By removing the surcharge on income-tax paid by companies with an annual income up to Rs1 crore, Budget 2007 has created a unique situation, where lots of salaried individuals will pay tax at a higher rate than these companies.
“This is for the first time that salaried individuals attract a higher rate of tax than corporates,” said Vikas Vasal, a director with audit firm KPMG.
Although the Budget maintains the tax rate for companies and for individuals earning higher than Rs2.5 lakh at 30%, it removes surcharge on companies with an income up to Rs1 crore, effectively making the tax rate applicable to them 30.9%.
In contrast, individuals earning above Rs10 lakh a year, whose incomes attract the 10% surcharge, will now be taxed at the rate of 33.99%.
Salaried individuals say this is unfair. “The salaried class cannot lobby for tax-breaks and the government is taking advantage of this,” said Adesh Gupta, a chartered accountant with a real-estate company.
Sudhir Kapadia, of BSR & Co, an audit firm, said the government should now consider the removal of these surcharges altogether. “These (surcharges) were meant to be temporary, but now have been there for 10 years,” he added.
According to Kapadia, when the government has decided to provide tax relief to the smaller companies, it should also think of extending the benefit to individuals, perhaps for those who earn less than Rs10 lakh a year.
“What is good for the companies, should also be good for the people,” he added.
Parthasarathy Shome, advisor to the finance minister, said the government had decided to remove the surcharge for companies which earn up to Rs1 crore, because it had found the incidence of tax on these firms to be high.
While the average tax for all companies was 19.26%, it was higher, at 24.29%, for smaller firms. The surcharge was removed to make these firms more competitive, added Shome, who admitted that this would mean some individuals were taxed at higher rates than companies. “Many Western and Latin American countries have corporate taxes that are set at a lower rate than personal income tax (rate),” he said.