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73 CHAPTER – II RATE STRUCTURE OF PERSONAL AND CORPORATE INCOME TAX IN INDIA 2.1 Introduction 2.2 Structure of Indian Tax System 2.3 Direct Taxes in India Since Independence 2.4 Classification of Taxes in India 2.5 Changes of Income Tax Structure in India 2.6 Income Tax Structure in India 2.7 Rate Structure of Personal Income tax in India 2.8 Trend of Revenue Foregone and Tax Expenditure in India 2.9 Rate Structure of Corporate Income Tax in India

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Page 1: CHAPTER – II RATE STRUCTURE OF PERSONAL AND … -ii.pdf · state revenue. In other words, multiple tax system is generally preferable to the other tax systems as single tax system,

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CHAPTER – II

RATE STRUCTURE OF PERSONAL AND CORPORATE

INCOME TAX IN INDIA

2.1 Introduction

2.2 Structure of Indian Tax System

2.3 Direct Taxes in India Since Independence

2.4 Classification of Taxes in India

2.5 Changes of Income Tax Structure in India

2.6 Income Tax Structure in India

2.7 Rate Structure of Personal Income tax in India

2.8 Trend of Revenue Foregone and Tax Expenditure in

India

2.9 Rate Structure of Corporate Income Tax in India

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CHAPTER – II

RATE STRUCTURE OF PERSONAL AND CORPORATE

INCOME TAX IN INDIA

2.1 Introduction:

Tax structure indicates the composition of taxes imposed by the

government of a every and each country. It also indicates the relative

importance of individual and corporate taxes imposed by the central

or federal government. Tax structure refers to the type and mix of

taxes levied by the government of a country (India) indicating the

relative importance of the constituents. The structure of individual

corporate income taxes and aggregate structure of all taxes do not

remain static in any dynamic society. It may be noted that over the

period of time tax structure of a country (India) changes in several

ways. It may be because of economic, political and social factors. The

tax structure of well developed country like the USA is different from

the tax structure of developing country like India. In other words tax

structure of all the countries in the world and the tax structure of same

country over the period of time will be not be the same (Rao, 1989).

This chapter describes the Rate structure of Personal and

corporate income Tax in India. This chapter we mentioned structure

of tax system in India, Types of tax rates, Classification of Tax,

Income Tax rates in India and comparison with other countries and

exemption limits of all categories.

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2.2 Structure of Indian Tax System :

India has a well developed tax structure with a three-tier federal

structure, comprising the union government, the state governments

and the Urban Rural Local Bodies. The power to levy taxes and duties

is distributed among the three-tiers of governments, in accordance

with the provisions of the Indian constitution (article 246) and seventh

schedules.

The main taxes /duties that the union government is empowered

to levy are income tax (personal and corporate income). Customs

duties, central Excise duty, sales tax and service tax. The principal

taxes levied by the state governments are sales (tax on intra state sale

of goods), stamp duty (duty on transfer of property), State Excise

(duty on manufacture of alcohol), Land Revenue (levy on ) agri/ or

non-agricultural purposes). Duty on Entertainment and Tax on

professions and Callings. The Local Bodies are empowered to levy

tax on properties (buildings, etc), octroi (tax on entry of goods) for use

consumption within areas of the local Bodies, tax on markets and tax

user charges for utilities like water supply, drainage etc.

(Kaushik,2012).

2.3 Direct Taxes in India Since Independence :

• Indian tax structure after independence: The period after

independence was quite challenging for the tax planners. An

enormous black economy set in both due to second world war and

increases in economic activity after Independence savings and

investment were encouraged through the different taxation laws

by the way of incentives . There was a requirement for generating

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huge amount of (Tax or Non-tax) to fund the economic growth of

the country. The tax department of the country. The tax

department took great care to plan the tax structure not only with

the aspect to widen the income tax base but also to look for

alternate taxes and to eliminate tax avoidance. The department

was harshly tested due to the high volumes of work.

Some of the prominent taxes that came into existence were:

• Business profits tax (1947)

• Capital Gains (1946-48 to 1956)

• Estate Duty (1953)

• Expenditure Tax (1957)

• Gift Tax (1958)

To check the growth of black money high denomination notes

were demonetized in 1946. In 1961 the income tax act was

remodified, replacing the outdated law of 1922 (Kaushik, 2012).

• Post - Liberalization Direct tax structure in India:

The wave of tax reforms that started across the world in the

second half of 1980's found its way into India. As part of its policy of

liberalization, India introduced tax reforms in the 1990's.The reforms

introduced in the Indian tax structure are various in comparison to

other countries. In India, The tax reforms took place independent of

interference from any external multilateral agency unlike some other

countries. But the tax reforms took place in such a way as to ensure its

obedience to the prevailing international trends.

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India has a well developed taxation structure. The post reforms

tax system in India is mainly a three tier system which is based

between the union, state governments and the local government

organizations.

2.4 Classification of Taxes in India:

The classifications have been made on different base and

naturally the results have also been different.

Different bases adopted by the economists to classify taxes are

the forms, nature aims and methods of taxation. Economists have

classified taxes from different angles thereby providing us a long list

of direct and indirect taxes. The various taxes or tax rates may be

classified under following major heads (Chand, 2008).

2.4.1 Direct Taxes Classification:

Direct taxes can be classified on the basis of the degree of

progression or distribution of their burdon on the tax payers.

According to this classification, taxes may be classified as

proportional, progressive, regressive and digressive.

i. Proportional Tax:

In the proportional tax system, all incomes are taxed at a single

uniform rate and it does not matter if the tax payer's income is high or

low. A proportional tax has the following characteristics:

a) It is fixed and its proportion does not change with the

change in tax-payer's income and wealth.

b) It is fixed in amount and it is never levied in varying

percentages.

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c) The tax does not alter the proportion of difference of income

after the payment of tax has been made.

ii. Progressive Tax :

A progressive tax is the tax which varies with the change in the

income of individual and the rate of tax becomes gradually higher for

the increasing incomes and lower for the lower incomes. According to

Taylor, "As taxable incomes rise under progressive taxation, the

effective rate of tax rises for marginal increments of income, subject

to higher tax rates". This means that the raise in tax liability is more

them proportional to the rise income. Accordingly, the amount of tax

paid will increase at higher rate than the increase in the tax base.

Personal income taxes in the USA are progressive and so,

people with higher income pay a higher percentage of their income in

taxes. On the other hand people with lower income, pay a smaller

percentage of their income in taxes.

Pros (merits) of the Progressive Tax System:

Progressive taxation has become popular in all the nations of

the world today. The reasons for it's popularity are the benefits which

accrue to the community for it the following are the important pros

(merits) of progressive taxation.

i) Progressive Taxation is based on the logic of ' 'ability to pay'

principle.

ii) The distribution of income and wealth in society can be

made more equitable under progressive taxation because

under it the richer persons or required to pay the tax at a

higher rate than the poorer persons.

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iii) Progressive tax can be advocated on the basis of social

justice.

iii) Regressive Tax:

Regressive tax is just the opposite of the progressive tax.

Regressive tax is a tax imposed in such a manner that the tax rate

decreases as the amount of taxable income increases. The higher

income group pays less in taxes than the lower income group.

Regressive taxes impose greater tax burden on the poor relative to the

rich. In case of regressive taxes there is an inverse relationship

between the tax rate and the tax payer's ability to pay. People with low

income and low ability to pay will pay higher taxes. Tabacco ad

gasoline taxes are highly regressive. If a person with 50 dollar income

pays 5 dollar in gasoline tax, it is 10% of his income in taxes.

iv) Digressive Tax:

This tax can be called mild progressive tax. In case of

digressive tax, the rate of progression does not increase in the same

proportion as the income. The rate of tax increases up to a certain

limit beyond which a uniform rate is charged. Thus, the digressive tax

is a blend of progressive and proportional taxation.

From the above analysis, we can conclude that a progressive

system of taxation is best system of any other system of taxation.

Most advanced countries of the world, nowadays, follow this system

of taxation. India is also gradually adopting progressive system of

taxation.

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2.4.2 Indirect Taxes Classification :

Indirect tax can be classified into four parts viz. specific tax.

Ad. volorem tax single tax, and multiple tax.

i. Specific Tax: When the tax is imposed on a commodity

according to its weight, size or measurement, it is called a

specific tax. A specific tax is when specific amount is imposed

upon a good, for example $ 10 on each mobile phone sold.

ii. Ad. Valorem Tax: When the tax is imposed on a commodity

according to its value, it is called Ad valorem tax. It is

expressed as a percentage of the selling price e.g. 12% of the

sales, this tax collected is more at higher prices then at lower

prices (Keen, 1998).

iii. Single Tax: A Single tax occurs in a system in which the taxes

are levied only on one subject, there is only one tax which

constitutes the source of public revenue. For example tax on

land.

iv. Multiple Tax: Multiple taxation implies that there should be

all types of taxes so that every citizen can contribute to the

state revenue. In other words, multiple tax system is generally

preferable to the other tax systems as single tax system, direct

taxes , indirect taxes etc. because modern economy is not one or

single objective economy. It has to go forward along with the

paths of growth, equitable distribution of income and wealth,

economic stabilization etc. Therefore, multiple tax system is the

most suitable form to get sufficient resources to meet the

requirements of the economy. Prof. Arthur supported the

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multiple tax system by saying that, '' If I were to define a good

tax system , it would be that of bearing lightly on infinite

number of points, heavily on none''.

v. Double Taxes : If a person pays taxes two times for the same

service, it is called as double taxes. Double taxes arise in the

following circumstances :

(i) Tax levied by to administrators. The situation of double

taxation arises when they are levied by two

administrators. For instance, if a person gets revenue in

foreign country, he has to pay tax on foreign country, as

well as in India on the same income. It is know as double

taxation.

(ii) By One Administrator . Double tax situation can arouse

when it is levied twice by the same administrator, e.g.a

tax on company income and on income of shareholders.

2.5 Changes of Income Tax Structures in India:

Since the year 1991, the Indian income tax system structure has

undergone some significant changes. These changes were made in

accordance with the country's world trade organization (WTO)

commitments as well as the liberal financial policies. Some of the

major changes in the structure of income taxation in India's are as

follows:

• Widening the tax base

• Lowering the tax rate on income

• Toning up the administration of taxation

• Reforms in the personal income tax structure in the form of

broadening the exemption limits

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• Reorganizing the different income tax slabs and simplify

overall tax procedure

So that people could be encouraged for compliance of tax laws

(Gupta, 2013).

1.9.1 Changing Structure of Personal Income tax

The bellow mentioned table provides information about the

different slabs for the imposition of income tax.

Sr. No. Total Personal Income Rate of Personal

Income tax

1 UP to INR 250000 0.00%

2. INR 2.50000 to INR 500000 10.00%

3. INR 500000 to INR 1000000 20.00%

4. Above INR 10, 00000 30.00%

Source: Union Budget documents.

2.5.2 Changing Structure of Corporate income Tax

The imposition of such a tax various form of a domestic

company to a organization. Given below are the rates of corporate tax

which is levied on different companies:

Corporate Tax in India

Type of company Total income more than INR 10

million

Domestic company 30% +5% surcharge

Foreign organization or company 40% +5% surcharge

Source : Union Budget documents.

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In case of domestic companies: corporate income tax is levied

at the rate of 30 percent with an additional 5 percent surcharge.

In case of foreign organization: Corporate tax is calculated at

the rate of 40 percent with a 5 percent surcharge. However, An Indian

registered organization that is a foreign companies' subsidiary is

considered to be a domestic company for the computation of corporate

taxes (http:// business. mapsofindia.ocm.)

2.10 Income Tax Structure in India :

Income tax is a central subject. Income tax can be categorized

into two main parts viz. (i) Personal Income Tax and ii) Corporate

Income tax. The bellow mentioned table or diagram shows structure

of personal and corporate income tax

Structure of Income Tax

Income Tax

Personal Income Tax (PIT) Corporate Income Tax (CIT)

i) Individuals i) Domestic company

ii) Hindu Undivided Family (HUF's )

ii) Foreign company

iii) Firms and Association of persons (Aop's)

iv) Body of Individuals (BoI's )

v) Artificial Juridical Persons

vi) A Local Authority

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2.6.1 Structure of Personal Income Tax :

The structure of personal income tax in India can be described

under the broad heading of (a) Individuals b) HUFs (c) Aops' d) BOI's

and last (e) Artificial juridical persons etc.

i) Individuals: An " Individual' means a natural person ie.a human

being. "Individual ' would include a male, female, minor child, and a

lunatic. In the case of a minor or lunatic in representative capacity

(under sec. 160 1).

An individual is taxed not only his total income but in certain

cases he may also be assessable on incomes of other persons

(under sec. 60 to 64). In order to compute taxable income of an

individual three types of incomes are aggregated.

i) Incomes earned by his individual capacity under different

heads e.g. income from salary, interest on securities, house

propriety, income from business or profession.

ii) Income by virtue of his membership in other institutions.

e.g. A member of HUF, registered and unregistered form,

AOA's and company.

iii) Income of other persons but included in his total income.

iii) Hindu Undivided Families (HUF):

A Hindu undivided family is assessed to income tax as a

distinct unit of assessment apart from the members who compose

it. Earlier it enjoyed concessional treatment in taxation but in

recent years the tax not has come very close to it. A Hindu

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undivided family is subject higher rates of taxation if it has at least

one member with taxable income of his own.

iv) Firms and Association of Persons (Aops ):

Income tax Act does not indicate what is a firm but sec. 2 (23)

provides that " firm", "partner" and "partnership" have the meanings

respectively assigned to them in the Indian partnership Act, 1932. Sec.

4 of this Act defines the term "Partnership" as the "relationship

between persons who have agreed to share the profit of a business

carried on by all. Persons who have entered in to partnership with one

another are called "partners" and collectively a "firm." Other hand an

AOP means a group of persons (whether individuals, HUF,

companies, firms etc.) who join together for common purposes. Every

combination of person cannot be termed as Aop. It is only when they

associate themselves in an income producing activity then they

become Aop.

v) Body of Individuals (BOI):

BOI means a group of individual only) who join together for

common purposes whether or not to earn income. In case of BOI,

only individuals can be the members and in case of Aop, such

common will may or may not be present.

vi) Artificial Judicial Persons:

An "artificial person" is a legal entity like a corporation,

partnership, trust, government sovereign, charitable organization or

other formally recognized entity allowed standing by courts to have

power to sue or be used in the same sense of an individual also called

judicial persons, or legal person.

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vii) A Local Authority :

A local authority an administrative body in local government or

the group of people responsible for the government of a particular

area town or city in the India.

2.6.2 Structure of Corporate Income Tax:

There are many types of companies in Indias but given below

discussion of Main two companies, one is domestic company and

second is foreign company.

i) Domestic Company :

A domestic company or any other company with respect to its

income, liable to tax under the income tax Act, has made the

prescribed arrangements for the declaration and payment within India,

of the dividends (including dividends on preference shares) payable

out of such income. Thus, all Indians company are treated as domestic

company but all Domestic company are not Indian company.

If a foreign company makes prescribed arrangements for

payment of dividends in India it shall be treated as domestic company

and on domestic companies corporate income tax is levied at the rate

of 30 in 2014-15 percent with an additional surcharges.

ii) Foreign Company (sec. 2 (23 A):

It means a company which is not a domestic company, i.e. a

company registered outside India in nay other foreign company. The

foreign company may be treated as domestic company if such

company makes prescribed arrangement in India as per rule 27.

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Foreign company is treated as resident in India. if its control

and management is located wholly in India. Foreign company is

treated as non-resident in India if its control and management located

wholly or partially outside India.

In case of foreign company or organizations, corporate income

tax is calculated at the rate of 40 percent with a 5 percent surcharge

(Ahuja & Gupta, 2015).

2.7. Rate Structure of Personal Income Tax in India:

Personal income tax is an usually the most discussed

component in Indian tax steam. In India every tax has an explicitly

defined tax base, In defining the tax base, the tax authorities have to

categorically state what is to be taxed and what is to be included and

excluded in the tax base. Besides, some elements of the tax base may

have to be permitted as deduction and some parts of the tax base may

have to be exempted from tax, once the tax base has been defined, the

tax rates are to be specified.

Tax base and tax rates both are principle components of

personal income tax system in India. If the base is broader than a

target amount of revenue may be raised by choosing a lower average

tax rate. There is also a close interaction between the tax base and the

tax rate schedule. A higher marginal tax rate usually has the effect of

reducing in individuals incentives to earn incomes for leisure would

then appear to be more attractive at the margin . A higher marginal tax

rate also increases the tendency on the part of individuals to evasion

conceal their income. So reduction of income tax rate is better for in

any countries (Nayak & Paul, 1989).

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The structure of personal income taxation in India can be

described under the broad headings (Gandhi 1970) of (i) Tax base

and Tax rates over the period of time (ii) the deductions, concession

and exemptions iii) Surcharges of Income tax (iv) the concept of the

taxable income and (v) Income tax slabs.

2.7.1 Personal Income Tax Rates Before 1991 :

Any "person" in India having a taxable income excess of the

exemption limit is required to fill in the tax return, the "person" is

defined to include individuals, HUFs, a company, a firm or an

association of persons, a local authority and artificial juridical person.

The rates of personal income tax in India as Table 2.01 shows,

are year wise or decided wise highest income tax rates with surcharge

during the period of 1950-51 to 1992-93.

Table No. 2.1

Personal Income Tax Rates in India during 1950-51 to 1992-93

Year / Decades Highest Income tax rates with

surcharge

1950-51 25.00%

1960-61 88.00%

1971-72 93.50%

1973-74 97.75%

1980-81 72.00%

1986-87 50.00%

1992-93 44.80%

Source: Department of revenue & report of task force on

Implementation of the FRBM Act, 2003.

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Figure No, 2.1

Personal Income Tax Rates in India during 1950-51 to 1992-93

The above table shows personal income tax rates in India

during the period of 1950-51 to 1992-93. Study shows that personal

income tax levels in India were very high during 1950-1980. In 1971-

72 there were 11 tax slabs with highest income tax rate being 93.50%

including surcharge. In 1973-74 highest income tax rate with

surcharge) was 97.75%. But to reduce tax evasion income tax rates

were reduced later on, by 1992-93 maximum income tax rates were

reduced to 40 per cent.

25.00%

88.00%93.50%

97.75%

72.00%

50.00%44.80%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

1950-51 1960-61 1971-72 1973-74 1980-81 1986-87 1992-93

Pe

rce

nta

ge

Year/ Decades

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Table No. 2.2

Minimum, Maximum Income for tax and income tax rates in

India during 1990-91 to 2014-15.

Financial

year

Minimum

Income

for Tax

(in.Rs)

Lowest

Tax

Rate or

(Entry

rate )

Income at

which

highest

tax rate

starts

(in.Rs)

Highest

tax rate

or (peak

rate)

Highest

tax

including

surcharge

1990-91 22000 20% 100000 50% 56.0%

1991-92 22000 20% 100000 50% 56.0% 1992-93 28000 20% 100000 40% 44.8% 1993-94 30000 20% 100000 40% 44.8%

1994-95 35000 20% 120000 40% 44.8% 1995-96 40000 20% 120000 40% 40.0% 1996-97 40000 20% 120000 40% 40.0 %

1997-98 40000 10% 150000 30% 30.0 % 1998-99 50000 10% 150000 30% 30.0 % 1999-00 50000 10% 150000 30% 34.5%

2000-01 50000 10% 150000 30% 30.6% 2001-02 50000 10% 150000 30% 31.5% 2002-03 50000 10% 150000 30% 33.0% 2003-04 50000 10% 150000 30% 33.6%

2004-05 50000 10% 150000 30% 33.6% 2005-06 50000 10% 150000 30% 33.6% 2006-07 50000 10% 150000 30% 33.6%

2007-08 110000 10% 250000 30% 33.9% 2008-09 110000 10% 250000 30% 33.9% 2009-10 160000 10% 500000 30% 33.9%

2010-11 160000 10% 500000 30% 30.9% 2011-12 160000 10% 800000 30% 30.9% 2012-13 200000 10% 1000000 30% 30.9%

2013-14 200000 10% 1000000 30% 33.99% 2014-15 250000 10% 1000000 30% 33.99%

Source: Income Tax slabs History in India http: // apnaplan.com.

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Figure No. 2.2

Lowest, Highest and Highest Tax Including surcharges Rates in India 1990-91 to 2014-15

0

10

20

30

40

50

60

Pe

rce

nta

ge

Lowest Tax Rate or (Entry rate ) Highest tax rate or (peak rate) Highest tax including surcharge

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The Table No. 2.02 Shows the composition of minimum

income for tax, income at which highest tax rate starts, lowest tax

rates, highest income tax rate and highest income tax rates including

surcharge, during the year 1990-91 to 2014-15. In order to minimum

Income tax, the exemption limit for income tax has also increased 11

times from Rs. 22000 in F.Y. 1990-91 to Rs. 250000 in F. 2014-15.

Even the lowest from 20 percent to 10 percent and Highest income tax

rates also has gone down from 50 percent to 30 percent in same

period. Finally, in order to Highest Income tax rats including

surcharge has come down from 56 percent in F.Y. 1990-91 to 33.99

percent in FY 2014-15.

2.7.2 Exemption Limits in India:

Tax exemptions is the most important component in the Indian

personal Income tax rate structure system. The basic exemption limit,

also called the threshold limit, refers to the limit of total taxable

income up to which an individual or other taxable entities would not

have to pay any tax.

The payment of tax begins only after the taxable income crosses

this limit. There is a theoretical rationale for prescribing a minimum

exemption limit. It is not administratively feasible to assess small

income earners because in their cases the cost of collection is likely to

be much higher than the revenue yield. As a result tax revenue might

fall. Further, the marginal utility as income for smaller income groups

is much higher than the marginal utility of income for higher income

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groups. Therefore, small income earners need to left out of the tax net.

However, the exact cut off or exemption limit need to be decided on

the basis of the governments prescription of the minimum income

required to support family the economic scenario prevailing in the

country, administrative cost of collection and the compliance burden

of the smallest taxpayers.

• History of Exemption Limits in India Before 1991.

The attempt of the Indian Government has always been to keep

the incidence of tax at a relatively low level for small income group

people. Hence, provision of exemption limit has been made. The

exemption limit was Rs. 2000 for the assessment years 1939-40 to

1946-47 except for the years 1942-43 and 1943-44 when it was

reduced to Rs. 1500 to raise more revenue for the war. For the

assessment year 1949-50, special status of the HUF was recognized

and its exemption limit was placed at Rs. 5000. The exemption limit

was increased to Rs.6000 by the Finance Act, 1974, to Rs. 8000 by

the Finance Act, 1975, to Rs. 10000 by the Finance Act, 1980 to Rs.

15000 by the finance Act, 1981 and Rs. 18000 by the finance Act,

1985. During the financial year 1990-91 (assessment year 1991-92).

The exemption limit was prescribed at Rs. 22000 by the finance Act,

1990 (Jain and Jain, 2007).

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• Budget wise exemptions / Concessions for Men, women and

senior citizen since 2005-06.

Table No. 2.3

Budget-wise Income Exempted for Men, Women and Senior

Citizen.

Financial

year

Income

Exempted for

men

( In Rupees)

Weather any

concession

for women

(In Rupees )

Weather any

concession

for senior

citizen

( In Rupees)

2005-06 100000 135000 185000

2006-07 100000 135000 185000

2007-08 110000 145000 195000

2008-09 150000 180000 225000

2009-10 160000 190000 240000

2010-11 160000 190000 240000

2011-12 180000 190000 250000

2012-13 200000 200000 250000

2013-14 200000 200000 250000

2014-15 200000 200000 250000

2015-16 250000 250000 300000

Source : Indiabudget.nic. in and union Budget documents for various

(2005-06 to 2015-16)

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Budget-wise inc

Table. No.2

limit for Men, wo

appears from 2005

citizens are taken

income. Since bud

0

50000

100000

150000

200000

250000

300000

Inco

me

in

Rs

Me

95

Figure No. 2.3

income Exempted for Men, Women, seni

2005-06

2.3 shows the position of Budget-wise

women and senior citizens. In India gende

05-06 budget and from this budget women

ken in to account for exemption limit

udget, 2005-06 the exemption limit for m

Fincial Year

Men Women Senior Citizen

nior citizen

ise exemption

der budgeting

en and senior

t in personal

men, women

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96

and senior citizens were increased Rs. 100000 Rs. 135000 and 185000

from the year 2005-06 to Rs. 250000, 250000 and Rs. 300000

sequently to the assesment year 2015-16. Finally, above the analysis

shows that limit of exemption for men, women and senior citizen has

been shown upward trend from union budgets for 2005-06 to 2015-16.

2.7.3 Income Tax Slab Rates:

Bellow we have discussed the income tax slab rates for 1990-91

to 2015-16. The Income tax slab rates are different for different

categories at taxpayers. The income tax slab rates can be divided in

the following categories:

a) Individuals and HUF

1. For male individuals below 60 years of age and HUF

2. For female individuals below 60 years of age.

3. For all super senior citizen above 80 years of age.

B. Business:

1. Firms, Local Authorities and Domestic Company

2. Foreign / International Company.

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97

Table No. 2.4

Income tax slab / Rates for men F.Y. 1990-91 to 2015-16

Financial

year

20% slab

applicable

for income

above (Rs.)

30% slab

applicable for

income above

(Rs.)

40% slab

applicable

income

above (Rs.)

56% slab

applicable

income

above (Rs.)

No of

slabs'

1990-91 22000 28000 50000 100000 4

1991-92 22000 28000 50000 100000 4

1992-93 28000 50000 100000 - 3

1993-94 30000 50000 100000 - 3

1994-95 35000 60000 120000 - 3

1995-96 40000 60000 120000 - 3

1996-97 40000 60000 120000 - 3

Year 10%slab

applicable

for Income

above

20% slab

applicable for

income above

30% slab

applicable

for income

above

- -

1997-98 to 2004-05

50000 60000 150000 - 3

2005-06 100000 150000 250000 - 3

2006-07 100000 150000 250000 - 3

2007-08 110000 150000 250000 - 3

2008-09 150000 300000 500000 - 3

2009-10 160000 300000 500000 - 3

2010-11 160000 500000 800000 - 3

2011-12 180000 500000 800000 - 3

2012-13 200000 500000 1000000 - 3

2013-14 200000 500000 1000000 - 3

2014-15 250000 500000 1000000 - 3

2015-16 250000 500000 1000000 - 3

Source: www.http:// charteredclub.nic.in 2. Union Budget documents for various years. Note: From 2012-13, women were also a part of the general slab. rates.

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98

Table no. 2.4 shows the position of income tax brackets and

slab rates for men during the period of 1990-91 to 2015-16.

In India, during 1990-91 to 1991-92, the four slabs rates are

available or exist. The entry rate was 20 Percent and peak rate was 56

percent. Number of slab rates reduced from 4 to three in the year

1992-93. This slab tax rates were sequentially, 20 Percent, 30 Percent,

40 Percent. These tax rates were continuing till up to the budget year

1996-97. From 1997-98 to 2015-16 there were some changes in

associate tax brackets but tax slab rates remained stable. (10 Percent)

(20 Percent, 30 Percent).

In order to men the limit for 20% slab applicable for income

above, 30%, 40% slab applicable for income above has been increased

from Rs. 22000 Rs. 28000 and Rs. 50000 in 1990-91 to Rs. 40000 Rs.

60000 and Rs. 120000 sequentially in 1996-97. Then after 1996-97

slab rate has reduced from 20, 30, 40, to 10, 20, 30%. The limit for

10%, 20%, 30%, slab applicable for income above has been increased

from Rs. 50000, Rs. 60000 and Rs. 150000 in 1997-98 to Rs. 250000,

Rs. 500000 and Rs. 1000000 sequentially from the financial year

2015-16..

With the help of above analysis we can conclude that the limit

for all income tax slabs rates (10, 20, 30%) slab applicable for income

above for men has shown upward/increased trend during the study

period.

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99

Table No. 2.5

Income Tax Brackets and Slab rates for Women since F.Y. 2005-06

Financial

year

10% slab

applicable for

income above

20% slab

applicable for

Income above

30% slab

applicable fro

income above

2005-06 125000 1,50,000 2,50,000

2006-07 135000 1,50,000 2,50,000

2007-08 145000 1,50,000 2,50,000

2008-09 180000 3,00,000 5,00,000

2009-10 190000 3,00,000 5,00,000

2010-11 190000 5,00,000 8,00,000

2011-12 190000 5,00,000 8,00,000

2012-13 200000 5,00,000 10,00,000

2013-14 200000 5,00,000 10,00,000

2014-15 250000 5,00,000 10,00,000

2015-16 2,50,000 5,00,000 10,00,000

Source: www.http:// indiaincometax.gov.in

Note: From 2012-13 onwards, the same slab rates will apply for Men

and women.

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100

Figure No. 2.4

Income Tax Brackets and Slab rates for Women since

F.Y. 2005-06

Table No. 2.5 explains income tax slabs brackets rates for

women since the financial year 2005-06. In order to women the limit

for 10%, 20% and 30% slab applicable for income above was

increased from Rs. 125000, Rs. 150000 and 250000 for the financial

yeas 2005-06 to Rs. 250000 , Rs. 5 lakh and 10 lakh from the sequent

financial years 2015-16.

Finally conclude that the limit for all income tax slab rates

applicable for income above for women also upward trend during

study period.

0

200000

400000

600000

800000

1000000

1200000

Inco

me

In

Rs.

Finacial year

10% slab applicable for income above 20% slab applicable for Income above

30% slab applicable fro income above

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101

Table No. 2.6

Income tax slab rates for senior citizens since F.Y. 2005-06

(bellow 80 years)

Financial

year

10% slab

applicable for

income above

20% slab

applicable for

Income above

30% slab

applicable fro

income above

2005-06 1,85,000 3,00,000 5,00,000

2006-07 1,85,000 3,00,000 5,00,000

2007-08 1,95,000 3,00,000 5,00,000

2008-09 2,25,000 3,00,000 5,00,000

2009-10 2,40,000 3,00,000 5,00,000

2010-11 2,40,000 5,00,000 8,00,000

2011-12 2,50,000 5,00,000 8,00,000

2012-13 2,50,000 5,00,000 10,00,000

2013-14 2,50,000 5,00,000 10,00,000

2014-15 3,00,000 5,00,000 10,00,000

2015-16 3,00,000 5,00,000 10,00,000

Source: Union budgets for various years

Note : From 2011-12, the age of senior citizen was reduced

from 65 years to 60 years.

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102

Figure No. 2.5

Income tax slab rates for senior citizens since F.Y. 2005-06

(bellow 80 years)

Table no. 2.6 shows the income tax slab rates for senior citizens

since F.Y. 2005-06. In order to senior citizens, the income tax limit

for 10%, 20% and 30% slab applicable for income above was

increased from Rs. 185000, Rs. 3 lakh and Rs. 5 lakh for the financial

year 2005-06. to Rs. 3 lakh, Rs. 5 lakh and Rs. 10 lakh from the

financial years sequentlly 2015-16.

With the help of above analysis for income tax slab rates for

senior citizens also all slabs (10%, 20%, 30%) applicable for income

above has shown upward trend during 2005-06 to 2015-16.

0

200000

400000

600000

800000

1000000

1200000

Inco

me

in R

s.

Fincial year

10% slab applicable for income above 20% slab applicable for Income above

30% slab applicable fro income above

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Income Tax Sla

Financial

year a

i

2011-12

2012-13

2013-14

2014-15

2015-16

Source: http:// c

Note : Above th

Income Ta

0

200000

400000

600000

800000

1000000

2011

10% slab applicab

30% slab applicab

103

Table No. 2.7

lab Rates for super senior citizens since F

12 (80 + age)

10% slab

applicable for

income above

20% slab

applicable for

Income above

30%

applic

incom

5,00,000 5,00,000 8,00

5,00,000 5,00,000 10,0

5,00,000 5,00,000 10,0

5,00,000 5,00,000 10,0

5,00,000 5,00,000 10,0

// charteredclub.nic.in and Unions Budgets.

this slab has been introduced from 2011-1

Figure No.2.6

Tax Slab Rates for super senior citizens s

F.Y. 2011-12 (80 + age)

011-12 2012-13 2013-14 2014-15 2015-16

licable for income above 20% slab applicable for Incom

licable fro income above

e F.Y. 2011-

0% slab

licable fro

me above

,00,000

,00,000

,00,000

,00,000

,00,000

ts.

12.

s since

16

come above

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104

The above No. 2.07 shows income tax slab rates for super

senior citizens (80 + age) since financial years 2011-12. In order to

super senior citizens , in the year 2011-12, a new category called

''very senior citizen" has been added for people above 80 years. Now

we have two types of senior citizens " Senior citizen" up to 60 years

of age and ''very senior citizens in the age of 80 years or above. The

threshold limit of income exempted from tax for newly created

category of assesses in Rs. 500000 thereafter they have to pay tax

according to prevailing tax rates. The income limit for 20% and 30%

slab applicable for income above, was increased from Rs. 5 lakh and 8

lakh for the F.Y. 2011-12 to Rs. 5 lakh and 10 lakh from the F.Y.

sequent 2015-16.

2.7.4 Surcharge on Income Tax :

It is pertinent to note that surcharge is levied on the total

income tax of the individual and not on the income of the individual.

The Finance Act 2013 introduced the levy of surcharge on Income tax

@ 10% on all categories of taxpayers earning income above Rs. 1

crore. Earlier this was levied only on companies but now surcharges

on income tax is levied on everyone who has income above Rs. 1

crore.

However, the rats of surcharge on Income very for different

categories of taxpayers and the current rates of surcharge are as

follows:

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105

Category of Taxpayer Surcharge on Income tax

Individual HUF, P..Firm, LLi etc.

10%

Domestic Company 5%

Foreign company 2%

The rate of surcharge on Income tax on Demostic and foreign

companies is less as compared to surcharge on Individuals as

domestic and foreign companies are already being charged a higher

rate of income tax as compared to individuals.

Once the income tax has been computed, surcharge would be

levied on the income tax.

The following flowchart has been prepared for understanding of the

applicability of surcharge.

Surcharge on Income Tax

Income is less 1 crore Income is more than 1 crore

Surcharge not applicable Surcharge applicable

Commute the income tax payable

levy surcharge @ 10% on the Income tax payable

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106

Table No. 2.8

Year -Wise Rate of Surcharge & Income at which Surcharge is

levied.

Year Income at which

surcharge is levied (In.

Rs)

Rate of

surcharge (%)

1990-91 50000 8

1991-92 75000 12

1992-93 75000 12

1993-94 100000 12

1994-95 100000 12

1995-96 Nil Nil

1996-97 Nil Nil

1997-98 Nil Nil

1998-99 Nil Nil

1999-00 60000 Nil

2000-01 60000 10

2001-02 60,000 02

2002-03 60,000 5

2003-04 60,000 10

2004-05 8,50,000 10

2005-06 8,50,000 10

2006-07 1,00,00,000 10

2007-08 1,00,00,000 10

2008-09 1,00,00,000 10

2009-10 1,00,00,000 10

2010-11 Nil Nil

2011-12 Nil Nil

2012-13 Nil Nil

2013-14 1,00,00,000 10

2014-15 1,00,00,000 10

2015-16 1,00,00,000 10

Source: http://indiabudget.nic.in

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107

Table No. 2.8 explains year wise position of rate of surcharge

and income at which surcharge as levied since 1991. The income at

which surcharge is levied (in Rs) was largely increased from Rs.

50,000 in 1990-91 to from Rs. 10000000 in the year 2015-16. The rate

of surcharge was 8% in 1990-91 to increased 10% in 2015-16.

Finally above the analysis, we conclude that the income at

which surcharge as levied for personal income has shown increased

trend during the study period. but rate of surcharge has shown

fluctuated trend since 1991.

2.8 Trends of Revenue Foregone or Tax expenditure in India.

Terms of tax Expenditure :

Tax expenditure become part of the lexicon of the economist

toward the end of the 1960s. These expenditures or more correctly,

non expendetures are made when a government does not collect tone

monies because ahouse hold or firm has taken deduction or credit for

an expenditure they have made, thus reduce there income tax liability.

Rather than directly subsidize certain non profit organization via

transfer payments a government permits citizen to make contributions

that are tax deductible. The Government in effect participates in the

contribution by not raising revenue, thus reducing the out of pocket

expense of the contribution to the donor. Income tax deduction could

be eliminated; with an Unchanged schedule of tax rates a government

would then have greater receipts that could be utilized to make direct

expenditures (Davie and Duncombe, 1972).

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108

2.8.1 Revenue Foregone Due to Exemptions in the Central Tax

System in India

In the Indian Context, there could be a number of reasons for

exemptions to be given in different kinds of taxes, such as,

• encouraging individual savings (by providing tax reliefs to

various savings schemes),

• Providing a boost to exports,

• achieving balanced regional development,

• encouraging infrastructure development

• increasing employment , and

• providing more resources for education, rural development and

cooperatives etc.

However, as stated earlier, a periodic review of such

exemptions by the government would be necessary to eliminate

excessive exemptions/ incentives of superfluous tax breaks to

investors for preventing the loss of public revenue.

2.8.2 Estimates of Revenue Foregone due to Exemptions in the

Central Tax System:

Starting with the Union Budget for 2006-07, the Union

Government of India has been publishing a Statement of Revenue

foregone under the Central Tax System as part of the Union Budget

documents every year. This document presents a discussion on the

exemption in major taxes levied by the Union government or the

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109

Centre and an estimation of the potential tax revenue lost or foregone

due to the same.

In this statement, the various kinds of exemptions in the Central

tax system are categorized under the following broad heads:

Direct Taxes: Corporate Sector, Non Corporate sector, and

individual Taxpayers; and

Indirect Taxes : Excise Duties, and Customs Duties.

Table 2.09 presents tax category wise estimates of revenue

foregone due to the exemptions in the Central tax system, i.e.

estimated amounts of revenue foregone due to exemptions for

corporate section corporate income Tax CIT, exemptions for

individual taxpayers in Personal Income Tax PIT, and due to

exemptions in indirect taxes Customs Duty and Excise Duty and

Excise Duty). These estimates, provided by the Union Finance

Ministry, are for 2005-06 to 2012-13.

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110

Table 2.9

Revenue Foregone due to Exemptions in the Central Government

Tax System

Items Corporate

Income

tax

Personal

income

Tax

Excise

Duty

Customs

Duty

Total Less

Export

credit

related

Grand

total =

total

Export

Credit

related)

Revenue Foregone in 2005-06 (In Rs. Core)

34618 (0.9)

13550 (0.4)

66760 (1.8)

127730 (3.5)

242658 (6.6)

37590 (1.0)

205068 (5.6)

Revenue Foregone in 2006-07 (in Rs. Core)

50075 (1.2)

15512 (0.4)

99690 (2.3)

123682 (2.9)

288959 (6.7)

53768 (1.3)

235191 (5.5)

Revenue Foregone in 2007-08 (in Rs. Core)

62199 (1.2)

38057 (0.8)

87468 (1.8)

153593 (3.1)

341317 (6.8)

56265 (1.1)

285052 (5.7)

Revenue Foregone in 2008-09 (in Rs. Core)

66901 (1.2)

37570 (0.7)

128293 (2.3)

225752 (4.0)

458516 (8.2)

44417 (0.8)

414099 (7.4)

Revenue Foregone in 2009-10 (in Rs. Core)

72881 (1.1)

45142 (0.7)

169121 (2.6)

195288 (3.0)

482432 (7.4)

N.A. (N.A)

482432 (7.4)

Revenue Foregone in 2010-11 (in Rs. Core)

57912 (0.8)

36826 (0.5)

192227 (2.5)

172740 (2.3)

459705 (6.0)

N.A. (N.A)

459705 (6.0)

Revenue Foregone in 2011-12 (in Rs. Core)

61765 (0.7)

39375 (0.4)

195590 (2.2)

236852 (2.6)

533583 (5.9)

- (-)

533583 (5.9)

Projected Revenue

Foregone in 2012-13

(In Rs. Core)

67995.0 (0.7)

45480.12 (0.5)

206188.0 (2.1)

253967.0 (2.5)

573630.1 (5.7)

- (-)

573630 (5.7)

Source: Compiled by author from statement of revenue foregone, Union budget

2006-07 to 2013-14, Ministry of Finance, Govt. of India.

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111

Note:

1. 2005-06 figures are provisional and 2006-07 figures are estimates in

brackets are indicates revenue foregone as % of GDP.

2. For 2005-06 and 2006-07, Cooperative Sector exemptions figures are also

available, which is however not available for the later years.

3. The ratios to GDP at current market prices are based on the central statistics

office's national Accounts 2004-05 series

The Estimates of revenue foregone due to exemptions in the

Central tax system have caught the attention of many stakeholders

over the last few years mainly because of the very high magnitudes of

tax revenue involved in the same. As can be seen from table 1, the

total estimated amount of revenue foregone due to all kinds of

exemptions to all sectors. i.e. individuals, organizations and

enterprises) stood at Rs. 2.05 lakh crore or 5.6% of GDP for the

financial year 2005-06, which by the financial year 2012-13 has risen

in absolute terms to Rs.5.73 lakh crore or 5.7% of GDP.

As a result, many people have focused on the key finding in the

statement of revenue foregone, which is that the total magnitude of tax

revenue foregone due to exemptions deductions incentives in the

Central government tax system is estimated by the Union Ministry of

finance to be Rs. 5.33 Lakh crore in 2011-12 and Rs. 5.73 lakh crore

in 2012.13. What it implies is that the estimated amount of additional

tax revenue that could have been collected by the Union Government,

if all exemptions deductions incentives both in direct and indirect

taxes in the central tax system had been eliminated, is a staggering

5.9% of GDP for 2011-12 and 5.7% of GDP for 2012-13.

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112

Figure No. 2.7 A

Revenue foregone of central Taxes in India

Figure 2.6 A shows the tax category wise revenue foregone

figures as proportions of total revenue foregone due to exemptions in

the central tax system in the financial year 2011-12

Figure 2.6 A Revenue foregone in corporate income tax,

personal income tax, Excise duty and customs duty as % of total

revenue foregone in financial year 2011-12 .

Excise Duty, 37%

Customs Duty

, 44%

Personal Income

, 7%

Corporate

Income Tax

, 12%

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113

Figure No. 2.7 B

Figure 2.6 B shows the tax category-wise projected revenue foregone

figures as proportions of total revenue foregone due to exemptions in

the central tax system in the financial year 2012-13

Figure 2 .6 B Projected revenue foregone (in corporate income Tax,

personal income tax, Excise duty and customs Duty ) as % of Total

revenue foregone in financial year 2012.13)

We find that the proportion of tax revenue foregone is the

highest at 44% of (total revenue foregone) in case of exemptions in

customs duties, followed by an almost equally high proportion of

revenue foregone around 37 % in case of exemptions in Excise

Duties, Exemptions in Corporate income tax have accounted for a

much smaller 12% of the total revenue foregone, while that in

Excise Duty, 37%

Customs Duty

, 44%

Personal Income

, 8%

Corporate

Income Tax

, 12%

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114

personal income Tax have accounted for 8% of the total revenue

foregone in the figures pertaining to financial year 2012-13.

According to, Report of FFC (Fourteenth Finance Commission)

Revenue foregone of CIT and PIT has increasing trend from 2005-06

onwards (Report of FFC-XIV, 2013).

However, given that the total magnitude of revenue foregone

for 2012-13 is stunning 5.7 % of GDP, even 12% of this (i.e. revenue

foregone on account of exemptions in corporate income tax is 0.7%

of GDP of approximately Rs.. 68000 crore in absolute terms. This is a

figure too high to ignore when we have to explore the possibilities for

the government to increase tax revenue (Bandyopadhyay, 2013).

2.9 Rate Structure of Corporate Income Tax in India:

Corporation tax in India is levied on the" total corporate

income" profit excluding agricultural income, of a company

(Suresh&khan, 2011). In the case of resident companies", total

income", is the" total world income" while in the case of non-resident

companies it is the "total Indian income". The rates of taxation of

corporate income in India are determined by the annual finance Acts.

If the growth of the rate structure of the taxes affecting corporations

is examined, it will become abundantly clear that the evaluation has

proceeded from a comparatively simple to an increasingly complex

scheme of taxation with more and more proliferating qualifications

and exceptions.

Taking into consideration the history of the corporate income

tax rates falling on companies we can divide the period into five

distinct sectors. (i) Pre 1939 (ii) War-time (1939-45) (iii) Pre

Independence (1945-47) (iv) Pre-plan (1947-51) v) After 1951 (plans

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115

I and II). Before 1939 we find that the income tax rates were stable at

a comparatively low level. The basic corporate income tax rate of 30

pies in rupee was adhered to till 1946 (Ambirajan,1964). Before

1991, the corporate tax structure was complicated involving difficult

tax laws, high marginal rate and high compliance costs. There was

huge tax evasion and this led to low tax collection in the country.

Economic growth was low and there was no private incentive for

investment. The tax rates were exorbitantly high. The high tax rates

reduced productivity. A need was felt to restructure the tax system and

to reduce and rationalize the top marginal rates of corporate income

tax.

* Rate structure of the corporate income tax in India since 1991

Since 1990s with opening up of the economy to the world,

there has been a drastic change in the rate structure of corporate

income tax in India.

Table No. 2.10

Income tax rates for domestic and foreign companies during

1990 to 2015

Year Domestic

company

Foreign

company

1990-91 to 1997-98 40% 55%

1998-99 to 2002-03 35% 48%

2003-04 to 2005-06 35% 40%

2006-07 to 2010-11 30% 40%

2011-12 to 2015-16 30% 40%

Source : Union Budgets of various years (1990-91 to 2015-16)

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Income tax ra

Table no.2

progressively redu

percent and 40 pe

corporate tax dom

company was 55

companies 30 per

period.

0%

10%

20%

30%

40%

50%

60%

1990-91 t

1997-98

Pe

rce

nta

ge

Dom

116

Figure No. 2.8

rates for domestic and foreign companie

1990 to 2015

2.10 shows that corporate income tax

duced on both domestic and foreign comp

percent respectively In the year 1990-91,

omestic company was 40% and the rate

55 percent. It reduced to both domestic

percent and 40 percent respectively durin

91 to

98

1998-99 to

2002-03

2003-04 to

2005-06

2006-07 to

2010-11

2011-

2015

Year

Domestic company Foreign company

ies during

tax rate was

mpanies to 30

1, the rate of

te of foreign

c and foreign

ing the study

-12 to

015-16

pany

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117

2.9.1 Current Important Corporate Tax Rates in India:

Following are some other important taxes for the 2015-16 that

are applicable for the business entities in addition to the corporate

taxes:

i. Minimum Alternate Tax (MAT):

MAT was introduced for the first time 1997-98 in India for

Zero tax companies and low tax paying companies. Companies are

liable to pay MAT on their adjusted book profits (other than income

from life insurance business) where the tax liability under the normal

provisions of the income tax Act, 1961 for the tax year is not more

than 18.5% excluding surcharge, cess and SHEC of such book profit.

MAT at a rate of 18.5% along with applicable for the cess and

surcharge. Fringe benefits are liable to be taxed at 30 percent along

with an additional cess of 3% on the aggregate tax amount. companies

whose turnover exceeds 10 million rupees, need to pay an extra.

Surcharge of 10% on their basic tax.

ii. Dividend Distribution Tax:

A dividend distribution tax of 16.22 percent is applicable for

the domestic companies. In case of short term capital gains, the

normal basic tax rates are applied but in case of the long terms ones,

the tax rate varies between 10 and 20 percent. short term profits,

which are made from selling equity shares or units of equity based

funds, can be taxed at 15 percent. However long term profits in these

transitions are exempted from taxes.

Dividends received by Indian companies from outside India, are

subjected to a tax rate of 30 percent along with cess and surcharge. A

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118

gross tax rate of 15 percent has also been proposed in case an Indian

company has got dividends from an overseas company. It is expected

this will encourage Indian companies to repatriate their money (Union

Budgets of 2015-16).

2.9.2 Surcharge on Corporate Income Tax:

The union government had been given the right to lvey

surcharges on the taxes on corporate income by the government of

India Act of 1935 (Sec.138).

The whole surcharge revenue was to accrue only to the centre

(Union). whereas the income tax revenue was to be shared by the

centre and the states in a certain proportion .

Surcharge on corporate Assessee: (For A.Y. 1990-91)

In 1990-91, the rate of surcharge was 15 percent. It was levied

on the domestic companies having income of more than Rs. 75000.

In case of foreign companies, there was no surcharge at that

time.

Surcharge on corporate Assessee:(For A.Y. 2015-16)

Particulars Taxable income >1

crore

Taxable Income >

10 crore

Domestic company 5% of income tax payable

10% of income tax payable

Foreign company 2% of income tax payable

5% of income tax payable

Source : http: //www.incometaxindia.gov.in/pages/default.aspx.

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119

In case of Domestic Companies: Surcharge is applied in the

Following cases:

• If the company has a total income less than Rs. 1 crore. then it

does not have to pay any income tax.

• If the net income of the company for that year is in the range of

Rs.10 crores then 5% surcharge is applied on its net income.

• If the net income of the company for that year exceeds Rs.10

crores then 10% surcharge is applied on its net income.

In case of Foreign companies:

• If the net income of the company for that year is in the range of

Rs. 10 crore then 2% surcharge is applied on its net income.

• If the net income for a foreign company exceeds Rs.10 crores

then the surcharge that it will have to pay will be 5 percent.

2.9.3 View of the 14th

Finance commission on cesses &

surcharge's :

Cesses and Surcharges :

Another tax related issue pertains to the levy of cesses and

surcharges on taxes by the Union Government. Article 270 of the

constitution enable the Union Government to levy and retain any cess

levied for a specific purpose. Article 271 empowers parliament to levy

a surcharge on any taxes which fall within the Union Governments'

taxing powers. The total cess and surcharges constituted over 12.4

percent of gross tax revenues in 2012-13 actual. These are excluded

from the divisible pool. Cesses are meant to be fully utilized for the

purposes for which they are levied. The comptroller and Auditor

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120

General (CAG) has drawn our attention to the lack of transparency

and incomplete reporting in accounts on the utilization of amounts

collected under cesses. Similarly, surcharge are meant to be lived only

for short periods. A majority of the State Governments are of the view

that cesses and surcharges should either be eliminated or, if continued

beyond a specified period. Should form part of the divisible pool (FC-

XIV 2013).

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121

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