The 2025 Budget has introduced significant changes that will impact various aspects of taxation. Our experts at Lakshmikumaran & Sridharan Attorneys have analysed these announcements and their implications.
Please find below the reactions. Please feel free to reach out if you have any immediate questions or require further insights.
Attributed to V. Lakshmikumaran, Founder & Managing Partner, Lakshmikumaran & Sridharan Attorneys
Budget 2025 proposes a significant shift in the settlement scheme under the Customs Act, 1962 with the creation of an Interim Board for Settlement. The Board will consist of three senior officers, all of the rank of Chief Commissioner or above, nominated by the Central Board of Indirect Taxes and Customs. Notably, this Board will operate without judicial members, marking a departure from the previous structure of the Settlement Commission. This change signifies a shift of the settlement process from a judicial to an executive function. Effective from 1st April 2025, the Settlement Commission will cease to function, and all pending applications will be taken over by the Interim Board from the stage at which they stood, ensuring continuity and efficiency in the settlement process.
Attributed to S. Vasudevan, Executive Partner, Lakshmikumaran & Sridharan Attorneys
The present budget aims to address the concerns of the middle-class individuals by radically amending tax rates and rebate provisions so as to effectively make income upto 12 lakhs tax free. While this will not cover income like capital gains that are taxable at special rates, the rate rationalisation is laudable and will certainly benefit large category of taxpayers by benefitting them with a higher disposable income and a positive impact on consumer spending
Attributed to S. Sriram, Partner, Lakshmikumaran & Sridharan Attorneys
The benefit of claiming two house properties as self-occupied is now proposed to be made available without any restrictive conditions attached. The conditions earlier required that either the owner actually occupies or that he is prevented from so occupying on account of his employment or profession being elsewhere. The proposal is likely to provide much needed relief to taxpayers who have not been able to let out their house properties due to any reason whatsoever, and who were earlier liable to pay taxes despite not generating any income thereon
Attributed to Sudin Sabnis, Partner, Lakshmikumaran & Sridharan Attorneys
The remittances under the LRS were severely impacted by the onset of TCS provisions which got introduced in October 2020. Despite a relief granted for remittances upto Rs. 7 lakhs, the issue got further exacerbated in October 2023 when the rate was increased from 5% to 20% in respect of remittances made for purposes other than education/medical treatment. The present budget intends to increase the threshold for collection of TCS from the existing Rs. 7 lakhs to Rs. 10 lakhs. Further, the budget also proposes to keep remittances for the purposes of education which is funded out of a loan obtained from specified financial institutions, outside the ambit of TCS (presently such remittances are subject to a TCS of 1.5% in excess of Rs. 7 lakhs).
Attributed to Nupur Maheshwari, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Rate Rationalisation
The current budget is in line with the theme of rationalisation of tariff Structures, promote domestic manufacturing, provide a flip to exports of goods from India and 'ease of doing business'.
Assessee Friendly Approach – East of doing business
The Government also aims at reducing litigations with a new facility allowing the assessee to disclose facts and discharge additional duty, if any as a measure to simplify the procedure for making additional duty. This is, of course with a rider: there are no investigation and audit is initiated. This amendment will encourage importers to make voluntary disclosures, bring down the litigation costs and also help assessees availing specific schemes like AEO wherein the eligibility is dependent on Show Cause Notices alleging fraud. It is hoped that this facility also enables the assessee to get refund, if the additional disclosure results in such refund.
The time limit for use of imported inputs is being increased from 6 months to 1 year under the Import of Goods at Concessional Rate of Duty rules, 2017.
Time limit of 2 years with further extended to 1 year has been prescribed for finalisation of provisional assessments. These amendments will provide more certainty to the trade. It is hoped that this applies to past cases also.
Industry Specific quotes
To provide benefit to common man grappling with life threatening diseases, complete exemptions to 36 life saving drugs and partial exemption to 6 life saving drugs have been provided.
In line with 'make in India' policy specific exemptions have been provided to electronic goods such as full exemption to parts of open cell which were subject to 2.5% BCD, capital goods exemptions have been provided to boost domestic manufacture of lithium-ion battery and manufacture of ships in India (Including ship breaking services).
Attributed to Charanya Lakshmikumaran, Executive Partner, Lakshmikumaran & Sridharan Attorneys
To address the possibility of tax evasion in certain sectors, it has been proposed to lay down a framework for implementing a Track & Trace mechanism through the insertion of a new provision in the GST law. It is anticipated that the new system will implement technology as a key measure to boost revenue collection, strengthen compliance and curb tax evasion. Similar mechanisms were already in place for the alcoholic liquor for human consumption under the excise laws.
Budget 2025 proposes a significant shift in the settlement scheme under the Central Excise Act with the creation of an Interim Board replacing the Settlement Commission, to take effect from 1st April, 2025. The Board will consist of three senior officers, all of the rank of Chief Commissioner or above, nominated by the Central Board of Indirect Taxes and Customs. Notably, this Board will operate without judicial members, marking a departure from the previous structure of the Settlement Commission. This change signifies a shift of the settlement process from a judicial to an executive function.
Attributed to Anshul Mathur, Executive Partner, Lakshmikumaran & Sridharan Attorneys
In light of the 55th GST Council meeting recommendation, the Finance Bill proposes to retrospectively amend Section 17(5)(d) and insert an Explanation therein to overcome the Supreme Court decision in case of Safari Retreats. As a case of legislative overruling, this amendment is aimed to shut down arguments on the interpretation of the term 'plant or machinery' as propounded in the Apex Court decision and any potential for availing input tax credit in this respect.
The 55th GST Council meeting and circulars issued thereafter had clarified that supply of vouchers does not attract GST. In line with the same, the Finance Bill 2025 has proposed to omit the provisions for time of supply of vouchers. This reaffirms the stand that vouchers by themselves are not subject to GST.
The proposed amendment to Schedule III of the CGST Act expressly providing that transactions occurring within the SEZ or FTWZ prior to clearance in DTA will not attract GST, is a welcome move. This change will provide clarity in the wake of divergent advance rulings, promote ease of doing business and boost global trade efficiency. While this change is retrospective, taxpayers who had already paid GST on these transactions will not be entitled to refund.
Attributed to L. Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys
The threshold for MSME classification is proposed to be raised by 2 - 2.5 times and this could have an impact on payments to MSME vendors. Under MSME Act, there is a requirement to make payment to MSME within 45 days. The classification impacts compliance requirements in relation to penalty and income tax deductions. It will be interesting to see how this change would be implemented.
The Customs duty concessions for the Clean Tech and Rare Minerals is welcome. The reduction in the customs duty on capital goods and components is likely to make India more attractive for both manufacturing in India and also recycling industry to make India more self-sufficient in the EV area.
One of the big requests by large international entities wanting to transition manufacturing to India has been to improve the ecosystem of SME and tooling companies to support such transitions. The National Mission for Manufacturing for Cleantech, Customs Duty rationalisation for Electronics and EV, presumptive taxation for NRs for services to resident company operating in Electronics Manufacturing facilities, safe harbour for storing components and other measures arelikely to provide incentives to increase investment in these areas.
Attributed to Jivesh Chandrayan, Partner, Lakshmikumaran & Sridharan Attorneys
With GCCs booming across the nation as highlighted in the Economic Survey, the push for a Nationwide Framework focusing on their growth in Tier II cities is a game-changer. This strategic move combined with the government's incentives for skill development and regulatory reforms in ease of doing business, the proposed Framework promises to turbocharge infrastructure development, expand the talent pool, and create a wealth of new employment and investment opportunities. By pairing this framework with state-level incentives and policies, India is setting the stage for an even more business-friendly environment, positioning itself as the go-to global hub for GCCs. The real impact will unfold in the details – it's the incentives and provisions that will truly make or break it.
"The move announced by FM Nirmala Sitharaman regarding providing health insurance to gig workers will not only bring such gig workers within the formal economy, but it will also spark the much-needed discussions surrounding the issue of employee misclassification employers (platform providers) face in India. Not to mention the initiatives taken for the protection of gig workers can also be foreseen as central government preparing the legal machinery for the implementation of the upcoming Social Security Code, 2020."
"The budget has promised pro-investment policies, for ease of doing business, promoting employment in labour-intensive sectors, Global Capability Centres, and hospitality making India investor friendly. Also, the budget has rightly picked building centres of excellence and skilling as a major lever for exponentially growing employment in India. The outlook regarding employment generation looks very positive as union budget has announced initiatives that are either directly or indirectly poised to enhance employment generation in India. "
Attributed to Charanya Lakshmikumaran, Executive Partner, Lakshmikumaran & Sridharan Attorneys
- GST appeals which involve only penalty amount will uniformly entail a pre-deposit of 10% at first appellate level and additional 10% at the Tribunal level, in light of the proposal in the Budget. The proposed amendment will result in reduction of pre-deposit amount in cases involving detention and seizure of goods in transit, where the pre-deposit was 25%.
- The parallel provisions of TDS on purchase of goods under 194Q and TCS on sale of goods under Section 206C(1H) resulted in practical difficulties in implementation. Despite the law stating that TCS will not apply if TDS was deducted by buyer, challenges subsisted as every seller was required to confirm if buyer deducted taxes, and more often than not, both TDS and TCS were applied on the same transaction to err on the side of caution. The present proposal to make Section 206C(1H) inapplicable from April 1, 2025 will go a long way in easing compliance burden without compromising on the information made available to the tax authorities.
Attributed to Anshul Mathur, Executive Partner, Lakshmikumaran & Sridharan Attorneys
- The 55th GST Council meeting recommended changes to the provisions pertaining to tax liability adjustments in case of issuance of credit notes by suppliers. Accordingly, the Finance Bill has proposed relevant amendments to allow reduction of GST liability by suppliers only where the recipient has reversed the corresponding ITC, thus providing statutory backing in this respect.
Attributed to S. Vasudevan, Executive Partner, Lakshmikumaran & Sridharan Attorneys
- The Budget proposes to rationalise certain TDS provisions. These include increasing limits for TDS on rent from Rs.2.4 lacs per annum to Rs.50,000 per month (Rs.6 lacs per annum), increasing threshold for TDS on interest income from Rs.50,000 p.a to Rs.1 lac p.a for senior citizens and from Rs.40,000 p.a to Rs.50,000 p.a for other cases. A similar increase across board is also proposed for dividend and mutual fund income, commission income, royalty & fees for technical services, and for certain other incomes as well. These reliefs are also aimed at easing the financial burden for middle class individuals & small and medium businesses".
Attributed to Asish Philip, Partner, Lakshmikumaran & Sridharan Attorneys
In the past 10 years, the FDI in insurance sector has substantially increased from 26% to 74%. The present-day Budget proposal to increase the FDI limit from 74% to 100% is a welcome step resulting in significant capital inflow into India and might also trigger a capital rejig in the insurance sector. In order to avail such incremental benefits, companies would need to align their investment strategies in line with IRDAI regulations and other exchange control conditionalities to fall within the eligibility requirements which mandates that the premium amount so collected will be required to be invested into India. It remains to be seen whether investment in assets located in IFSC will be permitted.
Attributed to Kunal Arora, Partner, Lakshmikumaran & Sridharan Attorneys
Tourism and hospitality
The government is focussing on developing the top tourism sites in collaboration with the state governments. This will involve offering various performance linked incentives for effective management and optimising visa facilities. This coupled with measures to boost mobility, and connectivity is likely to result in improved infrastructure across the country especially the smaller tourist destinations. Simultaneously, the government intends to focus on skill development for the hospitality and travel sector. These measures could collectively result in significant employment generation across the country due to the human resource intensive nature of the industry.
Fast track merger
As part of the financial reforms introduced in the budget, the Indian government has announced its intent to expand the ambit of fast-track mergers thereby indicating that more companies could become eligible for the shorter route, while also reducing the complexities and timeline for the process. The proposed increase in the efficiency and scope for fast-track mergers is a welcome move as it will provide a faster, certain and a more efficient process for a large number of Indian companies to restructure their businesses in contrast to the other existing mechanisms. This can prove to be a significant milestone from a 'ease of doing business' standpoint.
Start-ups
Keeping with the past trends, the government has yet again announced measures for boosting and promoting the start-up ecosystem in the country. Further, the tax benefits available for start-ups have been extended for companies to be incorporated over the next 5 years. In addition to the existing fund for start-ups set up earlier, the government is also planning to set up a new fund of funds with an expanded scope while also exploring another dedicated fund of funds for Deep Tech. These developments are indicators of the government's renewed confidence in the startup ecosystem for fostering new age businesses.
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