The Indian direct tax law, na-mely, the Income-tax Act, 1961 has remained unaltered since the last full Budget announced in February 2008.

It seems a long time ago, given that the world economy has witnessed significant downturn since then. Fortunately, India has not been severely impacted, a manifestation of which is the total direct tax collections of Rs. 338,212 crore for 2008-09, a surprising increase of over 8% over the previous year.

Come July 6, the new finance minister will attempt to live up to India Inc’s expectations, built up pre-elections. Even before the Budget announcement, there is a talk that the Indian corporate direct tax rate of 33.99% (including surcharge and cess) is likely to remain unchanged. Perhaps, there is case to argue that 2008-09 was worse than 2007-08 and that, the current year, 2009-10, is not going to be any better. Therefore, one continues to hope that there would be some rationalisation of the tax rates for both, corporates and individual tax payers, so as to align it with the current global economic outlook and the lower rates prevalent in similar economies like China.

Again, it is only fair that the tax rates are not viewed in isolation from the GDP growth target of 8%-9% this year. A projected growth rate as strong as this would necessarily entail providing a liquidity boost to India Inc, which can be achieved by doling out tax incentives to the affected industries—IT, infrastructure, shipping, exports and real estate—just to name a few.

... contd.