Improving taxpayer services, ensuring tax certainty, reducing litigation, along with enhancing revenues for funding the development and welfare schemes of the government, are among the key revenue proposals outlined in the Budget for FY25.
Finance minister Nirmala Sitharaman said the government’s endeavour is to simplify taxation further. The government shall carry out a “comprehensive review”of the Income-tax Act, 1961, in the next six months to make it concise, lucid, easy to read and understand. “This will reduce disputes and litigation, thereby providing tax certainty to taxpayers. It will also bring down the demand embroiled in litigation,” she said.
One key measure announced in the Budget is a dispute settlement scheme — ‘Vivad Se Vishwas Scheme 2024 — modelled on a similar one launched in 2020. The scheme will provide a mechanism for settlement of disputes to reduce pendency of cases. As per official sources, more than 500,000 cases were pending at Commissioner of Income Tax (Appeals) level as of January 31.
Additional measures to ease the tax burden on individuals and businesses include streamlining of tax deducted at source (TDS) provisions. The Budget widened tax exemption for charities, reduced the TDS rate for e-commerce operators to 0.1% from 1%, and allowed TCS credit against TDS deducted on salaries.
To streamline tax administration and reduce litigation, reopening and reassessment procedures are being simplified, with standardised operating procedures (SOPs) for TDS defaults and rationalised compounding guidelines, the Budget said.
Further, to attract foreign investment, the government cut the corporate tax rate on foreign companies from 40% to 35%, which is expected to bring cheer to foreign investors, say tax experts. Foreign firms that have permanent establishments and business incomes in India will benefit, rather than ones whose incomes from India operations are primarily in the nature of royalties and technical fees taxed at lower rates.
The removal of the 2% equalisation levy on digital service providers, experts said, will simplify and reduce potential litigations. Amit Maheshwari, tax partner, AKM Global said the equalisation levy only created confusion as the tax department, the payers of services and the foreign companies supposed to discharge the burden “were not always aligned”.
Also, phasing out the levy is in line with the global practices pursuant to the Pillar 1 solution developed at the OECD G20 inclusive framework, said Gokul Chaudhri, president–tax, Deloitte South Asia. However, the Budget didn’t propose any changes for the implementation of Pillar 2 GloBE rules, a major expectation of the industry.
The FM also said that with a view to reduce litigation and provide certainty in international taxation, the government will expand the scope of safe harbour rules and make them more attractive. “We will also streamline the transfer pricing assessment procedure,” she said.
Additionally, the Budget includes several long-term policy initiatives such as preparing a financial sector vision and strategy document, developing a climate finance taxonomy, introducing variable company structures for aircraft and ship leasing financing, and simplifying the foreign direct investment regime.
On the tax receipts front, the Budget has pegged the full year’s gross tax revenue estimate at Rs 38.4 trillion, which is Rs 9,374 crore higher than the interim estimates. Corporate tax estimates have been reduced by Rs 22,830 crore to Rs 10.2 trillion, while those for income tax have been raised to Rs 11.87 trillion fromRs 11.56 trillion.
The FM during her speech also mentioned simplifying and rationalising the goods and services tax (GST) structure, while extending its coverage to include all remaining sectors.
Ankur Gupta, practice leader – indirect tax, SW India said the government’s efforts to simplify and rationalise the GST structure aim to reduce the tax burden on consumers, minimise compliance burdens for businesses, and increase revenues for both central and state governments.
According to Kumarmanglam Vijay, partner, JSA, a review of the IT Act could be a great opportunity for this regime to leave a lasting impact by creating people-friendly provisions that could be administered with the help of technology at a lower cost of administration.
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