significant investments, it has resulted in genuine hardship to banks. The conversion of DDT in to a withholding tax will eliminate the disallowance under section 14A in respect of interest and other expenses incurred for investment in shares and units. 


Abolition of Security Transaction Tax


Security Transaction Tax should be abolished as envisaged in Direct Tax Code Bill.



The author Dr Suresh Surana is Founder, RSM Astute Consulting

 

Janta's Expectations

Posted By: Vishal Mumbai   |  Mar 08, 2010 09:22 PM
No Doubt we have benefited much from new IT slabs....but believe me its gonna being shelled out from our [pockets thru different route....
Posted By: KAUSHIK GUIN KOLKATA   |  Mar 03, 2010 01:20 PM
SENSEX WILL TOUCH 20000
Posted By: k.mohan secunderabad   |  Feb 27, 2010 06:03 PM
Banking cannot be open to private sector. We have not learned from U.S. melt down. In A.P.alone , many private banks closed..........Charminar Bank...The great Global Trust Bank....to name a few.......the middle class lost money......kindly understand.......many middle class people commited suicide after the banks collepsed.....i am afraid history may repeat....
Posted By: Nitin sharma Mumbai   |  Feb 27, 2010 05:30 PM
No expectation from Congress. It is history repeating itself. They have always worked in the interest of Rich and elite group. Now the price of property will increase in another 3 years business will make huge profits. So if you want to have your share invest in share market in companies who will make huge profits and you will get your share of dividend and high stock price.
Posted By: Ritesh chennai   |  Feb 26, 2010 10:44 AM
please increase exemption limit for income tax.
Posted By: Suman Baroda   |  Feb 26, 2010 09:51 AM
Reduce service tax to 5% & remove VAT.
Posted By: stileslesl stileslesl   |  Feb 26, 2010 07:42 AM
relatively policymakers heat northern simulations radiative levels
Posted By: Uma MageshWaran Chennai   |  Feb 26, 2010 05:56 AM
basically disagree with the fundamental premise that there should be accelerated withdrawal of the stimulus. Things are still very uncertain at the global level. So, I think the withdrawal should be gradual. The big problem really is the financing of the budget. The bond market, in fact, is very concerned about the liquidity situation. From what the RBI has said the net government borrowing this year will be the same as last year, and the gross borrowings because of the redemptions will be much larger this year. The market simply cannot take that amount (necessitated by the existing fiscal deficit) of bond issuance and we don’t have formats like open market operations. So the financing of the budget might sort of force the government to take certain decisions that perhaps are not necessarily the best for the economy. I would rather that they went in for a very gradual withdrawal of stimulus, and get the RBI to help in financing. I think this is a strategy that a lot of central banks are still committed to. Like in the US, where they had initially said that they would withdraw the monetization programme, they have kept the options open. Bank of England is doing the same thing. I don’t think we should fall into the trap of decoupling our policies from the G7 world and rebonding with a sort of emerged market strategy. Gud Luck to Finance Minister...
Posted By: Uma MageshWaran Chennai   |  Feb 26, 2010 05:53 AM
>VAT should be increase to gain more Tax Revenues, >Continuing Stimulus for Sectors like Textiles, exports etc, >Keen on Double Digit Inflation by Increasing key rates to control Money Supply, >The 5.5 per cent fiscal deficit will essentially be through disinvestment, >More & more Funds to Agricultural and Irrigation sectors, >No more income Tax changes, I>ncrease in Corporate Tax in Profitable Sectors to curb revenue Deficit,
Posted By: mehul surat   |  Feb 25, 2010 02:30 PM
budget must be people friendly the main focus should be on taxes as inflation is at life time high there must be some releif to common man and taxes should not be burden to the pocket of citizens. Long term capital gains should be abolished there must be some hope to the investors as they have seem some of the worst times in their lives.
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