Direct taxes include within its ambit changes to income tax, corporate tax etc. Let us look at some of the key announcements pertaining to direct taxes and its implications.

Key direct tax announcements and the implications

  • Corporate tax rates were reduced from 30 % to 25 for companies with turnover up to Rs.400 crore. This was originally Rs.250 crore. This was a disappointment for the corporates in particular and the markets in general. It was hoped that the budget will move towards 25 % corporate tax rates across the board but that was not to be.

  • In the last few years, we saw a lot of large companies like Infosys, TCS and Wipro using their cash reserves to buy back shares and reward the shareholders indirectly. That was because buy backs were a leading to a tax arbitrage as these did not attract dividend distribution tax, unlike dividends. A lot of large companies had avoided paying DDT and personal dividend tax by resorting to buyback of shares to reward shareholders. To prevent avoidance of Dividend distribution tax (DDT) via buybacks, buybacks of listed companies for tax purposes will be on par with dividends for all tax purposes.

  • In the interim budget, the government had made income up to Rs.5 lakh tax free. However, this was offered as a rebate of Rs.12,500 under Section 87 on income up to Rs.5 lakhs. The expectation was that this would be converted into an exemption up to Rs.5 lakh. But that was not the case.

  • To encourage low cost housing, the budget has offered an enhanced tax exemption of Rs.3.50 lakhs where the value of the property falls below Rs.45 lakhs and is classified as affordable housing. This will enhance the tax exemption and sharply bring down the cost of owning a property in India.

  • In the case of NBFCs, they can now pay tax in the year of receipt of bad loan interest rather than on an accrual basis. This will be only restricted to deposit taking NBFCs and to systemically important NBFCs.


  • TDS of 2 % will be charged on any cash withdrawal from a bank exceeding Rs.1 crore in a fiscal year with the aim of promoting more digital transactions in the economy. The budget also gave a push to digital economy by making all digital transactions with larger merchants free of all costs.


  • Surcharge on high income groups is already in existence at the slab rates of 10 % and 15 %. That has now been enhanced to 18 % in case of persons earning between Rs.2 crore to Rs.5 crore and a higher surcharge of 25 % in case of incomes above Rs.5 crore. This is likely to restrict the surpluses of the higher income groups.

  • As part of direct tax reforms, the budget has moved towards faceless assessment up to a certain threshold of income taxes so that the chances of misuse of position and hounding are totally eliminated.

  • In a major move to ease the tax payment and administration process, the government has offered to make PAN and Aadhar interchangeable. That means, if you have an Aadhar card, you can file income tax returns and also make high value purchases purely on the back of your Aadhar card. This is a move towards a central SSN number for all Indians and reduces the need for multiple identity proofs.

Direct tax collections have risen by 75 % in the last five years since Modi 1.0 assumed power. While some reforms may still be pending on the direct taxes front, the budget has surely made a good start.