Union Budget 2024: A commitment to tax certainty

Catapulted by a historic third mandate by the populace of India, the National Democratic Alliance (NDA) government looked ahead to a trifecta of growth, gumption, and glory. Even as the global order reels under the spectre of policy uncertainties and an uncertain political environment, India has steered its course as a champion for sectoral transformations and societal exceptionalism. 
 

Tax, as a much-vaunted euphemism for social superpowers,  acts as a conduit for both revenue and taxpayers of the world’s largest democracy. The marvellous post-Covid recovery and burgeoning tax collections, with a decadal high of 11.8 per cent tax-to-GDP, bear testament to the ceremonious approach of tax administrations. This, further supported by record direct tax and goods and services tax collections has bolstered Finance Minister Nirmala Sitharaman’s endeavour to maintain the fiscal deficit road map. A 7 per cent growth in FY25 will further add to tax buoyancy, as higher corporate earnings and increased tax compliance, coupled with GST momentum due to higher demand, are reasonable assumptions.
 

The first Budget of the Modi 3.0 was expected to mirror the aspirations of Indian interests en masse. Ms Sitharaman, through a series of fiscal announcements, has vindicated the the Prime Minister’s vision. From a tax standpoint, the Budget announced relief for individual taxpayers and entrepreneurs, including the abolition of the draconian angel tax. Accordingly, crucial sectors like energy, manufacturing, telecom, and manufacturing will witness a transcendental impact. A comprehensive review of the extant 1961 tax law in the next six months will precede amendments.  
 

Tax certainty and effective dispute resolution are the shibboleths of announcements made in the Budget, including another scheme for settling past tax disputes. In this light, the 2024 Finance Bill II edifies the government’s push for foreign investment and entrepreneurial incandescence through a chain of announcements, such as streamlining of re-assessment timelines, introduction of the Vivaad se Vishwas Scheme 2024, extending the scope of safe harbour rules, and rationalisation of assessments involving transfer pricing, a major challenge for multinationals.  
 

The introduction of the tax dispute settlement scheme promises a transformative impact on India’s tax landscape. Beyond its immediate allure of settling long-standing tax disputes without the burden of interest and penalties, the scheme holds the potential to alter the litigation landscape.
 

This not only provides relief, but also aims to reduce the strain on India's judicial system, known for its backlog of tax disputes. The scheme is expected to bring about a wave of resolutions and a clear path to certainty.  Reduced litigation burdens and clearer tax positions are expected to enhance investor confidence and improve the overall business climate. It emerges as not merely a fiscal strategy but a pivotal step towards fostering an environment of trust, clarity, and economic ebullience in India’s tax ecosystem. 
 

The vituperative stranglehold of angel tax has been abolished, which has been a long-standing demand of the startup and venture investment ecosystem. This adds to the expansionist investment arsenal for entrepreneurs. It will consequently help reduce the financial burden and compliance costs while ensuring easy flow of capital.  
 

In line with the industry’s longstanding demand, the capital gains tax regime has been rationalised. The proposed two holding periods, 12 months and 24 months for short-term and long-term capital gains, respectively, along with a tax rate of 20 per cent for certain short-term capital gains and 12.5 per cent for major long-term capital gains, ensure a fair and equitable taxation system. The removal of indexation for long-term capital gains calculations and the parity in taxation between residents and non-residents further reinforce the fairness of amendments. While the proposals streamline the rates, the tax burden on market investors will increase.  
 

Budget also proposes simplifying reassessment procedures. Instead of the existing 10-year time limit, a year under normal reassessment can be reopened for a maximum of five years and six years in case of a search. The reduced time limits will help achieve tax certainty and minimise disputes. 
 

Equipoised on the contours of fiscal consolidation, revenue proliferation, and attainment of tax certainty, the Budget announcements usher a new era of tax rationalisation and simplification. As an enabler, Finance Bill II heralds a springtime symphony for revamping the architecture of nation’s premier tax legislation.   

The writer is with BMR Legal