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Surcharge on corporate, personal I-T likely to go
January, 15th 2007

Union Budget 2007 may turn out to be good news for individual tax payers as well as corporates. With its tax kitty swelling, the government is likely to concede the long-standing demand of industry to axe the 10% surcharge on corporate and personal income tax.The government is seriously considering removal of surcharge in the forthcoming budget, sources said.

Dropping surcharge will soften tax rates marginally and reduce the burden on taxpayers. Prime Minister Manmohan Singh and finance minister P Chidambaram have both hinted at moderation in tax rates. Since the emphasis is on weeding out tax exemptions, sources said relief can be expected on the surcharge front.

Surcharge was introduced by the previous NDA regime for a period of one year. However, it was not discontinued and, in fact, enhanced to 10% from 7.5% by the UPA government. Surcharge is levied on the total income tax. In the case of individuals, it is applicable on income above Rs 10 lakh. For corporates, surcharge is levied on the total tax, resulting in an effective rate of 33%.

With buoyant tax collections, surcharge should ideally go in the forthcoming budget, says Vikas Vasal, director, KPMG.Direct tax collections witnessed a growth of over 40% in the first nine months of the current fiscal to Rs 1,44,286 crore and is all set to overshoot the 2006-07 Budget target of Rs 2,10,419 crore.

Industry bodies, including Ficci, CII and Assocham, have been batting for removal of surcharge. In its pre-budget memorandum to the FM, Ficci pointed out that the actual tax burden on corporates is as high as 40%. It said since the government is following the Asean model of tariffs, the corporate tax structure should also be brought down to the level of 25-30%.

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