New corporate tax rates, in tune with global tax regimes, bring cheer to corporates. But, there's mixed news for individuals. 

By Dilip Maitra

This year, companies have little to complain about. All surcharge, except the Gujarat one, on corporate tax has been removed, reducing the effective rate by about 3.85 per cent. Says Sailesh Haribhakti of audit firm Haribhakti & Co: ''The effective tax rate of around 35 per cent is in line with the international trend.'' In another major bonanza to companies, the finance minister reduced the dividend tax by 10 percentage points (it will effectively decrease from 22.6 per cent to 10.2 per cent). A back-of-the-envelope calculation shows that BT-500 companies will save Rs 600 crore by way of corporate tax and Rs 400 crore by way of dividend tax. That could explain the euphoria in the corporate sector and the stockmarkets. Transnationals, who typically pay the highest tax (and in most cases, the highest dividend) will benefit the most.

Individual tax payers have some reason to cheer, and others to carp. Like companies, they will now incur only the Gujarat surcharge. Thus, the effective tax rate comes down from 35.1 per cent in the highest slab (income over Rs 150,000 a year) to 30.6 per cent. On an annual income of Rs 5 lakh, for instance, the net tax payable now will be 1.26 lakh, down from 1.45 lakh in the previous tax regime. Individuals whose annual income is less than Rs 100,000 will benefit from the increase in the allowed rebate under Section 88 (for investments in a clutch of savings instruments) from 20 per cent to 30 per cent.

The new tax regime, however, will cause some heartburn (it already has) among individuals whose compensation packages include significant perquisites and allowances. Sinha's speech recommends that these perquisites be valued in terms of their cost to the employer and taxed. This move will primarily impact Indian companies; almost all transnationals in India, as well as the better Indian companies have moved to a single-cheque payment system. To enforce this, the Income-Tax Department will request companies to furnish cost-to-company details along with their tax statements. Says K. R. Girish, tax expert and partner in Ratan S. Mama & Co.: ''Implications of this change depends on whether the it Department insists on the declaration of the total compensation package by the employer.'' However, this too, will impact companies more than it does individuals. Why? Most employees negotiate compensation packages in terms of what they take home. Some companies structure these with a significant cash component to help themselves: if they have to ensure the employee ends up taking the same amount home in an all-cheque scenario, the cost to company would increase. A caveat for employees: since this regime comes into force from April, the time when companies hand out appraisals, your employer could well justify a low raise by hiding behind this provision. Accept none of that.

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