Budget 2017: Jaitley reduces income tax for 96% of companies by 5%

Hit hard by demonitisation, Finance Minister Arun Jaitley's move to provide some relief to the MSME sector in Budget 2017 came through a welcome move to reduce income tax for small companies to 25% with annual turnover upto Rs. 50 crore.

Jaitley said that the income tax for smaller companies with annual turnover upto Rs. 50 crore is reduced to 25% in order to make MSME companies more viable and also to encourage firms to migrate to company format. The move is, however, not merely limited to MSMEs, but also to startups who earn upto Rs 50 crore.

As per data of Assessment Year 2015-16, there are 6.94 lakh companies filing returns of which 6.67 lakh companies fall in this category and, therefore, percentage-wise 96% of companies will get this benefit of lower taxation. "This will make our MSME sector more competitive as compared to large companies. The revenue forgone estimate for this measure is expected to be Rs. 7,200 crore per annum," said Jaitley.

An issue of contention for small companies has been the levy of Minimum Alternate Tax (MAT) and Jaitley added that it is not practical to remove or reduce MAT at present. However, in order to allow companies to use MAT credit in future years, he proposed to allow carry forward of MAT upto a period of 15 years instead of 10 years at present.

MAT is at present levied as an advance tax. Although the plan for phasing-out of exemptions will kick in from April 1, 2017, the full benefit of revenue out of phase-out will be available to the Government only after 7 to 10 years when all those who are already availing exemptions at present complete their period of availment.