Union Budget 2024: The insights into indirect taxation & more that the interim budget could offer

If the tax is deposited on a reverse charge basis, subject to appropriate compliance, there should not be any hindrance in availing of input credit.

The upcoming union budget to be presented on 1 February 2024 is supposed to be an interim one and a vote-on-account, due to the general elections scheduled in the summer of 2024. A vote-on-account is undertaken to approve expenditures (e.g., on ongoing programmes and essential services) and finances till the time a new government assumes office, post elections, and presents a detailed budget for the remainder of the financial year.

The finance minister has downplayed the interim budget in public interactions. However, while budget 2024 may not offer any detailed fiscal incentives or policy announcements, it could offer insights into the government’s economic vision and taxation plans, which may be announced should they win the elections.

Given the above, what can be some of the positives that can be expected from the interim budget? A long-standing demand of small and medium business (SMB) owners has been to increase the minimum threshold for GST registration. The threshold today stands at Rs 20 lakh, and there is an expectation that for small businesses, this may be increased to Rs 50 Lakh to afford the ecosystem a necessary breather to expand their businesses.

There are other expectations from the finance minister, especially regarding the export of services. The Reserve Bank of India (RBI) has slowly phasing out the need for foreign inward remittance certificates (FIRCs) for monies received from abroad, and the industry expects that the same would be adopted by GST authorities.

Currently, at the time of processing refund claims for GST, the authorities insist on the submission of FIRC details, and it is expected that since FIRCs are being phased out, they will not be required to process the GST refund claims filed by taxpayers.

It is also expected that the GST input tax credit scheme will be simplified. In the last year, many GST demands have been raised and many businesses have been scrutinised, because their underlying suppliers have failed to file GST returns and deposit the tax collected, which has resulted in the credit taken by such businesses becoming open to litigation.

The industry has suggested that for large taxpayers (turnovers exceeding Rs 100 crore), the GST of their small suppliers be paid on a reverse charge mechanism the liability to pay tax is on the recipient of goods/services, instead of the supplier. This would ensure that the tax is appropriately deposited with the government and the business is not reliant on the compliance of the small supplier, who may be having challenges in depositing taxes and filing returns.

If the tax is deposited on a reverse charge basis, subject to appropriate compliance, there should not be any hindrance in availing of input credit. A proposal on the above lines would be extremely beneficial for both the government and industry as a whole and also minimise litigation at a later date.

Clarity is also expected on the new valuation rules introduced for online gaming, regarding which Finance Minister Nirmala Sitharaman has already made a statement in the Lok Sabha, that winnings from online games will only be taxed prospectively. These valuation rules are due for review after six months of introduction, hence, it would be worthwhile if the perspective of the government is known in the interim.

On the customs front, there is an expectation that operational requirements regarding the certificate of origin to obtain benefits under free trade agreements (FTAs) would be looked into, and the process streamlined for ease of doing business. At present, customs officials at ports often send certificates of origin for scrutiny if the importer wishes to avail of FTA benefits.

Here, digitisation is the need of the hour, whereby certificates of origin can be verified without making the process cumbersome for the importer and increasing his dwell time the length of time a container sits in a port after being unloaded from a ship.

Further, customs-related litigation has also seen an uptick recently due to notices by jurisdictional authorities on the recommendation of intelligence agencies. The need of the hour is an amnesty scheme for customs litigation, whereby certain litigation can be settled on payment of appropriate duties. A leaf can be taken out of the DGFT (Directorate General of Foreign Trade) schemes, where issues about delinquent export licenses, like EPCGs export promotion capital goods, are settled on payment of a penalty, with interest. Such a scheme can be introduced in customs litigation also to clear the backlog of cases.

PLI schemes could also be proposed for new, challenging sectors like aerospace and defence. This would help boost such sectors and also enhance the economic outgrowth of the country, and strengthen its defence and scientific temperament.

Overall, as this is a vote on account, the possibility of large-scale announcements is low. However, if the present government has a coherent vision of leading the country into the near future, it could set up stepping stones in the interim budget to reassure the economic and business ecosystem of the country regarding its intentions.