Withdrawal of investment allowance: do companies have to pay more?

Abstract

While every union budget has its share of buildups and letdowns, this year's budget has been received with subdued reactions mainly because during the buildup to the budget, the governn1ent kept throwing dark hints about austerity measures and tax increases due to empty coffers. The reduction in corporate tax, complete exemption of inter-corporate dividends, abolition of minimum tax on book profits, increase in tax benefits under various schemes and the introduction of equitylinked savings scheme are some of the proposals which have been well received by the corporate world. A few celebrated budget analysts, however, have expressed deep concern over the abolition of the investment allowance and the investment deposit scheme (Sections 32 A and 32AB). Industry circles have taken the position that the proposal to withdraw investment allowance is a "retrograde" step in that it will impede the growth of the private corporate sector. This paper proposes to examine whether such a point of view is sustainable.