Mumbai: The much-awaited Union Budget for 2017-18 is expected to bring in some major changes to the tax framework for individuals and corporates following the demonetisation measure, a rating agency said on Monday.

According to Care Ratings, the Budget on 1 February would be addressing issues with respect to “additional revenue garnered on account of the income disclosure scheme as part of the demonetisation drive and expenditure allocations based on the assessment of the economy as there appears to be a slowdown in growth post demonetisation", among others.

“The tax framework would be interesting for individuals and corporates where there are expectations of some major changes following demonetisation," it said in a report. “The indirect tax structure will be largely on lines with the agreed principles of goods and services tax (GST), which looks likely to be implemented from 1 July 2017."

Care Ratings estimates the Government to levy tax between 12% and 18% on services, depending on its classification based on essential and non–essential services as a move towards the final GST rate. On the direct tax front, the rating agency expects the Government to lower the corporate tax rate.

Also Read: SC dismisses plea to defer Union budget date from 1 February

Finance minister Arun Jaitley in 2015 had laid a road map to reduce the tax rate from 30% to 25% over the next four years. “This budget is expected to take the first step in this direction and the rate may be lowered to 27.5% with some checks on the exemptions which presently reside in the tax structure."

Moreover, the report said while the Government is expected to reduce the minimum alternate tax (MAT) rate to its initial level of 7.5%, it would likely be brought down to 15% for the next fiscal. Observing that the current MAT rate at 18.5% is quite high, the report said the high rate adversely impacts the cash flow of companies that have low taxable income or have incurred losses, among others.

The report noted that going with Prime Minister Narendra Modi’s recent statement with respect to gains from financial markets to be used for nation building, there could be an “increase in the rate of tax for short term capital gains from 15% to 17.5%", for 2017-18. “Long term capital gains on equity are also on the cards to be bought on par with debt with a three year lock in period." Besides, the tax exemption slab for individuals could be raised from Rs2.5 lakh to Rs3 lakh even though the main objective is to expand the tax base, it noted.

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