Budget 2024: Modi 3.0 govt simplifies taxes, fosters foreign investments

India Budget 2024 tax rules: In order to achieve the vision of simplifying taxes, FM Nirmala Sitharaman announced a comprehensive review of the Income Tax Act, 1961

India Budget 2024 news: On July 23, 2024, Union Finance Minister Nirmala Sitharaman presented the first financial budget of the re-elected Modi government (Modi 3.0 government) for its third consecutive term before the Parliament of India.

With this budget, the Modi Government continued to focus on its vision of simplifying taxes, providing tax certainty, reducing litigation and improving taxpayer services aiming to induce tax compliance, deepening of tax base and foster business growth.

In order to achieve the vision of simplifying taxes, FM Nirmala Sitharaman announced a comprehensive review of the Income Tax Act, 1961, to make it more concise, lucid, and simple. An initiation of this step reflects in the proposed merger of two exemption regimes for Charities into one, reduction of tax deducted at source (TDS) rate from 5 per cent to 2 per cent on various payments (most common being commission/brokerage payments and payment of rent by individuals/HUFs). Thus, while the payments continue to be within the realm of TDS, more cash should flow to the recipients of income ultimately leading to better business prospects.

 

As a step towards reducing litigation, the FM announced various proposals with the key ones being introduction of an amnesty scheme for settlement of disputed issues seeing the great success achieved with the one brought in 2020, increase monetary limits of filing appeals before the Tribunal and Courts, reduction in the time limit of opening of reassessment cases and deployment of more officers for disposal of huge pendency of first stage appeals.

Budget 2024 has taken various measures to make India lucrative for all domestic and international investors which should foster the concept of ease of doing business in India. One of the biggest steps taken in this direction is the abolition of Angel tax. The FM has also proposed to abolish the equalisation levy at 2 per cent applicable on e-commerce supply or services undertaken by non-residents e-commerce operators. The levy has been a subject matter of debate in the absence of any guidance around its applicability. Both these measures come as a welcome step post long pending demands from the industry. Further, while the Government has progressively reduced corporate tax rates for domestic companies in the last few years, in order to provide an equitable ground, the Government has now proposed to slash corporate tax rate applicable on foreign companies from 40 per cent to 35 per cent.

Budget 2024 also emphasises on rationalisation of capital gain provisions. The key ones include having the period of holding to only two types, being 12 months on all listed securities and 24 months for all other assets. Other amendments include increase in tax rate on short term capital gains on sale of listed equity shares/ units from 15 per cent to 20 per cent and tax rate on long term capital gains at 12.5 per cent irrespective of the type of long term asset and residential status of the investor. These amendments will definitely impact the capital markets and investments appetite of the Youth of India. 

On the personal taxation front, changes have been proposed in the new tax regime for individuals which may lead to a saving of up to Rs 17,500, increase in standard deduction available to salaried individuals from Rs 50,000 to Rs 75,000, increase in deduction on family pension enhanced from Rs 15,000 to Rs 25,000. While these measures provide some relief, big expectations of the salaried individuals goes unanswered.  Another relief in the direction of the individuals has been proposed by way of increase in the exemption limit for trigger of penalty in the case of non-reporting of certain movable foreign assets. This is a welcome move for the people who are working in the multinationals receiving ESOPs and who invest in social security schemes abroad.

Overall, while the Budget has focused on simplifying the tax structure, improving foreign investments into India and addressing some asks of the Industry, it seems that the much anticipated relief for salaried individuals is still a miss. The coming months will reveal how the initiatives proposed by the Government effectively translate into tangible benefits for taxpayers and contribute to the nation's overarching developmental goals.

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Disclaimer: Rohinton Sidhwa, is Partner at Deloitte India. Views expressed are his own.