Get Ready For Budget 2025, With BDO India

Get Ready For Budget 2025, With BDO India

Get Ready For Budget 2025, With BDO India

The Union Budget is slated to be presented on 1 February 2025. Aligning with the vision of ‘Viksit Bharat’ 2047, this year’s Budget is expected to bring major reforms and incentives aimed at boosting growth. With the revamp of The Income-tax Act, 1961 on the horizon, budgetary announcements on the tax front are anticipated to focus on administrative and simplification measures, apart from addressing certain key tax issues. The Finance Minister Nirmala Sitharaman is also expected to put more money in the hands of the taxpayers to boost consumption. Let’s explore some of the key expectations from the Budget on the tax front.  

Individual Tax

Measures to increase disposable income

  • Increase the basic tax exemption limit:
    • from INR 2.5 lakh to INR 4.5 lakh under the old tax regime
    • from INR 3 lakh to INR 5 lakh under the new tax regime
  • Increase the standard deduction:
    • from INR 50,000 to INR 75,000 under the old tax regime
    • from INR 75,000 to INR 1 lakh under the new tax regime
  • As the number of major cities in India has increased, it is imperative for the Government to relook at the definition of metro cities for the computation of House Rent Allowance exemption.

Measures to enhance spending behaviour

  • The Government had introduced a deduction against interest on a loan for buying an Electric Vehicle (EV), if the loan was approved between 1 January 2019 and 31 March 2023. With the Government’s intent to promote the EV ecosystem, it should reintroduce a deduction on the purchase of EVs.
  • With increasing medical costs, the Government should increase/ introduce deductions against medical insurance premiums/ expenses, especially for rare and critical diseases and for the treatment of senior citizens.
  • The rise in property prices has led to a higher amount of outgo for interest on housing loans. Currently, there is no deduction available in the new tax regime for interest on housing loans paid for self-occupied house property. The same should be allowed to all taxpayers irrespective of the tax regime opted.
Corporate Tax

Measures to reduce litigation and simplify processes
There are several administrative and operational issues faced by taxpayers on account of pending litigations and complexity around various procedures. The Government should take the following measures to reduce pending litigations and simplify procedures:

  • Prescribe timelines for disposing appeals by Appellate Authorities

  • Create an operational mechanism to streamline the functioning under the Faceless Assessment Scheme

  • Reduce complexities/ Simplify the tax return forms 

  • Streamline the TDS rate slabs by reducing multiple rates for the deduction of tax

Measures to incentivise MSMEs and Startups

  • The beneficial tax rate of 15% should be reintroduced for new manufacturing companies to boost the ‘Make in India’ initiative and make India a global manufacturing hub by 2047.

  • Exemption should be reintroduced for promoters of a startup who invest proceeds from the sale of residential property into shares of the startup upon fulfilling the prescribed conditions.

  • In 2020, the Government introduced a tax deferment policy for Employee Stock Option Plans only for employees of startups certified by the Inter-Ministerial Board. However, such startups represent only 2.5% of the startups recognised by the Department for Promotion of Industry and Internal Trade (DPIIT). The tax deferment policy should be expanded to all DPIIT-recognised startups to further empower the startup ecosystem. 

Clarity on India’s Position on Pillar 2

Currently, as many as 30 countries have already implemented the Pillar 2 Rules in 2024 and another 30-35 countries are expected to implement them in 2025. While India has committed to implementing Pillar 2, it has adopted a cautious approach so far. It is now important for the Government to bring clarity to the domestic law on the application of the Pillar 2 framework and reporting requirements thereunder.

Transfer Pricing

Reducing compliances for non-residents
Currently, non-resident taxpayers are 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 (in specified circumstances). To ensure consistency in compliance requirements, an exemption should be given from filing Form No. 3CEB to such non-resident taxpayers.

Streamlining the Advanced Pricing Agreement (APA) Regime
While the APA programme has been successful in India, the time involved in disposing of the applications has been very high, leading to a large inventory of pending APA applications. To accelerate resolutions, the Government should come up with measures such as prescribing a time limit for disposal of applications and allocating a larger team of tax officers for the APA regime.

Expanding the benefits of Safe Harbour Regime
The threshold limits for applicability of the Safe Harbour Regime make it inaccessible to taxpayers with high value of international transactions, thereby leading to transfer pricing litigation or applying for APA to attain tax certainty. The regime needs to be re-evaluated to keep it simple and accessible for higher value of transactions by:
(a) increasing the thresholds to cover a larger number of companies
(b) reducing the rates to be closer to actual comparable benchmarks

GST

Some of the amendments in the GST laws [Central Goods and Services Tax Act, 2017 (CGST Act) and the Integrated Goods and Services Tax Act, 2017 (IGST Act)] to give effect to the recommendations made in the 55th GST Council meeting which can be introduced are as follows:

  • Retrospective amendment in Section 17(5)(d) of the CGST Act to replace ‘plant or machinery’ with ‘plant and machinery’ to overcome the Supreme Court's ruling in Safari Retreats.

  • Retrospective amendment in Schedule III of the CGST Act to establish that supply of goods warehoused in SEZs or FTWZs before their clearance (for exports or for home consumption) is neither to be treated as supply of goods nor as supply of services.

  • Amendment of various provisions to provide framework for Invoice Management System (IMS).

Customs

Review of Customs rate structure
There are instances in the customs duty structure where the inputs attract customs duty at higher rates than the finished products, putting domestic manufacturers in a disadvantageous position and impacting their competitiveness compared to imports. In the previous Budget, the Finance Minister had mentioned about a review of the customs rate structure to simplify it for ease of trade, removal of inversion and reduction of disputes. It is anticipated that the customs rate structure would be amended in light of the findings of the review to boost domestic manufacturing and promoting economic growth.

Dispute Settlement Scheme
Similar to the dispute settlement schemes for Central Excise and Service Tax laws as well as for some categories of disputes under GST Laws, the Central Government should introduce an amnesty scheme for Customs disputes.
 

CONCLUSION

Amid shifting geopolitical dynamics, the global economy seems to be expanding at a slower pace than expected. However, India is still projected to be one of the fastest growing major economies in the world. Further, with the new Trump administration coming into power in the US, India’s largest export partner, the Government of India needs to be prepared to adopt a balanced approach to sustain the projected growth rate. Accordingly, the upcoming Budget of Modi Government 3.0 is expected to take measures to focus on sustainable growth of the Indian economy.