The Finance Minister unveiled the Indian Union Budget for 2024-25 yesterday.
Please find below the summary of the same. Also, click here to view the highlights:
Summary:
The Final Budget 2024 was introduced by the newly formed Indian government yesterday. It aims to stimulate growth and employment by focusing on key sectors such as agriculture, manufacturing, services, and urban development. It emphasizes infrastructure development, energy security, and innovation, with initiatives like solar power programs and investment in space technology. The budget also proposes significant income tax reforms such as a comprehensive review of Indian domestic tax law, within the next six months.
The budget has introduced several surprises like the removal of the Angel Tax and the Equalisation Levy on Digital services. Capital gain provisions as expected have been revamped. In a move towards creating a more equitable business environment, the tax rate for foreign companies in India has been reduced from 40% to 35%. Section 37 of the Income-tax Act of 1961 (“act”) allows businesses to deduct expenses that are necessary for their operations. It has been clarified that expenses incurred to settle legal disputes arising from violation of the law in India or outside India (e.g., fines, penalties, settlement amounts) will not be tax-deductible. All in all, businesses won't be able to claim the tax deduction by claiming expenses related to settling legal issues. This could increase the overall cost of resolving legal disputes for businesses. The goal is likely to incentivize businesses to follow laws and regulations to avoid these additional costs. The taxation of buybacks has also been changed as they will be treated like dividends now and it may potentially increase the tax burden on investors. Hitherto, it is taxed at 20 percent but after this change, the taxpayers in higher tax bracket will have to shell out more tax
In terms of India abolishing the controversial 2% equalization levy on digital services provided by non-resident digital companies to Indian businesses. This move, part of the Finance Bill 2024, aims to address the compliance burdens and tax disputes faced by global e-commerce players, particularly US-based companies in India. In 2020, the Equalization levy was expanded to cover a wider range of e-commerce services, leading to disagreements with the US, which treated it as discriminatory. The US Trade Representative's 2021 report highlighted about this as well. Further, claiming credit for payments made under this levy posed challenges for foreign companies
The Union Budget acknowledged concerns regarding the levy's ambiguous scope and resulting compliance challenges. The levy, originally 6% for online advertisements, remains in place. However, the 2% levy on other e-commerce services, implemented in 2020 has been withdrawn. Interestingly, there were no announcements on OECD Pillar 1 and 2.
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