Union Budget 2024: Setting the Path for Viksit Bharat

The Union Budget for 2024-25, unveiled today, marks the inaugural budget of the new coalition government, meeting high expectations from both industry stakeholders and the general public. The budget's central theme aligns with the ambitions of a youthful nation—focusing on employment, skills development, MSMEs, and the middle class. 

As the world's fastest-growing large economy, the budget needed to not only reinforce fiscal stability but also set the stage for sustained economic growth, a delicate balance the finance minister aimed to achieve to realize the vision of Viksit Bharat—a developed India.

A significant move in this direction is the fiscal deficit target of 4.9% of GDP for FY 24-25, continuing the government's advocacy for fiscal prudence.

Regarding tax reforms, the finance minister underscored the goals of providing tax certainty, simplifying tax laws, and reducing litigation while boosting tax revenues for welfare and development. The Income-tax Act, 1961 will undergo a comprehensive review to make it more concise, with the work expected to be completed within the next six months.

While domestic corporate tax rates remain unchanged, the rate for foreign companies in India has been reduced from 40% to 35%, addressing a long-standing demand. For individual taxpayers, in line with the theme of increasing consumption, personal tax slabs have been adjusted under the new tax regime, resulting in lower taxes by approximately ₹17,500. Additionally, the standard deduction for salaried employees will increase from ₹50,000 to ₹75,000.

In line with the theme of simplicity, the capital gains tax structure has been streamlined. The current system, with its varied tax rates and holding periods for different asset types, is complex. The new proposals simplify holding periods to either 12 months or 24 months depending on the asset class for classifying long-term assets, eliminating the 36-month period. 

The long-term capital gains tax rate is harmonized at 12.5% without indexation to simplify tax computation. This may result in higher taxes for some taxpayers (e.g., sale of listed equities and house property) while benefiting those in the 20% tax regime (e.g., sale of listed bonds/debentures). The short-term capital gains tax rate for STT-paid equity shares has increased from 15% to 20%, and the STT rate for F&O has also risen, presumably to curb excessive trading.

The taxation of share buy-backs will change, with gross buy-back proceeds treated as dividends in the hands of shareholders starting October 1, 2024. This ensures parity with dividend taxation and allows for the carry forward of capital losses.

The government has made a concerted effort to reduce tax-related litigation. To this end, the budget introduces the Direct Tax Vivad se Vishwas Scheme, 2024, offering a resolution framework for all pending direct tax appeals as of July 22, 2024. On the GST front, an amnesty scheme is introduced, offering a waiver of interest and penalties on outstanding GST demands from FY 2017-18 to FY 2019-20, provided the principal tax is settled in full by March 31, 2025.

The budget also proposes extending the time limit for availing input tax credit (ITC) from FY 2017-18 to FY 2020-21 until November 30, 2021, giving ample time to reconcile tax credits. Furthermore, a series of custom duty changes aim to boost domestic manufacturing.

Read Market Reactions: Analyzing Post Union Budget 2024