Budget 2019: Corporates need saving from triple taxation - Heres what Archit Gupta, Founder of ClearTax says

With Modi 2.0, corporates are eyeing a reduction in taxes. It is believed that this will boost revenue of corporate India and hence power up the Indian economy as a whole. Corporates have been struggling under a big tax burden, which has impacted their revenues. Not only that, Indian companies have to deal with triple taxation module at the moment. Union Budget 2019 is right around corner and what better gift could be given to corporates than to ease corporate taxes for India Inc. 

Talking about budget expectation for corporate taxes, Archit Gupta, Founder & CEO of ClearTax says, "The corporate taxpayers are faced with the most headwinds ranging from sagging demand in the economy, streamlining of tax credits under the Goods and Services tax law, low global demand and low exports."

Interestingly, Gupta points out that, corporate tax rate is one of the highest in India at 30%. Globally, corporate tax rates have been brought down to 20 to 22% e.g., USA. 

Here's how India Inc is trapped in triple taxation, as per Gupta. 

Presently, the government has allowed for a low corporate tax rate of 25% for companies having a turnover up to 250 crores during the FY 2016-17. 

Further, dividends are taxed at the distribution level in the hands of the corporate at an effective rate of 20.56%. The distributed dividends are tax-free in the hands of the investors.

Additionally, the profits out of which the dividends are paid are subject to a corporate tax at 30%. This translates to triple taxation of the same income from the corporate to the ultimate taxpayer.

"Keeping in line with the global economic and tax trends and the phasing out of profit-linked incentives in India, the government should bring down the overall corporate tax rate to 25%. Further, the government should do away with the minimum alternate tax (MAT) and focus on investment-linked deductions to encourage economic activity and capital formation," Gupta said. 

In Gupta's view, there is a need to streamline the tax on dividends distributed by corporates too.

However, reducing tax burden comes with its own challenges. The govt’s revenues are already under pressure, if it tries to shore up tax collections, it may have to look at innovative ways to increase revenue. Thereby, Gupta says, "So a balance in the overall approach may be required to support collections."