Countdown to the India Union Budget 2024
Vol 2

With the India Union Budget 2024 around the corner, BDO India is pleased to present the expectations from the first Budget of the new Government, in our Pre-Budget campaign: Countdown to the India Union Budget 2024 (a two-volume series)

The Union Budget 2024 will be the first full budget of the Modi Government 3.0 after the General Elections. As the upcoming Budget presents an opportunity for the country to further progress towards the goal of ‘Viksit Bharat’, continue the thrust on increasing capex for nation-building and introduce incentives to boost consumer spending, the new coalition

Government is expected to cover all the relevant avenues in its Budget presentation diligently. Businesses are looking forward to the Budget, for resolutions to regulatory uncertainties and the introduction of favourable amendments. Listed here are some amendments that corporates can expect from the Budget.

Corporate Tax
  • The sunset clause of Section 115BAB of the Income-tax Act, 1961 (IT Act) for a concessional tax rate of 15% on the setting up of a new manufacturing domestic company was until 31 March 2024. It is expected that the clause may be extended to 31 March 2025.
  • Taxpayers faced several practical challenges while implementing the provisions of section 43B(h) of the IT Act. A suitable clarification or amendment is required to resolve these challenges.
  • Currently, there are multiple rates applicable depending on the nature of the taxpayer, the type of capital asset, the period of holding, etc. Similarly, through rationalisation and simplification of the capital gain tax regime, a single tax rate for long-term and short-term capital gains could be introduced for the financial asset class, irrespective of the nature of investments - equity or debt, listed or not.
  • The issue of angel tax persists for many start-ups since several key jurisdictions that substantially contribute to Foreign Direct Investments (FDIs) were omitted from the notification released by the Central Board of Direct Taxes (CBDT) that provides relief from angel tax to investor residents from 21 countries. The CBDT can extend the relief to such key jurisdictions. Further, apart from the angel tax, the provision of unexplained cash credit under section 68 of the IT Act is being invoked while undertaking the assessment. Therefore, guidelines should be issued under section 68 of the IT Act to safeguard genuine cases.
  • The Government could tweak GIFT City norms to pave the way for foreign-domiciled Indian start-ups to flip their corporate headquarters back to India with minimal tax implications.
  • Currently, interest expense to the tune of 20% of dividend income is allowed as a deduction from the dividend income. Moreover, a deduction is prescribed where a company receiving a dividend has also declared a dividend. In this regard, clarity may be given as to whether a deduction of 20% should be computed on the gross dividend or net dividend.

In addition to the above, the much-anticipated Pillar 2 rules could be issued in the upcoming Budget in the form of a draft legislation. Further, considering the various complexities involved in implementing these rules, a committee could also be formed to create a consultation paper and seek feedback on how the Pillar 2 rules interact with India’s domestic tax law.



Transfer Pricing
  • Currently, a non-resident taxpayer is mandatorily required to prepare and furnish an Accountant’s Report (in Form No. 3CEB) in India, even though they are exempted from filing Income Tax returns in India, provided their taxable income in India only includes dividends, interest, royalty or fee for technical services, and the taxes have been appropriately withheld from such taxable income. To ensure consistency in compliance requirements for income tax returns and transfer pricing for such non-resident taxpayers, it is expected that a likely exemption from filing a Form No. 3CEB will be provided to them.
  •  India has a sizeable inventory of pending Advance Pricing Agreement (APA) applications, and the current average disposal rate is notably slow. Moreover, the current Indian APA regime does not include a mechanism to resolve disputes for domestic-related party transactions that have transfer pricing applicability, as the current regime focuses only on cross-border related party transactions. It is expected that a mechanism be set up within the APA regime that could help fast-track the conclusion of APAs and also include domestic related-party transactions having transfer pricing applicability. 
Indirect Tax
  • Various amendments in the CGST Act, IGST Act and UTGST Act are likely to be introduced to give effect to the recommendations made in the 53rd meeting of the GST Council. Some important amendments include a retrospective amendment in Section 16(4) of the CGST Act to extend the last date to claim ITC for FY 2017-18 to FY 2020-21 to 30 November 2021; introduction of new sections 11A and 128A respectively for granting a power to regularise non-levy of tax due to trade practice and a conditional amnesty to waive interest and penalty on payment of tax amount as per notice for FY2017-18 to FY2019-20, etc.
  • The industry faces multiple investigations on the same issue by different tax authorities. Specific guidance by way of clarification or a specific provision in law needs to be provided to prevent this critical issue.
  • The eligibility of claiming benefits under Manufacturing and Other Operations in Warehouse (No. 2) Regulations, 2019 (the MOOWR scheme) by the solar power generation sector is a subject matter of litigation. The industry is expecting a clarification on the eligibility of solar power-generating units to claim benefits under the MOOWR scheme.
Conclusion

As the global economy struggles to maintain its post-COVID recovery amidst successive shocks due to wars, supply chain disruptions and worldwide inflation, India has set a trajectory to become the third-largest economy in the world with a GDP of USD 5tn in the next three years. The Modi Government 3.0 is expected to make several reforms, both substantive and incremental, to make India the preferred investment destination and growth engine of the world. This Budget is expected to play a pivotal role of being a flag bearer for achieving this milestone by introducing the much-needed tax and fiscal policy reforms.

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