By Sameer Gupta
The Union Budget 2024-25 was announced earlier today, the first budget of the new coalition government with high expectations from both the industry and common man. The budget's theme resonates with the aspirations of a young nation—employment, skilling, MSMEs, and the middle class. As the fastest growing large economy in the global arena, the budget was not only required to consolidate fiscal health but more importantly lay the groundwork for robust economic growth, a fine balance that the finance minister had to strike to fulfil the vision of 'Viksit Bharat'—a developed India.
A strong start towards that has been with a fiscal deficit target of 4.9% of GDP for FY 24-25, which continues on the glide path of fiscal prudence that the government has been advocating.
On tax reforms, the finance minister emphasised the aim to provide tax certainty, simplification of tax laws and reduction in litigation whilst enhancing tax revenues for welfare and development. There would be a comprehensive review of the Income-tax Act, 1961 to make it concise, work on this is set to be completed within the next 6 months.
While tax rates for domestic corporates remain unchanged, in response to a long standing demand of foreign companies in India, the rate would stand reduced from 40% to 35%. For individual tax payers, building on the theme of increasing consumption, personal tax slabs have been modified under the new tax regime resulting in lower taxes of approx. Rs 17,500. The Budget also proposes to increase the standard deduction for salaried employees from Rs 50,000 to Rs 75,000.
On the theme of simplicity, taxation of capital gains has been rationalised. The present capital gains tax structure is highly complex, with varied tax rates and holding periods for different types of instruments within the same asset class. The present proposals seek to simplify holding periods to either 12 months or 24 months depending on asset class for classification of long term asset (the 36-month period is done away with). Long-term capital gains tax rate is harmonised at 12.5%—sans indexation—to ease the tax computation process. There could potentially be an additional tax incidence for a set of taxpayers (illustratively, for sale of listed equities and house property) while those in the 20% tax regime (illustratively, sale of listed bonds/ debentures) would stand to gain. There has been an increase in the rate of short-term capital gains tax from 15% to 20% for STT paid equity shares, etc and increase in STT rate for F&O to presumably reign in excessive trading.
Taxation of buy-back of shares has been proposed to be changed, where gross buy back proceeds would be treated as dividends in the hands of shareholders. This change, effective from October 1, 2024, ensures parity with dividend taxation and allows for the carry forward of capital losses.
There has been a concerted effort by the government, to reduce tax related litigation. In this pursuit, the budget proposes to introduce the Direct Tax Vivad se Vishwas Scheme, 2024 to offer a resolution framework for all pending direct tax appeals as of 22 July 2024. On the GST front, the budget has introduced an amnesty scheme, offering a waiver of interest and penalties on any outstanding GST demands from FY 2017-18 to FY 2019-20, where the principal tax is settled in full by March 31, 2025.
The budget proposes an extension of the time limit for availing input tax credit (ITC) from FY 2017-18 to FY 2020-21 until November 30, 2021, being sufficient time to reconcile tax credits and has also undertaken a slew of custom duty changes to give an impetus to domestic manufacturing.
In the grand tapestry of the Union Budget 2024-25, it is interesting to see the fine threads of fiscal prudence interwoven with the bold colours of reform. The government's approach is akin to a skilled batter on the cricket field—mindful of the need for steady scoring while not hesitating to dispatch the loose ball over the boundary for a six.
Sameer Gupta, National Tax Leader, EY India.
Views are personal and do not represent the stand of this publication.
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