Tax Hikes and Cuts for India

March 19, 2012 Taxation in India

Pranab Mukherjee Reveals New BudgetNEW DELHI – The plan for the government budget in India has been revealed, unveiling an increase in indirect taxes, a modest cut in the direct tax obligations for individuals, and a new time frame for the introduction of the country’s Direct Tax Code.

On March 16th the Finance Minister of India Pranab Mukherjee presented the latest budget plan of the Indian government, in which he outlined a series of small changes to various tax rates and also announced the coming implementation of the national Direct Tax Code. He described the latest budget as being “zero risk”, saying that the political situation in the country did not allow for the introduction of any extensive economic reforms and that after taking into account the cooling economic conditions in India, there was no room to bring in significant tax changes. The Minister added that he “…could have introduced measures that would have left everybody clapping, but the clapping would have been short-lived.”

In the budget presentation Pranab Mukherjee announced that India’s new Direct Tax Code would be implemented in the 2012 – 2013 fiscal year, but the new rules would only apply in the following year. The Direct Tax Code will introduce several significant changes to the country’s tax system, aimed at expanding the tax base, encouraging greater business development, removing outdated tax exemptions, and introducing new targeted tax breaks and credits for capital investment and startup companies.

The new budget contained several tax breaks for companies operating in the infrastructure development and construction sector.

The budget also raised the rate of excise duties and service tax from 10 percent to 12 percent. The increases will be offset by decreases to the tax obligations faced by low and middle income earners, with a rise to the threshold on personal income tax from INR 180 thousand to INR 200 thousand. The income level for the highest tax bracket will also be raised from INR 800 thousand to INR 1 million.

Photo by World Economic Forum

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