Finance minister P Chidambaram, who had to do a strict balancing act of generating revenue on the one hand and offer sops to revive the investment climate on the other, proposed to increase the surcharge from 5% to 10% on taxable incomes of more than Rs. 10 crore per year earned by domestic firms.
For foreign companies that pay a higher rate of corporate tax, the surcharge would be increased from 2% to 5%. The surcharge somewhat dented the mood of India Inc but they can take comfort in the fact that it is being extended for only a year.
The minister's aim is simple: generate revenue and help in reducing a high fiscal deficit.
In cases where the dividend distribution tax or tax on distributed income is applicable, the government proposes to increase the current surcharge of 5% to 10%, Chidambaram said.
"Our rates are comparable and competitive with most other countries. And it is a small cost for somebody who is making profits."
The government has set a fiscal deficit target of 4.8% of the GDP for 2013-14.
CII director general Chandrajit Banerjee said though the increase in surcharge was understandable.
The government has set a target of accruing Rs. 13,300 crore during 2013-14 from the direct taxes and the increase is expected to contribute "significantly" to the overall kitty.