PREFACE

Dear Reader,

An annual budget is a major event in every developing country. Less developed the country; the more the changes annually – policy is often amended.

Today the government presented its last comprehensive budget before it goes for the General Elections scheduled in 2024. As avid followers of the budget for over two decades, we at ELP are pleased to report that there is a strong thread of consistency from previous budgets thus demonstrating the maturing of the Indian economy. Clearly there is a focused plan.

As anticipated, the Finance Minister has made drastic changes to personal Income Tax by either extending or introducing various social schemes for the under privileged. Besides pleasing the electorate, this is a need in India as it impacts each voter personally – whether s/he pays taxes or not. The revision of the Income Tax slabs under the new tax regime is expected to increase the purchasing power in the hands of the consumer.

The other big outlay is to capex, which typically has a multiplier effect in the economy – both on industry and job creation. The lasting effects of this expenditure will undoubtedly manifest itself in the efficiency of the economy as a whole – especially in the railways which have received whopping funding in the Finance Bill.

The Finance Bill clearly spells out its seven priorities on the basis of which the proposals have been made which includes: inclusive development, reaching the last mile, infrastructure and investment, unleashing the potential of India's technology, green growth, youth power and promoting the financial sector.

Make in India has not been ignored either. Customs duty on several items have increased under the Make in India scheme which will facilitate domestic manufacturers to compete. However, at the same time it has also reduced customs duty on champion goods such as mobile phones, electrical goods and parts and components of Electrical Vehicles.

Finally, on the issue of fiscal litigation, the government has taken several steps from adding more resource and announcing its intention to introduce (another) settlement scheme. We hope once announced it will benefit tax payers and significantly reduce the backlog of cases in a fair manner. Other clarifications in the law which are ostensibly designed to reduce litigation are largely weighed in favour of revenue with the law ending the dispute in favour of the department. The amendment to Section 9 C of the Customs Tariff Act relating to anti-dumping duties takes the Finance Ministry out of the appeal process without providing a clear alternative.

The final word – a budget that promises much with no major negative impact for the moment. The positive impact will hopefully manifest itself in the future – but isn't planning all about a clear path and a steady hand?

As ELP has always done, our budget publication deep dives into the Finance Bill. We as lawyers, tax advisors and policy shapers dissect the budget from multiple angles with an aim to provide our readers the practical impact of the budget and present the impact on your business. Stripped of all frills and jargon – it is designed to be an easy read. We do hope you benefit from the depth, breath, and clarity of the analysis. As always, your feedback is welcome.

Suhail Nathani, Managing Partner

On behalf of Team ELP

BUDGET HIGHLIGHTS

DIRECT TAXES

  • Personal taxation - Promotion to new tax regime wherein slab rate changed, standard deduction of INR 50K introduced, no tax on income upto INR 0.7 million by way of tax rebate and effective tax rate for HNI with an income above INR 50 million reduced from 42.74% to 39%. No change in old tax regime.
  • No change in headline tax rates for corporates.
  • New tax regime of 15% introduced for manufacturing co-operatives.
  • Start-ups – The benefit of carry forward of losses on change in shareholding extended from 7 years to 10 years. Tax holiday benefit extended to start-ups incorporated upto March 31, 2024.
  • Angel tax u/s 56(2)(viib) extended to issue of shares to non-residents.
  • Cost of acquisition for intangibles and rights to be taken as nil if indeterminable for capital gains.
  • Scope of Section 28(iv) and Section 194R extended to cover business monetary perquisites as well.
  • Presumptive taxation – Turnover limits enhanced for MSMEs and Professionals to INR 30 million (from INR 20 million) and INR 7.5 million (from INR 5 million) respectively.
  • Section 50AA introduced specifying Market Linked Debentures to be taxed as short term capital gains (irrespective of period of holding).
  • REIT/INVITs - Debt repayment and redemption of units taxable under the head IFOS.
  • Taxation regime for online gaming introduced levying 30% tax as well as withholding tax on net winnings.

INDIRECT TAX

  • Restriction on availability of GST input tax credit in respect of CSR expenses.
  • New section 158A in CGST Act is being inserted to enable sharing of information across regulators.
  • Import tariffs suitably amended to foster more local value addition and promote green energy & mobility.
  • Validity period of 2 years shall not apply to specified exemption notifications such as those issued in relation to multilateral or bilateral trade agreements etc.
  • Retro amendments to Customs Tariff Act concerning trade remedies, addresses pending (unwanted) litigation.
  • Retrospective coverage of international merchant trading transactions, sale of warehoused goods as well as high seas sales under Schedule III of the CGST Act.
  • Expanding the scope of GST levy on OIDAR services.
  • Filing of returns/statements restricted to a maximum period of three years from its due date.
  • Decriminalization of certain offences under Section 132 of CGST Act.
  • Increase in the threshold limit in relation to certain offences for prosecution under Section 132.
  • Penalty proposed on e-Commerce operators dealing with unregistered persons or composition taxpayers.
  • Taxation regime for online gaming introduced levying 30% tax as well as withholding tax on net winnings.

CENTRAL SALES TAX ACT, 1956

  • Section 19 of the CST Act which provides for functions, powers and composition of the Central Sales Tax Appellate Authority is proposed to be substituted. As per the new provision, CESTAT will have jurisdiction to adjudicate any dispute relating to inter-state sales.
  • An amendment is proposed to omit Section 24 of the CST Act which deals with the constitution of the Central Sales Tax Appellate Authority. The Central Sales Tax Appellate Authority will no longer be functional as per the proposed amendment.
  • CESTAT will have jurisdiction over any disputes relating to inter-State sale of goods.
  • Central Sales Tax Appellate Authority will no longer be functional. Pending cases to be transferred to CESTAT.

ELP COMMENTS:

The CST Appellate Authority has been non-functional for over a year. This amendment provides much required clarity in relation to appeals pending before the CST Appellate Authority.

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