India’s Tryst with Last Budget of (PM) Modi’s 2.0

In the midst of an impending election, Hon’ble Finance Minister, Mrs. Sitaraman, unveiled the interim budget. Its one of the short speeches, in recent past by a Finance Minister on budget day. The Hon’ble Finance Minister has outlined the performance of the government in the last 10 years.

The speech is a kind of self appraisal or report card of the government. The revised budgetary estimates of macro indicators, are stimulating despite the gloomy global outlook. Amongst them, the path of fiscal rectitude and an effort to contain the fiscal deficit within the tolerance limits, is laudable. This will go long way in containing the inflationary pressure in the economy, without compromising the growth rate.

Emphasizing the achievements of the Modi government over the past decade, the Finance Minister's speech touched upon not only on macro-economic indicators but also all sectors of the economy, alongside highlighting the priority sectors, such as agriculture, oil seeds production, dairy production, Technology etc.

The Hon’ble Finance Minister during her speech coined a new expanded form for term ‘GDP’ i.e. 'Governance, Development and Performance’. India’s GDP clocked a growth  rate of 7.7% between April 2023 and September 2023, which is highest among all the major economies. India is expected to become the third-largest economy in the world with a GDP of USD 5 trillion in the next three years and touch USD 7 trillion by 2030 on the back of continued reforms. It is expected that the India’s GDP will grow at 7.3% for fiscal year ending 31^st March 2024. This specie of growth is not practically feasible with the contributory growth in Foreign Direct Investment ("FDI”) and prudence over fiscal deficit.

India’s FDI stood at USD 70.97 billion for fiscal year ending 31^st March 2023. The Hon’ble Finance Minister highlighted that the remarkable inflow of FDI) over the past decade, and lauded the government's efforts, emphasizing that FDI during fiscal years 2014-2015 to 2022-23 had doubled which amounts to USD 596 billion as, compared to the preceding period from 2004-2005 to 2013-2014.

Such influx of foreign capital signals investor confidence in India's economic prospects and underscores the nation's growing prominence as a favored destination for global investments. The Hon’ble Finance Minister for the first time categorically blew the whistle by announcing India as the “Developed India” marking a new era of development and governance.

Another notable achievement of the government, is the fiscal discipline. The revised budgetary estimate of fiscal deficit is pegged at 5.8% of the GDP for fiscal year 2023-24, with the aim to contain it to 5.1% in fiscal year 2024-25. This has clearly indicated the government fiscal prudence, which is largely attributed to robust tax collection.

The budgetary figures paint a comprehensive picture of the nation's financial landscape. With total receipts estimated to reach an impressive INR 27,560  billion, including tax receipts of INR. 23,240 billion for current fiscal year ending 31^st March 2024. Continuing with buoyancy in fiscal year 2024-25, the government forecasts a rise in total receipts to INR. 30,800 billion, with corresponding total expenditure projected at INR 47,660 billion. Tax receipts are estimated to climb to INR 26,020 billion.

Moreover, the budget announcement highlighted the government's commitment to strengthen the Goods and Services Tax (‘GST’) framework, with doubled GST collections and improved state GST revenues indicating a buoyant economic environment.

One of the hallmark announcements of the budget pertains to the substantial investment earmarked for infrastructure development, with an impressive 11.1% increase in the outlay for the upcoming financial year, aiming to bolster the country's growth trajectory and enhance competitiveness on the global stage. This manganous investment surge, would be equivalent to 3.4% of the GDP, underscores the government's unwavering commitment to robust infrastructure development.

The budget announcement, devoid of major tax slab alterations, pinned the government's steadfast commitment to continuity in economic policies. The Hon’ble Finance Minister affirmed that no significant changes have been made to direct taxes. However, she commended the government's initiatives in streamlining the income tax return filing process, aimed at enhancing taxpayer convenience and efficiency. The tax proposals introduced in the budget are as follows: 

• Tax Rates:

  In the tax rates no changes have been proposed in the budget, the same tax rates as appliable for the preceding fiscal year shall continue.

• Fresh lease of life to Start ups, Sovereign Funds and Offshore Banking Units:

  Tax holiday for startups  –  Presently, the Startup can avail tax holiday for 3 (three) consecutive financial years out of its first 10 (ten) years, if they are incorporated before 31^st March 2024. The said sunset date has been proposed to be extended to 31 March 2025.

  Sovereign Funds –  In a move to attract more investments from sovereign wealth fund, the Government has extended the sunset date for making investments, by an additional year to March 31, 2025. Consequently, all income in the nature of dividend, interest, other sources and long term capital gains, arising from the investments made by said funds on or before 31^st March 2025, will be exempt from tax.  

  Offshore Banking Unit of IFSC – Similarly, the sunset clause for obtaining tax exemption for Offshore Banking Unit  set up in IFSC, has been extended by one more year, i.e. from 31^st March 2024 to 31^st March 2025.

• No extension of sunset clause for new manufacturing facility

  There has been a demand by the industry to extend the deadline for setting up the new manufacturing facility by few more years (which is currently expiring on 31^st March 2024) for availing the concessional corporate tax rate of 15%. However, the Government has not extended the same. This appears to be in line with the Government overall policy of making India a manufacturing hub. Similarly, this also does not engulf with Government policy of providing incentive under the Production Linked Investment scheme.

• Tax Collection at Source (‘TCS’)

  No major changes in TCS regime. The budgetary proposals only legislatives the earlier announcements made in June 2023. In summary, the TCS rate would continue to be 20% on LRS withdrawal in excess of INR 700,000 per annum, except for medical and educational purposes.

• Waiver of small outstanding tax demands

  The Hon’ble Finance Minister, in her speech, addressed this long pending issue and provided relief by waiver of tax demands upto INR 25,000 pertaining to period upto FY 2009-10 and upto INR 10,000 for FY 2010-11 to FY 2014-15. This is expected to give relief to 10 million taxpayers. It may be noted that the precise scheme giving effect to the above mentioned announcement will be framed by Central Board of Direct Taxes ("CBDT”) by way of a circular, subsequently.

  Its indeed a welcome move. However, it is imperative for CBDT to come out with an unambiguous circular, for it to work meaningfully for small taxpayers. The issues like:

  • whether the waiver apply where the original tax demand was more than INR 25000 / 10000 and the taxpayer had made partial payment and the current outstanding tax demand is less than INR 25,000 /Rs. 10,000;

  • whether the tax demand necessarily be disputed;

  • what will happen to previous refunds which have been adjusted against such demands ?;

We would need to wait for CBDT circular for fine prints to analyse the same. We hope these issues gets addressed in the finer prints.

Amit Singhania, is the Founder of Areete Law Offices. Hitesh Jangra is an Associate at the Firm.

View expressed are personal and need not necessarily represent the view of the Firm, they represent.