Expectedly, the Interim Budget, being a Vote to Account, did not announce any significant tax proposals. Considering that we are in election year, some hoped that the Government would take up fiscal stimulus measures like reduction in personal income tax rates. However, the Government has shown restraint to keep the fiscal deficit in check and ensure macroeconomic stability.
No changes have been made in the tax rates for individuals or companies. However, the Government has extended the sunset dates of certain tax incentives that were set to expire on March 31, 2024. These include (i) the tax holiday for eligible start-ups incorporated prior to March 31, 2024; (ii) tax benefits available to investment divisions of offshore banking units in International Financial Service Centre (IFSC) that have commenced operations prior to March 31, 2024; (iii) tax benefits available in respect of aircrafts and ships leased to units in IFSC, if such units have commenced operations before March 31, 2024; (iv) tax exemptions on interest, dividends and long term capital gains enjoyed by sovereign wealth funds and foreign pension funds on specified investments made prior to March 31, 2024.
These benefits have now been extended to March 31, 2025. This offers tax certainty to start-ups and investors around continuity of tax incentives. Surprising, however, the Government has not extended the concessional corporate tax rate of 15 per cent, which is currently available to newly set up manufacturing companies that have commenced manufacturing or production prior to March 31, 2024. This may be a setback for the Make in India initiative.
Notably, the Government has also announced its decision to withdraw any outstanding tax demands that are unverified, not reconciled or disputed for amounts up to INR 25,000 for the period up to financial year 2009- 2010 and amounts up to INR 10,000 for the financial years 2010-2011 to 2014-2015. This will offer a much-needed reprieve to several legacy tax cases of petty amounts that need to be cleared from the system.
The interim budget offers a segue into the full budget that the new Government will announce in July. Some key asks from the industry that still need the government’s attention include the simplification of the TDS regime that currently spans across multiple provisions and requires taxpayers to characterize each payment and determine if monetary thresholds are met depending on the taxable status of the payee.
Similarly, the rationalization of capital gains tax regime is also a long-standing demand from the industry, which believes that the distortionary impact of having different rates across asset classes and investors impacts the development of Indian capital markets and promotes inequity. Some other expectations include the introduction of a tax settlement procedure and measures to address the delays in appellate proceedings. It is also hoped that the Government will consider tax incentives for start-ups, innovation, and green energy in the next turn of the budget.
(Gouri Puri is a direct tax partner, Shardul Amarchand Mangaldas & Co. Views expressed are the author's own)
