The central government of India every year presents the Union Budget that focuses on the proposed expenditures and revenues for the forthcoming financial year. It enumerates the government's achievements in the past financial year and focuses on the goals to be achieved in the financial year ahead.
Since the Lok Sabha elections were to be held in the year 2024, the government presented an interim budget in February 2024 and the final budget for the Fiscal Year 2024-25 was presented on July 23, 2024. This is the 7th Union Budget under the Modi 3.0 government and the FM focused on the idea of “Viksit Bharat” which is an extension of the key features laid during Interim Budget on Feb 2024.
The primary focus of the budget, as mentioned by the Hon’ble Finance Minister Nirmala Sitharaman was on Employment, the Middle Class, Skilling and MSMEs. The budget outlined employment related schemes, new tax regime, provisions for the farmers. A hike in the Securities Transaction Tax (STT), elimination of the angel tax , and short-term and long-term capital gains taxes reductions were also some of the noteworthy changes that were seen in the budget 2024.
FM also focused on the 9 budget priorities. She affirmed, “In line with the strategy set in the interim Budget, this Budget envisages sustained efforts on the following nine priorities for generating ample opportunities for all”. These priorities are as follows:
- Productivity and Resilience in Agriculture
- Employment & Skilling
- Inclusive Human Resource Development and Social Justice
- Manufacturing & Services
- Urban Development
- Energy Security
- Infrastructure
- Innovation and R&D
- Next Generation Reforms
Amendments in Direct Taxes
- Changes in the limit of deductions: The standard deduction from the income of the salaried individuals has been increased from INR 50,000 to INR 75,000 and deduction on family pension for pensioners also increased from INR 15,000 to INR 25,000 under the new regime.
- Modification in the tax slabs: The second and third slabs were 3-6 lakhs and 6-9 lakhs in the budget of FY 23-24. However, now it it is revised to 3-7 lakhs and 7-10 lakhs respectively. This means that individuals earning between 6-7 lakhs annually and 9-10 lakhs annually can see a reduction in their tax bracket from 10 per cent to 5 per cent and 15 per cent to 10 per cent respectively. The tax rates have been revised to the below mentioned slabs:
| Slab |
Tax Rate |
Remark |
| Up to Rs. 3,00,000 |
0% |
|
| Rs. 3,00,001 to Rs. 7,00,000 |
5% |
Previous upper Slab 6,00,000 |
| Rs. 7,00,001 to Rs. 10,00,000 |
10% |
Previous upper Slab 9,00,000 |
| Rs. 10,00,001 to Rs. 12,00,000 |
15% |
|
| Rs. 12,00,001 to Rs.15,00,000 |
20% |
|
| Above Rs. 15,00,000 |
30% |
|
Each salaried individual will enjoy a tax saving of around 17,500 rupees based on the recent budget.
Changes in TDS rates charities: For improving taxpayer compliance, a reduction in the TDS rates is seen on specified payments. However, the applicability of the new will be effective after 1st Oct 2024 or 1st April 2025. The table below shows the changes in the TDS rates.
| Section |
Present Rate |
New Rate |
Applicability With effect from |
| Section 194D - Payment of insurance commission (in case of person other than company) |
5% |
2% |
01-April-2025 |
| Section 194DA - Payment in respect of life insurance policy |
5% |
2% |
01-Oct-2024 |
| Section 194G – Commission etc on sale of lottery tickets |
5% |
2% |
01-Oct-2024 |
| Section 194H - Payment of commission or brokerage |
5% |
2% |
01-Oct-2024 |
| Section 194-IB - Payment of rent by individual or HUF |
5% |
2% |
01-Oct-2024 |
| Section 194M - Payment of certain sums by certain individuals or Hindu undivided family |
5% |
2% |
01-Oct-2024 |
| Section 194-O - Payment of certain sums by e-commerce operator to e-commerce participant |
1% |
0.1% |
01-Oct-2024 |
| Section 194F relating to payments on account of repurchase of units by Mutual Fund or Unit Trust of India |
Proposed to be omitted |
01-Oct-2024 |
- TDS on payment to a partner: The Budget 24-25 introduced a new TDS provision for payments made by LLP firms and partnership firms. The payments made by firm to its partner in salary, remuneration, commission, bonus and interest, etc shall be subject to TDS at the rate of 10% for aggregate amounts more than INR 20,000 in a financial year.
- Abolition of Angel Tax: Provisions for Angel Tax u/s 56(2)(viib) is abolished. Angel Tax is tax levied on any unlisted company that raises funds by issuing shares on a premium then the excess consideration received over the fair market value of the shares. The excess amount above the FMV was taxed u/s 56(2)(viii). Now, with effect from such taxation has been removed. The abolition of the Angel tax shall invite more foreign investment in the start-up sector.
- Lower tax rate for Foreign Companies: Any foreign company operating in India is liable to tax at rate of 35% for FY 2024-25 onwards as compared to the previous rate of 40%. This will increase the confidence of foreign companies to do business in India.
- Rationalisation of Capital Gains:
a. All short-term gains will attract a tax rate of 20% if such gain is incurred after 23rd July 2024 as compared to the previous rate of 15%. It will increase the applicable tax on the short-term capital gain taxpayers.
b. All long-term gains on all financial and non-financial assets will attract a tax rate of 12.5 per cent.
c. The Exemption limit of capital gains on some financial assets has been raised to ? 1.25 lakh per year.
- Securities Transition Tax (STT): The STT on the sale of an option in securities has been increased to 0.1 % from 0.0625% and the STT on the sale of a futures in securities has been increased to 0.02% from previously 0.0125%. This amendment will take place from 1st October 2024. This has a negative impact as the stock market has witnessed the decline due to the increase in STT on the specified transactions.
a. The limit of remuneration to working partners has been increased to INR 3,00,000 or 90% of the book-profit, whichever is more, on the first INR 6,00,000 of the book-profit or in case of a loss.
b. Vivad Se Vishwas Scheme, 2024 is also introduced to provide resolution of certain income tax disputes which pending in appeal.
c. The limit for filing service, excise and direct tax related appeals in courts and Tax Tribunals has been increase to ?60 lakh, ?2 crore and ?5 crore respectively.
- Simplification of Reassessment:
a. For reopening of Income Tax Returns, when the escaped income is 50 lakhs or more an assessment can be reopened beyond three years from the end of the assessment year, upto a period of five years. For search cases, the time limit is reduced to 6 years from10 years.
b. Assessment can be reopened beyond three years upto five years from the end of Assessment Year only if the escaped income is ? 50 lakh or more.
Indirect Tax Amendments
- GST Amendments: Various modifications have been introduced by FM to rationalize the tax structure and ensure its expanding to sectors.
a. To Smoothen Trade: Various amendments have been made to the GST laws to smoothen the trade. From the central tax purview, Extra Neutral Alcohol used in the manufacture of liquor will be excluded. On the same grounds amendments are made in the IGST and UTGST Acts. Moreover, an addition of newly added Section 11A will assist the government to regularize short-levy and non-levy of central tax because of any general practice prevailing in trade.
b. Eased the requirements of Pre-deposit: To smoothen the business process, the amount of pre-deposit needed for filing an appeal with the Appellate Authority has been reduced to 20 crore from 25 crore of central tax. The pre-deposit amount for appeals filed with the Appellate Tribunal has been reduced significantly to 10% with a maximum of Rs. 20 crore from 20% with a maximum of Rs. 50 crore of central tax. The time limit has also been changed, effective August 1, 2024, in order to avert appeals from becoming time-barred due to the operational delays in the Tribunal.
c. Enhanced the provisions for Input Tax Credit: Noteworthy modifications have also been made to input tax credit provisions. There have been an extension on the time limit to avail input tax credit with the help of inserting two new subsections under Section 16 of the CGST Act. A common time limit for the issuance of orders and demand notices will be provided by the amended CGST Act. Additionally, the time limit for taxpayers to get advantage from a reduced penalty by paying the tax with interest is increased to 60 days.
- Custom Law Amendments: The changes in the custom laws in the 2024 final budget were aimed to strengthen domestic manufacturing, boost local value addition, advance export competitiveness, and simplify taxation, while keeping the interest of the public and consumers surmount. The changes in the following industries were made as follows:
a. Medicine and pharmacy: The budget announced to fully exempt the Below 3 cancer medicines from custom duties (the present rate 10%):
i. Trastuzumab Deruxtecan
ii. Osimertinib
iii. Durvalumab
Apart from the above medicines custom duties were exempted for X-ray tubes, polyethylene for use in manufacture of orthopaedic implants and Special grade stainless steel, Titanium alloys used in the medical industry
b.
Mobile Industry: The budget has reduced the rate of import duties as per the below table
| S. No. |
Particular |
Old Rate |
New Rate |
| 1. |
Cellular Mobile Phone |
20% |
15% |
| 2. |
Charger/Adapter of cellular mobile phone |
20% |
15% |
| 3. |
Printed Circuit Board Assembly (PCBA) of cellular mobile phone |
20% |
15% |
| 4. |
Specified goods for use in manufacture of connectors |
5% / 7.5% |
0% |
| 5. |
Oxygen Free Copper for use in manufacture of Resistors |
5% |
Nil |
c.
Precious metal industry: To enhance domestic value addition in gold and precious metal jewellery in the country, the rate of custom duties on
gold and silver were reduced to
6% (previously 15%) and that on platinum to
6.4% (previously 15.40%).
d. Seafoods and livestock: The budget reduced the Custom duty on shrimp and fish feed to 5% (previous 15%).
e. Energy Sector: Custom duty on certain capital goods for use in manufacture of solar cells and modules was made fully exempt (previous rate was 7.5%).
f. Strategic Sectors: To promote various sectors and provide affordable raw materials for the growing economy, custom duties on 25 critical minerals (like Antimony, Beryllium, Bismuth, Cobalt, Copper, Gallium, Germanium, Hafnium) was fully exempted by the budget.
g. Timeline for re-import of goods exported out of India: The time-period of duty-free re-import of goods (other than those under export promotion schemes) exported out under warranty from India has been increased to 5 years, than can be further extended by 2 years.
h. Timeline for export of articles of foreign origin imported into India for repairs: The current due date of 6 Months was increased to 1 year. The time duration for export for aircraft and vessels imported for repair and overhauling has been increased to 1 year, that can be further extended by 1 year.
Important Announcements for Different Sectors
Incentives for MSMEs and Manufacturing sector
- Credit Guarantee Scheme for MSMEs: For facilitating term loans to MSMEs for purchase of equipment and machinery without collateral or third-party guarantee, a credit guarantee scheme will be introduced.
- Credit Support to MSMEs during Stress Period: A new mechanism will be set up for facilitating continuation of bank credit to MSMEs during their stress period.
- Mudra Loans: Limit of Mudra loans will increase to INR 20,00,000 for those entrepreneurs who have availed and successfully repaid previous loans under the ‘Tarun’ category.
- Enhanced scope for mandatory onboarding in TReDS: In order to facilitate MSMEs to release their working capital by converting their trade receivables into cash, the turnover threshold of buyers for mandatory onboarding on the TReDS platform has been revised from 500 crores to 250 crore.
- An initiative to construct, twelve industrial parks under the National Industrial Corridor Development Programme is also take into account.
Incentives for IFSC (International Financial Service Centre)
- Under IFSC, there would be an exemption of income of Core Settlement Guarantee Fund.
- Along with specific funds, the retail schemes and exchange traded funds will also have to chance to take advantage of tax exemption.
- There would be no applicability of surcharge on income-tax payable on income from securities by specified funds.
- Certain finance companies will be excluded from section 94B’s applicability.
Productivity and resilience in Agriculture
- 1.52 lakh crore is allocated to the allied and agricultural sectors.
- Provision to 1 crore farmers in India to initiate into natural farming, with branding and certification in the coming 2 years.
- Release of new 109 high-yielding and climate-resilient varieties of 32 field and horticulture crops for cultivation by farmers.
- Digital Public Infrastructure to be framed to cover the farmers’ land in the coming 3 years.
Employment & Skilling
- 3 schemes to be implemented for providing employment-related incentives to the individuals. This includes Scheme A - First Timers; Scheme B - Job Creation in manufacturing and Scheme C - Support to employers.
- In order to strengthen the participation of women in workforce, hostels for women to be constructed with the help of industries, skilling programs for the women to be introduced and market access for women SHG enterprises to be promoted.
- For Skill Development and skilling programs for youth, the center has sponsored schemes by facilitating 20 lakhs for next 5 years.
- Revision of Model Skill Loan Scheme for providing loans upto 7.5 lakh.
Inclusive Human Resource Development and Social Justice
- Purvodaya plan is formulated, for the development focusing at Bihar, Jharkhand, Odisha, Andhra Pradesh and West Bengal.
- 2.66 lakh crore is provided by the government for rural development and infrastructure.
Apart from these various other development programmes focusing on Urban Development with stress on urban housing, street markers, energy security, infrastructure and research development have also been discussed in the budget.
All in all, the Union Budget Modi Government 3.0 is a mixed bag for the Indian market. On one hand, the tax amendments have lessened the enthusiasm, on the flip side, the custom duty on previous metals appears to motivate investors. Angel Tax abolition is a sigh of relief for the startups however, the new tax regime could have a negative impact on returns when it comes to long-term capital gains. Moreover, it seems that the market would remain volatile till the time the investors digest the budget announcements.
In case of any clarification or queries regarding any of these announcements or other relevant issues, you may write to us at office@indialawoffices.com
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