India To Cut Corporate Income Tax

by Lorys Charalambous, Tax-News.com, Cyprus

01 March 2005

In a budget focus on stimulating future investment in India’s economy, Finance Minister P. Chidambaram unveiled a series of cuts in personal and corporate income tax, in addition to reductions in customs duties on certain types of capital equipment.

Chief among the tax relief measures proposed by Chidambaram was a cut in corporate income tax to 30% from the current 35%; a move that was well received by the business community, as shares on Bombay’s Sensex 30 rose by 118 points, or 1.8% in the hour following the budget announcement.

There was also something for individual taxpayers to cheer about on the personal income tax front, as Chidambaram announced a realignment of the personal income tax brackets.

Under these changes, those with earnings between R100,000 and R150,000 will pay income tax at 10%, those earning R150,000 to R250,000 will pay 20%, and those with incomes above R250,000 will pay 30% (US$1 = R44).

The Finance Minister also proposed the elimination of the standard income tax deduction.

In an attempt to expand India’s tax base, the number of goods subject to service tax will be increased, whilst all states have agreed to introduce value added tax with effect from April 1, 2005.

Other indirect tax measures included a reduction in import duties for non-agricultural goods to 15% from 20%, a move designed to bring India more into line with customs tariffs charged in the rest of East Asia.

However, to promote investment, customs duties on selected capital items will be reduced to 10%, and in the case of certain machinery used in the pharmaceutical and biotech industries, duties will be cut to 5%.

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