Global minimum tax legislation likely to be proposed on July 23

Gaura Sen Gupta, chief economist, IDFC First Bank says, the government's financial surplus has increased dramatically as a result of the RBI dividend. With a significantly lower H1FY25 calendar than anticipated, the Center has already lowered borrowings through Treasury bills.Despite a little increase in issuance in H2FY25, the total amount of T-bills issued for the year is probably closer to Rs 12000 crore. We forecast a 5 percent GDP fiscal deficit, which means we may cut net G-Sec (government security) issuance by Rs 33,000 crore to Rs 10.2 lakh crore.

Aalok Kumar, Corporate Officer and Senior VP, NEC Corporation India states that the R&D sector is expecting clear and decisive provisions to advance Viksit Bharat in the upcoming budget. We are optimistic that this Union Budget will prioritize the adoption of digital technologies across critical sectors, particularly in governance, to create a more inclusive, efficient, and participative framework. While technology continues to drive India’s socio-economic progress, the key lies in building the nation into the knowledge capital of the world through enhanced R&D and innovation efforts. This will require continued and rigorous investments into the nation’s talent-pool through concerted training, skilling, and upskilling endeavours

Chief economist at IDFC First Bank, Gaura Sen Gupta says government is likely to focus on capital expenditure, meeting rural demand and providing support to state governments.She said that allocation towards agriculture and rural areas was kept steady at 1.3 percent of GDP in the interim budget and there could be increased allocation towards schemes such as the rural job guarantee scheme, farmer-focused measures and housing. The allocation towards agriculture and rural was kept steady at 1.3 percent of GDP in the interim budget (same as FY24). There could be increased allocation towards schemes such as NREGA (referring to the rural job guarantee scheme under the Mahatma Gandhi National Rural Employment Guarantee Act), (farmer's income support scheme) PM Kisan and rural housing.

Gaura Sen Gupta, chief economist, IDFC First Bank says, our expectation is that the objective of Rs 11.1 lakh crore would be maintained, with the budget remaining focused around capital expenditures. Both the federal and state governments' spending in FY24 has been a major factor in the capex cycle's revival. As the recovery from private capital expenditures is anticipated to be sluggish, ongoing support will be needed in FY25.When interest-free loans to state governments rise, the budget's capital expenditure target may also rise. Capital expenditure loans to state governments were allotted Rs 1.3 lakh crore under the interim budget.

Gunjan Prabhakaran, Partner & Leader, Indirect Tax, BDO India shared views and speculations on pre-budget expectations from SEZ perspective. She said, the market expects union budget to provide clarity on the future of SEZ law (e.g. continuation of present SEZ Act or introduction of proposed DESH bill) specially in the context of the first 100 days plan of MOC with respect to changes in SEZ law (NFE, payment of input taxes rather than Customs duty on DTA supplies by SEZ, etc.) and the steps to generate economies of scale.

India’s EV industry has high expectations from the upcoming budget. Under Prime Minister Narendra Modi's government, promoting green mobility through EVs has always been a key focus. In fact, in the previous budget, commendable steps were taken towards a greener future by supporting EV manufacturing and expanding charging infrastructure across the country.

As the incumbent government begins its third term, the commitment to green mobility is expected to intensify further, with a strong emphasis on "Make in India" initiatives. These policies are expected to boost domestic EV production and create a robust ecosystem for EVs in India, with a strong focus on securing a reliable supply chain for EV materials. By focusing on resources available within India for cell manufacturing, the government aims to reduce reliance on imports and make the nation more self-sufficient.

Furthermore, the EV industry expects the government to offer incentives for heavy commercial vehicles (HCVs), thus encouraging the mining, steel, cement and logistics industries to transition from diesel-powered to eco-friendly electric HCVs. These measures will not only make these sectors more sustainable but also significantly contribute to India's overall goals for green mobility.

--Unwavering focus on fiscal consolidation.
--Improving the “quality” of spending to spur growth by prioritizing capital over revenue expenditure
--Spending on welfare schemes and social infrastructure

Jitendra Patel, Associate Partner, Indirect Tax, N.A. Shah Associates notes that taxpayers expectations from the union budget

--There has been huge initial cost for development of drugs in case of pharma industry which leads to blockage of working capital. It is expected from the government to provide relaxation / exemption for GST on these initial costs.

--MRO services in relation to Aircrafts are facing inverted duty structure in relation to ITC as GST in case of inputs higher than the GST in outward supply of MRO services. The company industry expects reduction in parts / components used during the providing MRO services.

--Clarification / valuation rules in relation to services provided by builders to SRA / government for construction of buildings against FSI granted by the SRA / government.

--Reduction in GST rates on health insurance policies. The said policies are treated a basic necessity of citizens in today’s era

Jitendra Patel, Associate Partner, Indirect Tax, N.A. Shah Associates notes that taxpayers expect expedited functionality of appellate tribunal to resolve the pending litigation matters in the upcoming union budget.

Jitendra Patel, Associate Partner, Indirect Tax, N.A. Shah Associates notes that taxpayers expect Union Budget to take measures to curb the increased pending litigations. There are various challenges faced by the industry like availing of ITC based on invoices, late filling of returns, mistakes in filling of returns etc. Various taxpayers had received the notices with substantial demands which needs to be addressed.

Legislation for the global minimum tax targeted at multinational corporations (MNEs) is allegedly being drafted by India. This bill is anticipated to be included in the Union Budget, which is set to be presented on July 23.By guaranteeing a minimum effective tax rate of 15% in all the nations in which multinational enterprises (MNEs) conduct business, the global minimum tax aims to stop MNEs from moving earnings to low-tax jurisdictions. Developing nations such as India can impose taxation on intra-group payments with nominal corporate income tax rates lower than 9 percent by implementing the golbal minimum tax system. It permits the collection of a 6% top-up tax by low-tax areas.

--Provision in the current budget for building nine airports, four new metro lines and seven medical colleges in the state
--Funding for setting up a 200 billion-rupees thermal power plant
--Repair work across over 20,000 kilometers of roads
--Bihar has requested special category status, according to local media reports, which would give the state preferential treatment in accessing funds from the central government and receiving tax breaks

India is turning into a "dumping ground" for scrap tires, according to the Automotive Tyre Manufacturers' Association (ATMA), which stated that restrictions must be placed on the import of waste tires. In its pre-budget report to the finance minister, ATMA stated that since FY20–21, the import of waste/scrap tires into India has surged by more than five times. Raising the concern, ATMA Chairman Arnab Banerjee said,"The import of waste/scrap tyres into India needs to be restricted through policy measures and, if necessary, allowed only in multiple cut or shredded form." Among its budget wish list, ATMA also sought duty free imports of natural rubber (NR) to the extent of domestic demand-supply gap in the country

According to a report by Bloomberg, PM Modi’s second-biggest ally, JD(U) is demanding 300 billion rupees ($3.6 billion) from India’s federal budget this year to help fund projects in Bihar state, according to people familiar with the matter. The Bihar government, which is led by Janata Dal (United)’s Nitish Kumar, made the request during a pre-budget meeting with Finance Minister Nirmala Sitharaman last month, the people said.

Amjad Raza Khan, CEO of Cashaa elaborated on the FinTech industry's pre-budget expectations of 2024 saying, we are hoping for the same things as we were with the Interim Budget in Feb, 2024. Rationalisation of capital gains tax down from the current 30% and of the TDS tax rate of 1%. Treating crypto at par with other financial asset classes like equity. A well-defined regulatory framework for crypto in the country, making crypto a suitable investment option for the common man as well as spurring industry investment in the crypto sector.

Pankaj Nawani, CEO of CarePal Secure spoke on budget expectations of healthcare finance sector says, as there is no GST on diagnostics, it is imperative that health insurance and other health services, such as hospital bed charges, should also be exempt from GST. Health insurance is a public good, not merely a consumable item. Reducing taxes on health insurance will encourage broader coverage, leading to higher protection and increased productivity in the economy. Furthermore, under the new tax regime, the government should treat health insurance similarly to the Public Provident Fund (PPF). Allowing individuals to save on health insurance premiums in the same manner as PPF will further incentivize people to invest in their health and well-being.

With the Union Budget 2024–25 on the horizon, micro, small, and medium enterprises (MSMEs) are optimistic about substantial tax relief and streamlined GST procedures. These improvements are critical for the sector, which includes 63 million registered enterprises as reported by the Ministry of MSMEs.

Government likely to extend NPA classification period forMSMEloans from 90 days to 180 days in FY25 Budget.

Proposed relaxations for Special Mention Accounts(SMA) forMSMEsalso under consideration.

Potential changes include extending SMA-0 from 30 days to 60 days, SMA-1 from 60 days to 90 days, and SMA-2 from 90 days to 120 days.
Aim is to provideMSMEswith more leeway amid financial stress indicators.

Measures aimed at easing financial burden and supportingMSMEsector resilience.

- Hospitality industry stakeholders are urging the government to grant infrastructure status to hotels in the upcoming Union Budget. This move aims to enhance investment attractiveness for new properties, steering away from current categorizations like luxury or 'sin goods'. Emphasizing the sector's potential to bolster India's growth, they also advocate for incentives such as tax breaks or subsidies to promote sustainable and eco-friendly practices.

- Additionally, stakeholders stress the importance of accelerating the tourism agenda in the budget, envisioning Indian hospitality as a pivotal driver for GDP growth and job creation.

- India is reportedly preparing legislation for a global minimum tax targeting multinational enterprises (MNEs), with plans to introduce it in the upcoming Union Budget scheduled for July 23, according to sources familiar with the matter cited by Business Standard.

- The proposed legislation, aligned with the Pillar Two regime, aims to curb profit shifting by MNEs to low-tax jurisdictions, ensuring a minimum effective tax rate of 15 percent across all countries where these enterprises conduct operations.

- Ahead of the Union Budget, the Department for Promotion of Industry and Internal Trade (DPIIT) has recommended removal of angel tax on startups, but an integrated view will be taken by the finance ministry, a senior government official said.

- In September last year, the Income Tax Department has notified new angel tax rules that comprise a mechanism to evaluate the shares issued by unlisted startups to investors.

- While previously the angel tax -- a tax levied on capital received on the sale of shares of a startup above the fair market value -- applied only to local investors, the Budget for 2023-24 fiscal (April 2023 to March 2024) widened its ambit to include foreign investments.

India's economic strength and growth trajectory hinge significantly on expanding its manufacturing sector. Central to this effort is the nation's 'Aatmanirbhar' vision, aimed at boosting manufacturing capabilities, increasing exports through initiatives like Make in India, promoting innovation and investment, supporting industrial leaders via the Production Linked Incentive (PLI) Scheme, and enhancing competitiveness through SAMARTH Udyog Bharat 4.0.

This resurgence in manufacturing coincides with a surge in mergers and acquisitions, a robust IPO market, and substantial investments from private equity and venture capital firms. These factors collectively position the manufacturing sector as a pivotal driver of India's economic advancement in the coming decades.

The central concern surrounding the upcoming budget is whether the newly elected government will adhere to its fiscal strategy of the last decade or be pressured into compromises by coalition politics. Early indications suggest some insight into this dilemma: the distribution of ministerial portfolios within the new cabinet suggests two main points. Firstly, the BJP is asserting its authority as the leading coalition partner, signaling its intent to maintain continuity in policy direction over the past decade. More here.

- Assocham has suggested structural reforms in the agriculture sector to enhance productivity, market access, and income opportunities for farmers.

- It also suggested promoting contract farming, investing in agri-infrastructure, facilitating value chain integration, and encouraging diversification into high-value crops.

The Union Budget FY25 should focus on offering relief to taxpayers, especially in the lower income brackets, to stimulate consumption, industry players suggested.

Finance Minister Nirmala Sitharaman is scheduled to present the full Budget for fiscal 2024-25 on July 23 which will be the first major policy document of the new government.

The industry also urged the finance minister to lower corporate tax, phase out tax exemptions, and broaden tax base to boost economic growth.

​Chandrababu Naidu's TDP and Nitish Kumar's JD(U) have requested approximately $5.7 billion (around Rs 48,000 crore) in funds from the Prime Minister Narendra Modi-led Centre ahead of the upcoming 2024 Union Budget, as per documents reviewed by Reuters and a reliable source. The BJP's key allies are seeking these funds for the current fiscal year, along with a higher borrowing ceiling for infrastructure initiatives.

Money Bills: Introduced and passed in the Lok Sabha by a simple majority. Rajya Sabha does not vote on Money Bills.

BJP's Use of Money Bills: Utilized over the past 10 years to pass Union Budget tax proposals and key economic legislations (e.g., Insolvency and Bankruptcy Act).

Amendments suggested by Rajya Sabha can be accepted or rejected by the Lok Sabha.

Current Parliamentary Scenario: BJP and Prime Minister Narendra Modi lack a majority in the Lok Sabha, making it harder to pass economic legislation without support from other parties.

In the interim Budget presented in February 2024, Union Finance Minister Nirmala Sitharaman increased the tourism sector allocation to Rs 2,449.62 crore, a 44.7% rise from the previous fiscal's revised figure.

Rajesh Magow, Co-founder and Group CEO of MakeMyTrip, emphasises the need for further support. “The Travel and Tourism industry has been growing at a healthy rate post-pandemic. The upcoming Union Budget 2024-2025 offers the Hon’ble Finance Minister an opportunity to build on this momentum. Strategic investments in this sector can unlock economic opportunities, boost employment, and enhance the competitiveness of India's tourism landscape,” he said.

Magow believes the time is right for the Finance Minister to introduce changes that incentivise the industry and sustain its growth trajectory.

Goldman Sachs believes that capital spending will be given priority in the next budget while maintaining budgetary consolidation. According to a letter issued on July 8, the company is wary of anticipating any easing of budgetary objectives or a move towards more welfare spending at the expense of capital expenditure. They project the government will maintain the fiscal deficit target of 5.1 percent for FY25, with a potential further reduction to 4.5 percent by FY26.

Goldman Sachs economists expect the government to adhere to its fiscal deficit target of 5.1 percentof GDP set in the interim budget but anticipate an "overarching statement" about long-term economic policy. It expects the budget to promote labor-intensive manufacturing through fiscal incentives across sectors such as toys, textiles, and apparel manufacturing, as well as commercial aircraft manufacturing, as per a Reuters report.

Since 2020, India has introduced incentives aimed at boosting manufacturing across various sectors, from drones to pharmaceuticals, stated a Reuters report. However, manufacturers focusing on novel drugs are currently excluded from these incentives. India's export sales, particularly in the US generics market, are anticipated to grow significantly, potentially reaching $55 billion by 2030. This projection comes from the Pharmaceuticals Export Promotion Council of India (Pharmexcil), a government-supported trade body.

In a move aimed at bolstering healthcare accessibility, the Indian government is actively contemplating expanding the beneficiary base of its flagship Ayushman Bharat health insurance scheme. Official sources told PTI that the plan involves doubling the coverage over the next three years, starting with the inclusion of all individuals aged 70 and above. Additionally, there are discussions to increase the annual insurance coverage from the current Rs 5 lakh to Rs 10 lakh per beneficiary.

The upcoming Union Budget might propose increasing the agricultural loan target for 2024-25 by up to 25 percent, potentially reaching Rs 25 lakh crore. This adjustment will be based on the assessment conducted by the National Bank for Agriculture and Rural Development (NABARD) through the Potential Linked Credit Plan (PLCP) at the block level, evaluating the capacity to absorb credit, as per a Moneycontrol report.

- Industry bodies are advocating for incentives to boost research and development (R&D) investments, corporate tax breaks, and the implementation of a robust intellectual property rights framework to foster growth in the domestic pharmaceutical sector.

- Anil Matai, Director General of the Organisation of Pharmaceutical Producers of India (OPPI), outlined these priorities ahead of the upcoming Union Budget, emphasizing the need for deductions on R&D expenditures, incentives tied to research activities for multinational corporations, and tax concessions for businesses.

- Pharmaceutical firms are seeking tax incentives and financial support for research into innovative drugs as Prime Minister Narendra Modi's government prepares to unveil the federal finance budget expected in July, as per a Reuters report. This budget is anticipated to mark Modi's first significant policy announcement in his third term as prime minister.

- Experts stated that Indian drug manufacturers need to prioritise the development of complex drugs beyond their traditional generics to maintain the country's reputation as the 'pharmacy of the world' known for affordable medicines

- A separate additional deduction for investment in the National Pension System (NPS) was introduced in FY16, allowing taxpayers investing up to Rs 50,000 in their NPS Tier I account to claim an additional deduction under Section 80CCD (1B) of the Income-tax Act.

- The Union government introduced NPS to provide individuals with a pension income to support their needs in retirement. The Pension Fund Regulatory and Development Authority (PFRDA) regulates and administers NPS under the PFRDA Act, 2013.

Goldman Sachs is expecting a Budget that will not compromise on the capex spend or any relaxation in the fiscal consolidation path. It has turned cautious on raising expectations of any relaxation in fiscal consolidation and a pivot towards welfare spending at the cost of capex, according to a note published on July 8. Read more.