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As finance minister Arun Jaitley in his maiden budget increased the maximum amount eligible for deduction under section 80C of the Income Tax Act, 1961, toR1.5 lakh per annum from R1 lakh, the government’s tax
giveaway is set to rise significantly. Deductions under 80C account for close to two-third of the total tax foregone under the personal income tax (PIT) category. Just to get an idea, in FY14 alone, the projected PIT foregone rose to R 40,414 crore from R 33,536 crore in FY13.
So, while the overall tax revenue foregone as a share of total income has fallen in the last couple of years, the expected rise in the tax foregone for PIT this year will push up the overall tax foregone. In corporate income taxes, companies with profits before tax of R500 crore-plus account for 57% of the total tax payable in FY13. But, interestingly their effective tax rate was 20.97% as compared with the overall effective tax of 22.44%. In contrast, for companies with profit before tax of R1 crore, the effective tax rate is 26.73%.
The services sector, which accounts for 54.11% of the share in total tax payable, the effective tax rate is 23.71%. It is higher than 21.1% charged from manufacturing companies, which accounts for 45.89% of the total tax payable. Public sector companies have an advantage as they have to pay at a lower effective tax rate of 21.49%, than their private sector peers. Revenue foregone is highest for oil sector in indirect taxes.