Budget 2024-25

The citizens of India have reaffirmed their confidence in the government led by the Hon’ble Prime Minister Shri Narendra Modi by re-electing it for a historic third term. The government expresses its gratitude for their support and trust in its policies. This mandate reinforces the commitment to ensuring that all Indians, irrespective of religion, caste, gender, or age, progress towards their aspirations and life goals.

The global economy, despite performing better than expected, remains shrouded in policy uncertainties. Elevated asset prices, political tensions, and disruptions in shipping continue to present significant downside risks to growth and upside risks to inflation. Amidst these global challenges, India’s economic growth stands out as a beacon of stability and promise. The inflation rates remain low and stable, moving towards the 4% target, with core inflation (excluding food and fuel) at 3.1%. Measures are being implemented to ensure an adequate market supply of perishable goods.

Interim Budget Review

• In the interim budget, the Central Government emphasized focus on 4 key demographics: the ‘Garib’ (Poor), ‘Mahilayen’ (Women), ‘Yuva’ (Youth), and ‘Annadata’ (Farmer).
• They also recently announced higher Minimum Support Prices for all major crops to fulfil their promise of a 50% margin over costs.
• The Pradhan Mantri Garib Kalyan Anna Yojana has been extended for 5 years which would benefit over 80 crore people.
• Administrative actions for the approval and implementation of various schemes announced in the interim budget are well underway, with the necessary allocations made.

Budget Theme and Priorities

The current budget emphasizes employment, skilling, MSMEs, and the middle class. The Prime Minister’s package of 5 schemes aims to facilitate employment and opportunities for 4.1 crore youth over 5 years, with a central outlay of INR 2 lakh crore. An allocation of INR 1.48 lakh crore is made for education, employment, and skilling.

Budget 2024-25

The Budget was presented in 3 parts:

1. Part A: 9 Priorities
2. Part B: Indirect Tax
3. Part C: Direct Tax

Part A: 9 Priorities

The budget outlines a detailed roadmap for ‘Viksit Bharat,’ focusing on 9 priorities:

1. Productivity and resilience in agriculture
2. Employment and skilling
3. Inclusive human resource development and social justice
4. Manufacturing and services
5. Urban development
6. Energy security
7. Infrastructure
8. Innovation, research, and development
9. Next-generation reforms

Priority 1: Productivity and Resilience in Agriculture

A.    Comprehensive Agriculture and Aquaculture Development Initiatives

• The government will enhance agricultural research by reviewing current setups and funding initiatives to boost productivity and develop climate-resilient crops, with expert oversight.
• It will release 109 high-yield, climate-resilient crop varieties and introduce 1 crore farmers to natural farming, supported by certification, branding, and 10,000 bio-input centres.
• To achieve self-sufficiency in pulses and oilseeds, the government will focus on increasing production, storage, and marketing.
• Large-scale vegetable production clusters will be established near consumption centres, with support for supply chains.
• The Digital Public Infrastructure (“DPI”) for agriculture will be expanded, including a digital crop survey and issuance of Kisan Credit Cards.
• Financial backing will be provided for shrimp breeding centres and shrimp farming and export through NABARD.

B.    National Cooperation Policy

• The government will introduce a National Cooperation Policy to ensure systematic, orderly, and comprehensive development of the cooperative sector.
• The policy aims to fast-track the growth of the rural economy and generate large-scale employment opportunities.

C.    Budget Allocation

• A provision of INR 1.52 lakh crore has been made for agriculture and allied sectors in this year’s budget.

Analysis:

Regulatory compliance will be crucial for new crop varieties and bio-input centres, while robust certification and branding frameworks for natural farming will ensure adherence to organic standards.

• The National Cooperation Policy will streamline cooperative operations, requiring clear legal guidelines.
• The expansion of DPI for agriculture raises important data privacy and security concerns.
• Commercially, the INR 1.52 lakh crore budget allocation presents investment opportunities in agri-tech and infrastructure, fostering market expansion and risk mitigation through sustainable practices.
• Enhanced credit schemes and support for shrimp farming will improve financial access, spurring innovation and employment generation.

Priority 2: Employment & Skilling

D.    Employment Linked Incentive

• The government will implement 3 schemes under the Prime Minister’s package for ‘Employment Linked Incentive,’ based on enrolment in the EPFO, focusing on recognizing first-time employees and supporting both employees and employers.

E.     Participation of Women in the Workforce

• The government will facilitate higher participation of women in the workforce by setting up working women hostels in collaboration with industry and establishing crèches.
• Additionally, partnerships will be formed to organize women-specific skilling programs and promote market access for women SHG enterprises.

F.     Skilling Program

• A new centrally sponsored scheme will be launched for skilling in collaboration with state governments and industry.
• Over a 5-year period, 20 lakh youth will be skilled, and 1,000 Industrial Training Institutes will be upgraded in a hub-and-spoke arrangement with an outcome orientation.
• Course content and design will be aligned with the skill needs of the industry, and new courses will be introduced for emerging needs.
• Total outlay of ₹60,000 crore:
• Government of India: ₹30,000 crore
• State Governments: ₹20,000 crore
• Industry: ₹10,000 crore (including CSR funding)
• There will be an establishment of 200 hubs and 800 spoke ITIs, re-designing existing courses, introducing new courses, and offering short-term specialized courses.
• Capacity augmentation of 5 national institutes for training trainers would be initiated.
• This program is expected to benefit 20 lakh students.

G.    Skilling Loans

• The Model Skill Loan Scheme will be revised to facilitate loans up to INR 7.5 lakh with a guarantee from a government-promoted fund. This measure is expected to help 25,000 students annually.

H.    Education Loans

• To assist youth who have not been eligible for benefits under other government schemes, financial support for loans up to INR 10 lakh for higher education in domestic institutions will be provided.
• E-vouchers will be given directly to 1 lakh students annually for an interest subvention of 3% of the loan amount.

Analysis:

• The Employment Linked Incentive scheme, based on EPFO enrolment, will require stringent regulatory oversight to ensure compliance and equitable benefits.
• The new skilling program, with an INR 60,000 crore outlay, mandates collaboration between central and state governments and industry.
• Upgrading ITIs and aligning courses with industry needs will drive commercial investments in education technology and infrastructure.
• The revised Model Skill Loan Scheme and education loans for higher studies underscore the need for robust financial regulations to manage guarantees and interest subventions, facilitating broader access to education and skilling opportunities.

Priority 3: Inclusive Human Resource Development and Social Justice

Comprehensive Development and Economic Support Initiatives

• The government will adopt a saturation approach to enhance social justice, focusing on farmers, youth, women, and the poor through diverse programs.
• Economic support will be intensified for craftsmen, artisans, and entrepreneurs through schemes like PM Vishwakarma and PM SVANidhi.
• The Purvodaya plan will drive development in Bihar, Jharkhand, West Bengal, Odisha, and Andhra Pradesh, while an industrial node at Gaya in the Amritsar Kolkata Industrial Corridor aims to boost economic growth.
• Financial aid will be provided for Andhra Pradesh’s development, including the Polavaram Irrigation Project and industrial infrastructure.
• The PM Awas Yojana will see the addition of 3 crore houses, and over INR 3 lakh crore will support women-led development.
• The Pradhan Mantri Janjatiya Unnat Gram Abhiyan will enhance conditions for tribal communities, and 100 India Post Payment Bank branches will expand banking in the North East.
• Additionally, INR 2.66 lakh crore is allocated for rural development and infrastructure.

Infrastructure and Power Projects

• Road connectivity projects, including the Patna-Purnea Expressway, Buxar-Bhagalpur Expressway, and additional spurs, along with a new 2400 MW power plant at Pirpainti, will be undertaken at a total cost of INR 26,000 crore for roads and INR 21,400 crore for power projects.
• New airports, medical colleges, and sports infrastructure will be constructed in Bihar. Additional allocations will support capital investments, and the Bihar Government’s requests for external assistance from multilateral development banks will be expedited.

Analysis:

• India’s focus on inclusive development with social justice initiatives like PM Awas Yojana housing and Janjatiya Unnat Gram Abhiyan for tribal communities holds promise for improved living standards.
• However, legal challenges regarding land acquisition for infrastructure projects (expressways, power plants) and environmental clearances could arise.
• Commercially, these projects present opportunities for construction companies and power producers.

Priority 4: Manufacturing & Services

Support and Enhancements for MSMEs

• The budget focuses on promoting MSMEs and labour-intensive manufacturing through a comprehensive package offering financing, regulatory changes, and technology support.
• A new credit guarantee scheme will enable MSMEs to obtain term loans for machinery without collateral, with coverage up to INR 100 crore.
•  Public sector banks will create in-house credit assessment models based on digital footprints.
• Support will be provided to MSMEs in financial stress via a government-promoted guarantee fund. Mudra loan limits are increased to INR 20 lakh for successful entrepreneurs.
• The TReDS platform’s onboarding threshold will be lowered to include more medium enterprises.
• SIDBI will open new branches in MSME clusters, and financial aid will support food irradiation and safety testing units.
• E-Commerce Export Hubs will be established to help MSMEs and artisans access global markets.

Measures for Promotion of Manufacturing & Services

i.   Internship in Top Companies

• A comprehensive scheme will be launched to provide internship opportunities in 500 top companies for 1 crore youth over 5 years.
• Interns will receive a monthly allowance of INR 5,000 and a one-time assistance of INR 6,000.
• Companies are expected to cover the training costs and 10% of the internship costs from their CSR funds.

ii.          Industrial Parks

• The development of investment-ready “plug and play” industrial parks with complete infrastructure in or near 100 cities will be facilitated in partnership with states and the private sector.
• Additionally, 12 industrial parks under the National Industrial Corridor Development Programme will be sanctioned.

iii.          Rental Housing

• Rental housing with dormitory-type accommodation for industrial workers will be developed in PPP mode with VGF support and commitments from anchor industries.

iv.          Shipping Industry

• Reforms in ownership, leasing, and flagging will be implemented to enhance the share of the Indian shipping industry and create more employment opportunities.

v.          Critical Mineral Mission

• A Critical Mineral Mission will be established to focus on domestic production, recycling, and overseas acquisition of critical mineral assets.
• The mission will also address technology development, workforce skills, an extended producer responsibility framework, and financing mechanisms.

vi.          Offshore Mining of Minerals

• The government will launch the auction of the first tranche of offshore blocks for mining, building on previous exploration efforts.

vii.          DPI Applications

• Development of DPI applications will be proposed for productivity gains, business opportunities, and innovation in areas including credit, e-commerce, education, health, law and justice, logistics, MSME services, and urban governance.

viii.          Integrated Technology Platform for IBC Ecosystem

• An Integrated Technology Platform will be set up to enhance outcomes under the Insolvency and Bankruptcy Code (“IBC”), focusing on consistency, transparency, timely processing, and better oversight.

ix.          Voluntary Closure of LLPs

• The services of the Centre for Processing Accelerated Corporate Exit (“C-PACE”) will be extended to expedite the voluntary closure of LLPs.

x.          National Company Law Tribunals

• The IBC has resolved over 1,000 companies, recovering more than INR 3.3 lakh crore for creditors.
• Additionally, 28,000 cases involving over INR 10 lakh crore have been disposed of.
• Changes to the IBC and reforms to strengthen tribunals and appellate tribunals will be initiated, including the establishment of additional tribunals.

xi.          Debt Recovery

• Reforms and strengthening of debt recovery tribunals will be undertaken, with additional tribunals established to expedite recovery processes.

Analysis:

• The comprehensive package for MSMEs, including financing, regulatory changes, and technology support, will necessitate robust legal frameworks to manage credit guarantees and ensure compliance with new credit assessment models by public sector banks.
• Lowering the TReDS platform’s onboarding threshold and establishing E-Commerce Export Hubs will facilitate easier access to financing and global markets for MSMEs, though they require strict regulatory oversight.
• Enhancing the MSME credit guarantee scheme and increasing Mudra loan limits will provide much-needed financial relief, demanding clear legal stipulations to manage these guarantees and loans.
• The focus on “plug and play” industrial parks, rental housing for workers, and the Critical Mineral Mission will spur commercial investment but will require legal clarity on public-private partnerships and environmental regulations.
• The introduction of an Integrated Technology Platform for the IBC ecosystem and the expansion of the Centre for Processing Accelerated Corporate Exit services for LLPs will streamline insolvency processes, demanding updates to existing legal frameworks to ensure transparency and efficiency.
• Reforms in the shipping industry, offshore mineral auctions, and DPI applications across various sectors will drive commercial growth but will require new legal policies to govern ownership, leasing, and digital innovations.
• Strengthening debt recovery tribunals and expanding National Company Law Tribunals will expedite dispute resolution and debt recovery, necessitating amendments to current legal procedures to enhance their efficacy and jurisdiction.

Priority 5: Urban Development

Strategic Urban Development and Infrastructure Initiatives

• The government will develop ‘Cities as Growth Hubs’ through strategic economic and transit planning, focusing on orderly peri-urban development.
• A framework for creative brownfield redevelopment will be established, incorporating enabling policies and market mechanisms.
• Transit-oriented development plans will be prepared for 14 major cities, including comprehensive strategies for implementation and financing.
• Under PM Awas Yojana Urban 2.0, INR 10 lakh crore will be invested to address housing needs for 1 crore urban families, with central assistance of INR 2.2 lakh crore over 5 years.
• Water supply, sewage treatment, and solid waste management projects will be promoted for 100 large cities, incorporating treated water use.
• Additionally, 100 street food hubs will be developed annually to support street vendors, building on the PM SVANidhi Scheme’s success.

Stamp Duty

• The government will encourage states with high stamp duty rates to moderate them and will consider further reductions for properties purchased by women.
• This reform will be integrated into urban development schemes.

Priority 6: Energy Security

Energy Transition

• The government will release a policy document outlining appropriate pathways for energy transition.
• This strategy aims to balance the needs for employment, economic growth, and environmental sustainability, ensuring energy security in terms of availability, accessibility, and affordability.

PM Surya Ghar Muft Bijli Yojana

• The PM Surya Ghar Muft Bijli Yojana has been launched to install rooftop solar plants, providing free electricity up to 300 units per month for 1 crore households.
• The scheme has seen substantial uptake with over 1.28 crore registrations and 14 lakh applications. Efforts will continue to promote this initiative.

Pumped Storage Policy

• A new policy will be introduced to support pumped storage projects, enhancing electricity storage capabilities and facilitating the integration of variable and intermittent renewable energy sources into the national energy mix.

Research and Development of Small and Modular Nuclear Reactors

• Recognizing the pivotal role of nuclear energy in achieving Viksit Bharat, the government will collaborate with the private sector to establish Bharat Small Reactors and advance research in Bharat Small Modular Reactors and other nuclear technologies.
• Funding for R&D in this sector, as announced in the interim budget, will be provided.

Advanced Ultra Super Critical Thermal Power Plants

• The government will support the development of Advanced Ultra Super Critical (“AUSC”) thermal power plants, which offer higher efficiency.
• A joint venture between NTPC and BHEL will establish a full-scale 800 MW commercial plant utilizing AUSC technology.
• Fiscal support will be provided, and the development of indigenous capabilities for high-grade steel and advanced metallurgy materials will further benefit the economy.

Roadmap for ‘Hard to Abate’ Industries

• A roadmap will be developed to transition ‘hard to abate’ industries from energy efficiency targets to emission targets.
• Regulations will be introduced to shift these industries from the ‘Perform, Achieve and Trade’ model to the ‘Indian Carbon Market’ model.

Support to Traditional Micro and Small Industries

• An investment-grade energy audit will be conducted for traditional micro and small industries in 60 clusters, including brass and ceramics.
• Financial assistance will be provided to support the shift to cleaner energy sources and the implementation of energy efficiency measures.
• This scheme will be expanded to an additional 100 clusters in the next phase.

Analysis:

• Strategic economic and transit planning, particularly in peri-urban areas, will necessitate clear legal guidelines to ensure orderly development.
• The significant investment under PM Awas Yojana Urban 2.0 for housing will drive commercial opportunities in construction and real estate.
• Water supply, sewage treatment, and solid waste management projects in large cities will demand legal provisions for public-private partnerships and environmental standards.
• The development of street food hubs and the moderation of high stamp duty rates will boost commercial activity and property transactions, though they require updated legal mechanisms to support vendor licensing, property registrations, and gender-focused incentives.

Priority 7: Infrastructure

Infrastructure Investment by the Central Government

• The government is committed to maintaining robust fiscal support for infrastructure over the next 5 years while balancing other priorities and fiscal consolidation.
• For this year, an allocation of INR 11,11,111 crore for capital expenditure has been provided, representing 3.4% of GDP.

Infrastructure Investment by State Governments

• State governments will be encouraged to make comparable investments in infrastructure, aligned with their development priorities.
• A provision of INR 1.5 lakh crore in long-term interest-free loans has been made this year to assist states in their resource allocation.

Private Investment in Infrastructure

• Private sector investment in infrastructure will be promoted through viability gap funding and supportive policies and regulations.
• A market-based financing framework will be introduced to facilitate private participation.

Pradhan Mantri Gram Sadak Yojana (“PMGSY”)

• Phase IV of the PMGSY will be launched to provide all-weather connectivity to 25,000 rural habitations that have become eligible due to population growth.

Analysis:

• The PM Surya Ghar Muft Bijli Yojana, providing free electricity through rooftop solar installations, will spur commercial opportunities in the renewable energy sector but necessitate regulatory compliance for installations and grid integration.
• The new policy supporting pumped storage projects will enhance energy storage capabilities, and it may require legal mechanisms for project development and environmental impact assessments.
• Collaboration with the private sector for small and modular nuclear reactors will drive R&D and commercial advancements in nuclear technology.
• The development of AUSC thermal power plants will need fiscal policies and regulations to support high-grade steel and advanced metallurgy industries.
• Transitioning ‘hard to abate’ industries to emission targets will require new regulations and market mechanisms under the Indian Carbon Market model.
• Energy audits and financial assistance for traditional micro and small industries will promote cleaner energy adoption.

Priority 8: Innovation, Research & Development

Anusandhan National Research Fund

• The government will operationalize the Anusandhan National Research Fund to support basic research and prototype development.
• Additionally, a mechanism will be established to stimulate private sector-driven research and innovation at a commercial scale.
• This initiative will be supported by a financing pool of INR 1 lakh crore, as outlined in the interim budget.

Space Economy

• In alignment to expand the space economy five-fold over the next decade, the government will establish a venture capital fund of INR 1,000 crore.
• This fund is intended to foster growth and innovation within the space sector.

Analysis:

• The establishment of a venture capital fund for the space economy will stimulate commercial growth and innovation, necessitating regulatory oversight to manage investments and foster a competitive market environment.

Priority 9: Next Generation ReformsEconomic Policy Framework

• The government will develop an Economic Policy Framework to outline the overarching approach to economic development and define the scope of next-generation reforms aimed at enhancing employment opportunities and sustaining high growth.
• This framework will include reforms to improve productivity across all factors of production—land, labour, capital, entrepreneurship, and technology.
• Effective implementation of these reforms will necessitate collaboration between the Centre and states and will be supported by a significant portion of the 50-year interest-free loan.

Land-related Reforms by State Governments

• State governments will be encouraged to undertake land-related reforms encompassing both rural and urban areas.
• These reforms will address land administration, planning, management, urban planning, and building bylaws.
• States will receive fiscal support to complete these reforms within the next 3 years.

Rural Land Actions

• Rural land reforms will include the assignment of Unique Land Parcel Identification Numbers (“ULPIN”), digitization of cadastral maps, survey of land subdivisions, establishment of land registries, and linkage to farmer registries.
• These actions aim to facilitate credit flow and enhance agricultural services.

Urban Land Actions

• In urban areas, land records will be digitized and GIS mapping will be implemented.
• An IT-based system for property record administration, updating, and tax management will be established to improve the financial position of urban local bodies.

Labour-related Reforms

• The government will enhance services to labour, including employment and skill development, through the integration of the e-shram portal with other platforms.
• This integration will offer a comprehensive solution to connect job seekers with potential employers and skill providers.
• Additionally, the Shram Suvidha and Samadhan portals will be revamped to simplify compliance for industry and trade.

Capital and Entrepreneurship Reforms

• A financial sector vision and strategy document will be introduced to address the financing needs of the economy, setting the agenda for the next 5 years.
• The development of a taxonomy for climate finance will enhance capital availability for climate adaptation and mitigation, supporting the country’s climate goals.
• The government will seek legislative approval for a ‘variable company structure’ to facilitate financing leasing of aircraft and ships, and pooled funds of private equity.

Foreign Direct Investment and Overseas Investment

• The government will simplify rules and regulations for Foreign Direct Investment (“FDI”) and Overseas Investments to facilitate foreign investments, prioritize opportunities, and promote the use of the Indian Rupee in overseas investments.

New Pension Scheme (“NPS”) Vatsalya

• The NPS-Vatsalya plan will be introduced, allowing contributions by parents and guardians for minors, which can be seamlessly converted into a standard NPS account upon reaching the age of majority.

Use of Technology

• The government will continue to leverage technology to enhance productivity and address inequality.
• Increased investment in digital infrastructure and innovation will support broader access to market resources, education, health, and services.

Ease of Doing Business

• To improve the ‘Ease of Doing Business,’ the Jan Vishwas Bill 2.0 will be advanced.
• States will be incentivized to implement Business Reforms Action Plans and digitalization.

Data and Statistics

• Efforts to improve data governance and management will utilize sectoral databases and technology tools established under the Digital India mission.

NPS

• The ongoing review of the NPS will address relevant issues while maintaining fiscal prudence.
• A balanced solution will be developed with constructive input from stakeholders to ensure the scheme’s sustainability.

Analysis:

• The focus on productivity across land, labour, capital, entrepreneurship, and technology will necessitate comprehensive regulatory updates and harmonization between central and state laws.
• Land-related reforms, both rural and urban, will require legal frameworks to streamline land administration, digitize records, and improve land use efficiency, potentially leading to disputes and necessitating robust dispute resolution mechanisms.
• Labour reforms and the integration of platforms like e-shrams will demand enhanced regulatory compliance and data protection laws.
• Capital and entrepreneurship reforms, including the development of climate finance taxonomy and variable company structures, will introduce new financial mechanisms and regulatory adjustments.
• Simplified FDI and overseas investment rules are likely to boost foreign investment.
• The NPS-Vatsalya plan and enhanced digital infrastructure investments will demand regulatory updates and stakeholder engagement to ensure effectiveness and sustainability.

Budget Estimates 2024-25

• For the fiscal year 2024-25, total receipts (excluding borrowings) are estimated at INR 32.07 lakh crore, while total expenditure is projected at INR 48.21 lakh crore.
• Net tax receipts are estimated at INR 25.83 lakh crore, with a fiscal deficit of 4.9% of GDP. Gross and net market borrowings are estimated at INR 14.01 lakh crore and INR 11.63 lakh crore, respectively, both lower than in 2023-24.
• The government aims to reduce the fiscal deficit to below 4.5% of GDP in the following year and will strive to maintain a declining path for central government debt as a percentage of GDP from 2026-27 onwards.

Part B: Indirect Taxes

Goods and Services Tax (“GST”)

• The GST has significantly reduced the tax burden on consumers, alleviated compliance and logistics costs for businesses, and increased revenue for both central and state governments.
• To enhance these benefits, the government will focus on further simplifying and rationalizing the GST structure and expanding its coverage to additional sectors.

Customs Duties

• The government aims to support domestic manufacturing, increase local value addition, boost export competitiveness, and simplify taxation through customs duty reforms.
• Following the reduction in the number of customs duty rates in Budget 2022-23, a comprehensive review of the customs rate structure will be conducted over the next 6 months to streamline and simplify it, address duty inversion issues, and minimize disputes.

Sector-Specific Customs Duty Proposals

Medicines and Medical Equipment

• To assist cancer patients, the government proposes full customs duty exemption on 3 additional cancer medicines.
• Changes will also be made to the Basic Customs Duty (“BCD”) on x-ray tubes and flat panel detectors used in medical x-ray machines, aligning them with domestic production capacities.

Mobile Phones and Related Parts

• In response to the substantial growth in domestic mobile phone production and exports, the BCD on mobile phones, mobile printed circuit board assemblies (“PCBA”), and mobile chargers will be reduced to 15%.

Critical Minerals

• Customs duties on 25 critical minerals essential for various high-tech sectors will be fully exempted, with BCD reductions on 2 minerals, to support their processing and refining.

Solar Energy

• To promote energy transition, the list of exempted capital goods for solar cell and panel production will be expanded.
• However, the exemption for solar glass and tinned copper will not be extended due to sufficient domestic manufacturing capacity.

Marine Products

• To boost the competitiveness of India’s seafood exports, including frozen shrimp, the BCD on certain broodstock, polychaete worms, shrimp, and fish feed will be reduced to 5%, and customs duty will be exempted on various inputs for shrimp and fish feed production.

Leather and Textile

• To enhance export competitiveness in the leather and textile sectors, the BCD on real down-filling material will be reduced.
• The list of exempted goods for leather and textile garment production will be expanded, and the BCD on methylene diphenyl diisocyanate (“MDI”) used in spandex yarn production will be lowered from 7.5% to 5%.
• The export duty structure on raw hides, skins, and leather will also be simplified.

Precious Metals

• To promote domestic value addition in gold and precious metal jewellery, customs duties will be reduced to 6% for gold and silver, and 6.4% for platinum.

Other Metals

• To lower production costs, BCD will be removed on ferro nickel and blister copper, while maintaining a nil BCD on ferrous scrap and nickel cathode, and a concessional BCD of 2.5% on copper scrap.

Electronics

• To increase domestic value addition in electronics, BCD will be removed on oxygen-free copper for resistor manufacture, and certain parts for connector manufacture will be exempted.

Chemicals and Petrochemicals

• The BCD on ammonium nitrate will be increased from 7.5% to 10% to support capacity expansions.

Plastics

• To address environmental concerns, the BCD on non-biodegradable PVC flex banners will be raised from 10% to 25%.

Telecommunication Equipment

• To incentivize domestic manufacturing, the BCD on PCBA for specified telecom equipment will be increased from 10% to 15%.

Trade Facilitation

• To bolster domestic aviation and maritime maintenance, repair, and overhaul (“MRO”) services, the export period for goods imported for repairs will be extended from 6 months to 1 year.
• Additionally, the re-import period for goods repaired under warranty will be extended from 3 to 5 years.

Legislative Amendments

Legislative Changes in Customs Laws

            Amendments to the Customs Act, 1962

• Section 28 DA: Updated to accept various proof of origin types under new trade agreements allowing self-certification.
• Section 65: Introduces a proviso empowering the Central Government to restrict certain manufacturing operations in warehouses.
• Section 143AA: Revises terminology to include “any other persons” to facilitate trade. Related changes are made to Section 157(2)(m). These amendments take effect from the date of assent to the Finance (No.2) Bill.

          Amendments to the Customs Tariff Act, 1975

• Section 6 is omitted due to the dissolution of the Tariff Commission.
• Increases rates for specific tariff items effective 24.07.2024.
• Introduces new tariff lines for defence products, technical textiles, aviation fuel, semiconductor products, e-bicycles, menthol, and printer cartridges, effective from October 1, 2024.

           Amendment to Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidized Articles and for Determination of Injury) Rules, 1995

• Introduces a New Shipper Review provision effective 24.07.2024.

Legislative Changes

             Trade Facilitation Amendments

• Section 9: Exempts Extra Neutral Alcohol used in manufacturing alcoholic liquor from central tax. Similar changes in the IGST and UTGST Acts.
• Section 11A: Allows the government to regularize non-levy or short-levy of central tax due to prevalent trade practices. Similar provisions in the IGST, UTGST, and GST (Compensation to States) Acts.
• Section 16: Introduces new sub-sections to extend the time limit for claiming input tax credit for financial years 2017-18 to 2020-21 and for cases of return filings post-revocation of registration.
• Section 74A: Establishes a common time limit for issuing demand notices and orders for FY 2024-25 onwards. Extends the time for reduced penalty benefits from 30 to 60 days.
• Section 128A: Provides a conditional waiver of interest and penalty for certain financial year demands.
• Sections 107 and 112: Reduces the maximum pre-deposit for appeals and modifies appeal filing deadlines.
• Section 73: Allows for conditional waiver of interest or penalties for specific financial years if full tax is paid before a specified date.
• Section 140(7): Enables transitional credit for input services received prior to the appointed day.
• Section 171: Empowers the government to designate the GST Appellate Tribunal for anti-profiteering cases and set a sunset clause.
• Schedule III: Clarifies certain insurance sector activities as neither goods nor services.
• Section 13: Clarifies time of supply for reverse charge services where invoices are issued by the recipient.
• Section 17: Restricts input tax credit blockage for demands up to FY 2023-24.
• Section 30: Allows the government to set conditions for the revocation of registration cancellation.
• Section 31: Prescribes the time period for issuing invoices under the reverse charge mechanism.
• Section 70: Introduces provisions for authorized representatives in summons.
• Section 39: Mandates monthly returns by TDS deductors, irrespective of deductions.
• Section 54: Prohibits refund of input tax credit on zero-rated supplies subject to export duty.
• Section 109: Empowers the government to specify cases to be heard only by the Principal Bench of the GST Appellate Tribunal.
• Section 122(1B): Limits penal provisions to Electronic Commerce Operators required to collect tax at source under Section 52.
• Sections 73 and 74: Amendments to align with the new Section 74A and allow redetermination of penalties if fraud charges are not established.

Analysis:

• The simplification and rationalization of GST are likely to reduce compliance burdens and disputes.
• The customs duty reforms, including exemptions and reductions in critical areas like medical equipment, mobile phones, and solar energy, are expected to support local industries and exports, yet they necessitate careful monitoring to avoid trade distortions and ensure fair competition.
• The legislative amendments to the Customs Act and GST laws aim to address existing inefficiencies and align with modern trade practices.
• These changes could enhance operational efficiencies but may also create transitional challenges for businesses adapting to new compliance requirements and tax structures.

Part C: Direct Taxes

Tax Simplification and Certainty

• The government remains committed to simplifying the tax system, enhancing taxpayer services, and providing tax certainty while aiming to reduce litigation and increase revenue to fund development and welfare initiatives.
• Recent efforts have included the introduction of simplified tax regimes for both corporate and personal income tax, which have been well-received by taxpayers.
• In the financial year 2022-23, 58% of corporate tax revenue came from these simplified regimes, and more than 2/3^rd of personal income taxpayers have adopted the new regime for the last fiscal year.

Comprehensive Review of the Income-tax Act, 1961

• A comprehensive review of the Income-tax Act, 1961 is announced to make it more concise, clear, and user-friendly.
• This review aims to reduce disputes and litigation, providing greater tax certainty and reducing demands entangled in litigation. The review is expected to be completed within 6 months.

Simplification of Tax Regimes

Charities and TDS

• The tax exemption regimes for charities will be merged into a single regime.
• The TDS rates on various payments will be adjusted: the 5% rate on many payments will be unified with the 2% rate, and the 20% rate on mutual fund unit repurchases will be withdrawn.
• The TDS rate on e-commerce operators will be reduced from 1% to 0.1%. Additionally, credit for Tax Collected at Source (“TCS”) will be allowed against TDS on salaries, and delays in TDS payment up to the due date will be decriminalized.
• Standard operating procedures for TDS defaults will be established, and compounding guidelines will be simplified.

Reassessment

• The provisions for reopening and reassessment will be simplified.
• Assessments can only be reopened beyond 3 years if the escaped income exceeds INR 50 lakh, with a maximum period of 5 years from the end of the assessment year.
• In search cases, the time limit will be reduced from 10 years to 6 years before the year of search.

Capital Gains

• Capital gains taxation will be simplified significantly.
• Short-term gains on certain financial assets will be taxed at 20%, while gains on all other financial assets and non-financial assets will retain their current rates.
• Long-term gains on all financial and non-financial assets will be taxed at 12.5%.
• The exemption limit for capital gains on certain financial assets will be increased to INR 1.25 lakh per year.
• Listed financial assets held for over a year will be classified as long-term, while unlisted financial assets and non-financial assets will require a 2-year holding period.
• However, unlisted bonds, debt mutual funds, and market-linked debentures will continue to attract tax on capital gains at applicable rates.

Taxpayer Services

• Most major taxpayer services under GST, Customs, and Income Tax have been digitalized. Remaining services, including rectification and implementation of appellate orders, will be transitioned to a paperless system over the next 2 years.

Litigation and Appeals

• To address the backlog of appeals, additional officers will be deployed to handle high-impact cases.
• The Vivad Se Vishwas Scheme, 2024, will be introduced to resolve certain income tax disputes. The monetary limits for filing appeals in tax tribunals, High Courts, and the Supreme Court will be increased to INR 60 lakh, INR 2 crore, and INR 5 crore, respectively.
• The scope of safe harbour rules will be expanded, and the transfer pricing assessment procedure will be streamlined to reduce litigation and provide certainty in international taxation.

Employment and Investment

• Angel Tax: The government proposes to abolish the angel tax for all classes of investors to support the start-up ecosystem and foster innovation.
• Cruise Tourism: To boost employment in cruise tourism, a simplified tax regime for foreign shipping companies operating domestic cruises will be introduced.
• Diamond Industry: Safe harbour rates will be provided for foreign mining companies selling raw diamonds in India to promote the diamond-cutting and polishing sector.
• Foreign Capital: To attract foreign investment, the corporate tax rate for foreign companies will be reduced from 40% to 35%.

Incentives to International Financial Services Centres (“IFSC”)

• To enhance the appeal and operational efficiency of IFSC, the following incentives are proposed:
• Tax Exemptions for Retail Schemes and Exchange Traded Funds: Retail schemes and Exchange Traded Funds (ETFs) operating within IFSCs will be eligible for tax exemptions similar to those currently available to specified funds.
• Exemption for Core Settlement Guarantee Fund: Income generated by the Core Settlement Guarantee Fund established in an IFSC will be exempt from taxation.
• Exclusion from Section 94B: Certain finance companies situated in IFSCs will be excluded from the provisions of Section 94B, which pertains to the limitation on interest deductions.
• Relaxation for Venture Capital Funds: Venture Capital Funds located in IFSCs that provide loans or other financial assistance to an assessee will not be required to explain the source of their funds.
• Surcharge Exemption: Surcharge will not apply to income-tax payable on income derived from securities by specified funds operating in IFSCs.
• Immunity from penalties and prosecution under for Benami Transactions (Prohibition) Act, 1988: For benamidars who make full and true disclosures under the Benami Transactions (Prohibition) Act, 1988.

Deepening the Tax Base

• Security Transactions Tax: The tax on futures and options of securities will be increased to 0.02% and 0.1%, respectively.
• Share Buybacks: Income from the buyback of shares will be taxed in the hands of the recipient for equity purposes.
• Income from Letting Out House Property: Income derived from renting out a house or a part thereof by the owner will be taxed under the head ‘Income from House Property’ rather than ‘Profits and Gains of Business or Profession.’
• Transfer of Capital Asset: The transfer of a capital asset through a gift, will, or an irrevocable trust by entities other than individuals or Hindu Undivided Families will be treated as a transfer for capital gains calculation purposes.
• TDS on Payments to Partners: Payments made by a firm to its partners in the form of salary, remuneration, commission, bonus, or interest exceeding INR 20,000 in a financial year will be subject to TDS at a rate of 10%.
• TCS on Notified Luxury Goods: A TCS of 1% will be levied on the sale of notified luxury goods with a value exceeding INR 10 lakh.
• TDS on Sale of Immovable Property: For transactions involving the sale of immovable property with multiple transferors or transferees, the consideration will be calculated as the total amount paid or payable by all transferees or transferors.
• TDS on Floating Rate Savings Bonds (“FRSB”) 2020: TDS will be applicable on interest payments exceeding INR 10,000 on FRSB 2020 or any other notified government securities.
• Inadmissibility of Non-Business Expenditure by Life Insurance Companies: Expenditures not admissible under Section 37 for business profits will be included in the profits and gains of the life insurance business.
• Inclusion of Taxes Withheld Outside India: Income tax paid outside India via deduction will be deemed as income received for computing the total income of the assessee.
• Exclusion of Section 194J Income from Section 194C: It is proposed to clarify that any income specified under Section 194J (fees for professional or technical services) does not fall under the category of “work” for TDS purposes under Section 194C (payments to contractors).
• Disallowance of Settlement Amounts as Business Expenditure: Settlement amounts paid for contraventions of law, as notified by the Central Government, will not be allowed as business expenditures.
• Definition of Fair Market Value (“FMV”): A method for calculating the FMV as of January 31, 2018, for the sale of unlisted equity shares in an initial public offer will be provided under Section 55(2)(ac).

Other Proposals

• NPS Contributions: Employer deductions towards the NPS will be increased from 10% to 14% of the employee’s salary, with a similar deduction limit applied to employees in the new tax regime.
• Foreign Assets: Non-reporting of movable assets up to INR 20 lakh will be de-penalized to alleviate concerns under the Black Money Act.
• Equalisation Levy: An Equalisation Levy of 2% consideration received for e-commerce supply of goods or services will not be applicable on or after August 1, 2024.
• Late Payment of TDS: Late payment of TDS is decriminalized, provided the payment is made before the time prescribed for filing the TDS statement.

Personal Income Tax

• Standard and Family Pension Deductions: The standard deduction for salaried employees will be increased from INR 50,000 to INR 75,000, and the deduction for family pensions will be enhanced from INR 15,000 to INR 25,000, benefiting approximately 4 crore individuals.
• Revised Tax Rates: For those opting for the new tax regime, the tax rate structure will be revised:

Analysis:

• These changes are expected to streamline compliance, decrease disputes, and provide greater tax certainty, thereby fostering a more stable business environment.
• Commercially, the simplification of tax regimes, such as the unification of TDS rates and adjustments in capital gains taxation, is likely to reduce administrative burdens for businesses and individuals, potentially stimulating economic activity and investment.
• The proposed reforms also include specific incentives for sectors like cruise tourism and diamond processing, which could boost targeted industries.

Revenue Implications

• The proposed changes are expected to forgo approximately INR 37,000 crore in revenue—INR 29,000 crore from direct taxes and INR 8,000 crore from indirect taxes—while generating an additional INR 30,000 crore. The net revenue forgone is estimated to be around INR 7,000 crore annually.