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Personal income tax rates will not be changed in the near term even as peak corporate tax rate will be cut by 5% over a four year period beginning 2016-17, a top finance ministry official said.
Finance Minister Arun Jaitley had in his Budget for 2015-16 proposed last week to cut peak corporate tax rate from 30 to 25% in four years beginning next fiscal. He however left personal income tax rates unchanged even though some exemptions limits have been raised.
"Personal income tax at 30% is very much comparable to the international rates and you can not reduce 30% alone, without reducing 20% and 10% rate," Revenue Secretary Shaktikanta Das told PTI in an interview.
"The peak rate of 30% is very reasonable rate even in international standard. This we would like to continue over medium term," he added.
At present, the peak rate of 30% applies on annual income of individuals above Rs 10 lakhs; 20% on income between Rs 5 lakh and Rs 10 lakh; and 10% on income less than Rs 5 lakh.
On whether the government intends to keep these rates unchanged over the next 3-4 years, he said: "Yes that is the intent."
Asked why the government chose to announce cut in corporate tax rates, Das said: "In order to attract investment our corporate tax rate should be competitive to Asean countries (Association of South East Asian Nations)."
He added: "On the taxation side, it was found that our corporate tax rates were higher than the rates which were prevalent in major Asean countries. Our rates have to be competitive.
"Therefore Finance Minister had announced that over a period of 5 years we will reduce corporate tax from 30% to 25% and in doing so, exemptions will also be eliminated in the phased manner."
The reduction will happen "evenly" every year beginning 2016-17, Das said, adding that the exact rates and other details will be announced in the next Budget.
Rejecting criticism of the proposed move, Das said the benefit is being extended to companies and not to individuals promoters or shareholders.
A company, he said, is a separate entity and is expected to either invest the money it will save from lower tax rate in expansion or modernisation programme, which will fuel economy and create jobs, or keep it in a bank deposit, which will again lead to increase in lendable surplus with banks.
In case, companies decide to pay their management hefty pays, the economy will benefit by way of income tax including 'super-rich' tax, he said.
"Now the expectation is that leaving more money in the hands of the corporates should enable them to invest more in the business, invest more in expansion, modernisation, to invest more which in turn will create more number of jobs and which would add to the economic growth," Das said.
Alongside reduction in corporate tax rate, the government will take away the exemptions available to the industry.
These exemptions, he said, account for maximum numbers of litigations. "So this way the government is eliminating lots of scope which exist with regard to litigation."
