In a major relief to the industry, Finance Minister Pranab Mukherjee on Monday lowered the surcharge on domestic companies to 5 per cent from 7.5 per cent and on foreign entities to 2 per cent from 2.5 per cent, even as it marginally raised the Minimum Alternate Tax.
The government, however, retained the corporate tax at 30 per cent, to be paid by domestic firms.
It increased the Minimum Alternate Tax (MAT) to 18.5 per cent from 18 per cent on book profits.
MAT was introduced in 1987 to bring under the tax net companies that paid no or very little tax after taking advantage of the exemptions provided by the Income Tax Act.
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 per cent on domestic companies to 5 per cent".
"In the case of companies other than domestic companies, the existing surcharge of 2.5 per cent is proposed to be reduced to 2 per cent," the Budget document added.
The minister also proposed to bring developers and units 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 per cent.
Industry chambers have been demanding reduction in corporate tax to 25 per cent 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 per cent 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 also, the government had reduced surcharge on corporate tax while hiking the rate of MAT.