Budget 2011: Corporate tax surcharge reduced to 5%; MAT raised marginally

Bringing some cheer to the industry, finance minister Pranab Mukherjee today lowered the surcharge tax limit on corporate tax to 5% from 7.5% even while marginally raising the Minimum Alternate Tax.

The government retained the corporate tax at 30%, to be paid by domestic firms earning total income of over Rs1 crore a year.

It increased the Minimum Alternate Tax (MAT) to 18.5% from 18% on book profits.

Presenting the budget for 2011-12, finance minister Pranab Mukherjee said, "My initiative of phasing out the surcharge continues. I propose to reduce the current surcharge of 7.5% on domestic companies to 5%".

The minister also proposed to bring developers in Special Economic Zones (SEZs) under the MAT.

"By the measure to ensure equal sharing of corporate tax liability, I propose to levy MAT on developers of the Special Economic Zones as well as units operating in the states," Mukherjee said.

The reduction in surcharge will bring some cheer to industry which has been clamouring for a reduction in corporate tax rate to 25%.

Industry chambers have been demanding reduction in corporate tax to 25% to spare the India Inc with more money to undertake big-ticket investments.

With a view to providing incentive for Indian companies to repatriate money from offshore subsidiaries, the minister also proposed a lower rate of 15% tax on dividends received by an Indian company from its foreign subsidiary.

"I do hope this will allow funds to flow to India," he said.

The latest proposals come two years after the government did away with surcharge on income tax during the 2009-10 budget.

During last year's budget too, the government had reduced surcharge on corporate tax while raising the rate of MAT.