India: Union Budget 2024-2025 

On July 23, 2024, Nirmala Sitharaman, India's Minister of Finance, presented the Budget for 2024-25 under the leadership of Prime Minister Shri Narendra Modi. The speech highlighted several key tax changes and proposals aimed at simplifying the tax system, enhancing compliance, and fostering economic growth. Below is a summary of the key points from her address:

INDIRECT TAXES: SIMPLIFYING AND RATIONALIZING, EXPANDING GST COVERAGE 

The introduction of the Goods and Services Tax (GST) has marked a significant transformation in India’s tax landscape. By lowering tax incidence on consumers, reducing compliance burdens, and cutting logistics costs for businesses, GST has proven to be a substantial success. 

To further enhance its benefits, efforts will be directed towards simplifying and rationalizing the tax structure and expanding GST coverage to additional sectors.

CUSTOMS DUTIES: RATE STRUCTURE PLANNED OVER THE NEXT SIX MONTHS

Recent changes to customs duties aim to bolster domestic manufacturing, increase local value addition, and promote export competitiveness. The focus remains on simplifying taxation while considering public interests. In the Budget 2022-23, a reduction in the number of customs duty rates was implemented. A comprehensive review of the customs duty rate structure is planned over the next six months to streamline trade, eliminate duty inversion, and minimize disputes.

DIRECT TAXES: 

A review of the Income-tax Act, 1961 is underway.

Efforts to simplify taxation, improve taxpayer services, and reduce litigation continue. Recent measures have included the introduction of simplified tax regimes for both corporate and personal income taxes, which have been well-received. In the fiscal year 2022-23, 58% of corporate tax revenue came from the simplified regime, and over two-thirds of personal income taxpayers utilized the new tax regime.

A comprehensive review of the Income-tax Act, 1961 is underway, aimed at making the Act more concise and user-friendly. This initiative seeks to reduce disputes and litigation, enhancing tax certainty. The review, expected to be completed within six months, will begin with changes to charity tax exemptions, TDS rates, and reassessment provisions.

SIMPLIFICATION OF TAX PROVISIONS

1. Charities and TDS:

• Merging two tax exemption regimes for charities into one.

• Reducing the TDS rate from 5% to 2% for many payments and withdrawing the 20% TDS rate on repurchases by mutual funds.

• Lowering TDS rates for e-commerce operators and integrating TCS credit into TDS on salary.

• Decriminalizing delays in TDS payments and simplifying default procedures.

2. Reassessment Procedures:

• Reopening of assessments will be restricted to cases where escaped income exceeds ₹50 lakh and will be limited to a maximum of five years.

• Search cases will have a revised time limit of six years.

3. Capital Gains Taxation:

• Short-term gains on specific financial assets will be taxed at 20%.

• Long-term gains on all assets will be taxed at 12.5%.

• The exemption limit for capital gains on certain financial assets will increase to ₹1.25 lakh annually.

• Classification of long-term assets will be adjusted based on holding periods.

TAXPAYER SERVICES AND LITIGATION: DIGITALIZATION, ADDITIONAL OFFICERS, SAFE HARBOUR

Digitalization of major taxpayer services under GST and other tax regimes is underway, with a goal to complete this transition in the next two years. Efforts to reduce the backlog of appeals include deploying additional officers and introducing the Vivad Se Vishwas Scheme, 2024. Additionally, monetary limits for tax appeals will be raised, and safe harbour rules will be expanded to reduce litigation and enhance international tax certainty.

EMPLOYMENT AND INVESTMENT: REDUCING CORPORATE TAX RATES FOR FOREIGN COMPANIES, ABOLISHMENT OF ANGEL TAX

Several measures are proposed to stimulate investment and create employment:

• Abolishing angel tax for investors to support startups and innovation.

• Introducing a simpler tax regime for foreign shipping companies involved in domestic cruise tourism.

• Providing safe harbour rates for foreign diamond mining companies.

• Reducing corporate tax rates for foreign companies from 40% to 35%.

DEEPENING THE TAX BASE

To deepen the tax base, the Security Transactions Tax on futures and options will be increased, and income from share buybacks will be taxed.

SOCIAL SECURITY AND PERSONAL INCOME TAX

1. Social Security Benefits:

• Increasing deductions for employer contributions to the National Pension System (NPS) from 10% to 14% of an employee’s salary.

• Expanding deductions for NPS contributions under the new tax regime.

2. Personal Income Tax:

• Raising the standard deduction for salaried employees from ₹50,000 to ₹75,000 and increasing the deduction for family pensions.

• Revising the tax rate structure under the new tax regime to offer tax savings of up to ₹17,500 for salaried employees.

Overall, these proposals will lead to a revenue forgone of approximately ₹37,000 crore, with a projected additional mobilization of ₹30,000 crore, resulting in a net revenue forgone of about ₹7,000 crore annually.

With these reforms, the government aims to foster a more efficient and equitable tax system, enhancing ease of compliance and contributing to economic growth.

SOURCE/ RECOMMENDED READ: 

• India Budget | Ministry of Finance | Government of India