The government is unlikely to cut corporate income tax rate for large companies to 25% as promised in its FY16 budget because of revenue constraints, a senior tax official said. Tax rates can’t be cut further without a supporting mechanism to prevent evasion, said Akhilesh Ranjan, member (legislation) at Central Board of Direct Taxes. That European Union (EU) nations are considering a reduction in corporate taxes or the US has lowered the rate to 21% is not sufficient to sway India to reduce taxes, he said on Tuesday. Each country has to decide the rates according to its needs, added Ranjan, who is the convener of a task force on the new direct tax code.
That should put to rest any hopes that the new direct tax code, proposed to be ready by early next year, will see any major changes in rates. The new code, Ranjan said, will look at removing ambiguities in direct taxes rather than revising tax rates. Currently, India taxes corporate income at 30%. But for small businesses with sales up to ₹250 crore and new manufacturing start-ups that do not avail of any tax relief, the rate is 25%. The largest number of corporate taxpayers are in the 25% slab, although the lion’s share of tax receipts comes from companies in the 30% bracket.