Today marked the presentation of Interim Budget for fiscal year 2024-25. As the nation gears up for general elections in the months of April-May 2024, the full Union Budget for the fiscal year 2024-25 will be presented by the new government in July 2024. Consequently, the expectations from this Interim Budget were muted and minimalistic.
As the Hon’ble Finance Minister (“FM”) highlighted the achievements of the Government in the last two terms, she also laid down a broad fiscal roadmap for India in the coming years to achieve its goals of inclusive development, social justice, and the coveted dream of featuring in the top three global economies of the world. From a macroeconomic standpoint, there is a continued thrust on affordable housing, research and innovation, infrastructure development and green energy. The recent experience with the G20 has also encouraged the Government to promote India as a tourist destination. Government remains committed to spur economic growth by raising the capital outlay by 11% to account for 3.4% of the annual GDP for FY 2024-25. Further, fiscal consolidation remained one of the top priorities of the Government with budgeted fiscal deficit pegged to 5.1% for FY 2024-25 and 4.5% for FY 2025-26. Notably, no tax rate cuts or concessions were proposed even in personal taxes as a populist measure.
On the tax front, the Government’s attempts in the past to widen the tax net, rationalising individual and corporate tax rates and implementation of a digital tax administration, have started to bear fruits with a two-fold increase in number of income tax return filers and buoyancy in the direct and indirect tax collections. Further, in a bid to provide relief to taxpayers in respect of outstanding petty, unverified, not reconciled, or disputed demands, the FM proposed to withdraw any such demands for amounts below (i) INR 25,000 for the period up to financial year 2009- 2010 and (ii) INR 10,000 for the financial years 2010-2011 to 2014-2015, which is expected to benefit approximately 1 crore taxpayers.
Notably, the Finance Bill, 2024 proposes to amend tax collection at source (“TCS”) provisions to align them with the press release issued by Ministry of Finance in June last year. In terms of proposed amendments, the threshold exemption for remittances under Liberalized Remittance Scheme (“LRS”) upto INR 7 lakhs will apply regardless of the purpose. Further, LRS remittances exceeding INR 7 lakhs for education and medical treatment will attract a TCS of 5% (0.5% in case remittance is financed by education loan) whereas other remittances under LRS will attract a TCS of 20%. For purchase of overseas tour packages, a TCS is proposed at the rate of 5% for payments upto INR 7 lakhs and 20% in respect of payments exceeding INR 7 lakhs.
Further, the Bill also seeks to extend certain tax benefits, that were set to expire on March 31, 2024, until March 31, 2025. For instance, the tax holiday for eligible start-ups, tax benefits available to investment divisions of offshore banking units in International Financial Service Centre (“IFSC”), tax benefits available in respect of aircrafts and ships leased to units in IFSC, and tax exemptions on passive income streams enjoyed by sovereign wealth funds and foreign pension funds.
Given the constricted scope of the interim budget, the incumbent government had limited room to introduce big ticket tax proposals. However, there are some expectations from the full budget that will be key to realize a more stable and certain tax regime to compliment the growing economy and capital inflows. Notably, the Government has not extended the concessional corporate tax rate of 15%, which is currently available to newly set up manufacturing companies that have commenced manufacturing or production prior to March 31, 2024. It is hoped that the Government will reconsider its decision as multinationals look for a new manufacturing destination other than China. The simplification of capital gains tax regime and TDS regime has also been a key request from the industry. Other tax reforms to consider would include a tax settlement process, administrative guidelines around eligibility to tax treaty benefits, allowing tax losses in mergers across different sectors and re-thinking the efficacy of angel tax vis-à-vis impact on capital inflows.
Gouri Puri is a Partner and Rahul Yadav is a Counsel at Shardul Amarchand Mangaldas & Co.