Budget 2024: What to Expect on Taxation Purpose in India
The budget for the fiscal year 2024-25 is expected to be presented on February 1, 2024 by Finance Minister Nirmala Sitharaman. It will be an interim budget, as it is the last one before the general elections in 2024. Therefore, it is unlikely that the budget will introduce any major reforms or changes in the tax rates or slabs.
Budget 2024: Anticipated Taxation Changes in India
There are some expectations from the budget on taxation purpose in India, based on the current economic situation and the government’s policy priorities. In this post, we will discuss some of the possible scenarios and implications for taxpayers, businesses, and investors.
More Benefits Under the New Tax Regime
The new tax regime, introduced in the budget 2020, offers lower tax rates for individuals and HUFs, but without any deductions or exemptions. The old tax regime, on the other hand, allows taxpayers to claim various deductions and exemptions, but at higher tax rates.
Currently, taxpayers have the option to choose between the two regimes, depending on their income and expenses. However, many taxpayers find the new regime less attractive, as they lose out on the benefits of deductions such as employee’s contribution to PF and NPS, home loan interest, tuition fees, etc.
Therefore, one of the expectations from the budget 2024 is that the government may allow some of these deductions under the new regime, to make it more appealing and simple for taxpayers. This may also encourage more people to opt for the new regime, which may increase the tax base and compliance.
Increase in the Basic Exemption Limit
Another expectation from the budget 2024 is that the government may increase the basic exemption limit by at least Rs 50,000 under both the regimes. The basic exemption limit is the amount of income that is not taxable. Currently, the basic exemption limit is Rs 2.5 lakh for individuals below 60 years, Rs 3 lakh for senior citizens (60-80 years), and Rs 5 lakh for super senior citizens (above 80 years).
An increase in the basic exemption limit may provide some relief to the taxpayers, especially the low and middle-income groups, who have been hit hard by the pandemic and the inflation. It may also boost the disposable income and consumption, which may stimulate the economic growth.
Concessional Corporate Tax Rate for New Manufacturing Companies
The budget 2019 had reduced the corporate tax rate from 30% to 22% for existing domestic companies, and from 25% to 15% for new domestic manufacturing companies, subject to certain conditions. These concessional rates were aimed at attracting more investment and creating more jobs in the manufacturing sector, which is crucial for the Make in India initiative.
However, due to the pandemic and the lockdown, the manufacturing sector has suffered a lot of disruption and contraction. Therefore, one of the expectations from the budget 2024 is that the government may extend the concessional tax rate of 15% to new manufacturing companies that start their operations by March 31, 2025, instead of the current deadline of March 31, 2023.
This may incentivize more entrepreneurs and investors to set up new manufacturing units in India, and take advantage of the low tax rate, the production-linked incentive (PLI) scheme, and the improved ease of doing business. This may also enhance the competitiveness and the export potential of the Indian manufacturing sector, which may contribute to the goal of becoming a $5 trillion economy by 2025.
Faster Processing of Tax Refunds, Robust Tax Collection Machinery, and Speedy Disposal of Appeals
One of the common grievances of the taxpayers is the delay in the processing and issuance of tax refunds. This causes a lot of inconvenience and hardship to the taxpayers, especially the small and medium enterprises (SMEs), who face cash flow problems and working capital crunch.
Therefore, one of the expectations from the budget 2024 is that the government may take steps to expedite the processing and issuance of tax refunds, by leveraging technology, automation, and artificial intelligence. This may improve the efficiency and transparency of the tax administration, and reduce the cost and time of compliance for the taxpayers.
Another expectation from the budget 2024 is that the government may strengthen the tax collection machinery, by deploying more resources, personnel, and tools. This may help in widening the tax base, curbing tax evasion, and increasing the tax-to-GDP ratio, which is one of the lowest among the emerging economies.
A third expectation from the budget 2024 is that the government may streamline and simplify the tax dispute resolution mechanism, by reducing the pendency and backlog of appeals, and providing more avenues for alternative dispute resolution (ADR). This may reduce the litigation and uncertainty for the taxpayers, and improve the trust and confidence in the tax system.
Greater Clarity on India’s Implementation Framework for BEPS 2.0
BEPS 2.0 is a global tax reform initiative, led by the Organisation for Economic Co-operation and Development (OECD) and the G20, to address the challenges posed by the digitalization of the economy. It consists of two pillars:
- Pillar One, which aims to allocate more taxing rights to the market jurisdictions, where the users or customers of digital services are located, irrespective of the physical presence of the service providers.
- Pillar Two, which aims to establish a global minimum tax rate, to prevent the shifting of profits to low or no-tax jurisdictions, by multinational enterprises.
India has been actively participating and supporting the BEPS 2.0 project, as it is expected to benefit from both the pillars, by gaining more tax revenue from the digital economy, and by preventing the erosion of its tax base.
However, there are still many unresolved issues and challenges in the implementation of BEPS 2.0, such as the scope, the threshold, the allocation formula, the dispute resolution mechanism, the coordination with the existing tax treaties and domestic laws, etc.
Therefore, one of the expectations from the budget 2024 is that the government may provide more clarity and guidance on India’s implementation framework for BEPS 2.0, and how it will align with the global consensus and the multilateral instrument. This may reduce the uncertainty and complexity for the taxpayers, and ensure a fair and consistent taxation of the digital economy.
Conclusion
The budget 2024 is expected to be a crucial and challenging one, as it will be the last one before the general elections, and it will have to balance the fiscal prudence and the growth stimulus, amid the pandemic and the recovery. The expectations from the budget on taxation purpose in India are high, as the taxpayers, businesses, and investors are looking for some relief, incentives, and clarity from the government. However, the final outcome will depend on the government’s fiscal situation and policy priorities, and how well it can address the needs and aspirations of the stakeholders. We hope this post has given you some insights and perspectives on what to expect from the budget 2024 on taxation purpose in India.
