By FE Bureau
The finance ministry has started the exercise of making the full year Budget for 2014-15 even though it is for the next government to take a call on whether the policy directions would change.
An entrenched policy on taxation in recent years has been that of widening the tax base, phasing out profit-linked incentives and correcting inverted duty structures.
The ministry has sought inputs from the industry specifying that suggestions have to be in line with these broad policy objectives. Changes in both direct and indirect taxes will be considered to broaden the tax base and to simplify the tax structure. “As regards direct taxes, the government’s policy is to phase out profit linked deductions and minimize exemptions,” the ministry said in a note inviting suggestions on the budget.
While the new government that comes into power after the elections will not have enough time to take up the proposed Direct Tax Code (DTC) in the full budget for 2014-15, it could decide whether to continue with the 10% surcharge on personal income above Rs 1 crore introduced in Finance Act 2013-14. If retained, it would mean continuation of the higher tax liability for affluent tax payers without adopting the super rich tax proposals in the DTC. The 10% surcharge takes the total tax liability of those coming under the top 30% slab to 33%, very close to the fourth slab of 35% proposed in the revised DTC.
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The government has been gradually phasing out the profit-linked deductions in favour of introducing investment-linked deductions. The policy is expected to continue in the new government as well. Most of the profit-linked tax deductions for businesses such as oil and gas exploration, refining and power generation already have terminal dates in the existing Income Tax Act. The benefit of phasing out profit-linked deductions will come to exchequer only after 2016-17 as those who started businesses just before the terminal dates specified in the Act would get the benefit for the specified number of years. In indirect tax, the focus is likely to be to improve administrative efficiency and to enhance tax collection using IT tools.