Indian Budget 2024: Good, Bad and Ugly

As always with high expectations, taxpayers are hooked to their TVs and mobile phones, the latter has become cheaper though, with high hopes to see tax benefits but the middle class turned off their TVs on a disappointment note after the budget got over. After the widespread selling, the benchmark S&P BSE Sensex plummeted by 1,132 points, reaching an intraday low of 72,334, while the Nifty50 fell 370 points to an intraday low of 21,932.

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There were major shockers for the market and investors today. One of them was the increase of short-term capital gains tax and long-term capital gains tax. The government was worried that people were losing money in F&O but many experts are questioning now why is long-term investment is punished with such a sharp increase. Good news though came yellow mettle lovers as gold and silver customs duty cuts were announced today in the budget.

Overall, the Indian Budget 2024 was targeted towards intensive reform measures around the consolidation of a simplified tax structure, easy business operations, and furthering economic growth. These outlined measures were proposed by the finance minister, Nirmala Sitharaman, through her budget speech, in which she brought out the commitment the present government has towards rationalising the tax regime and expanding the ambit of GST to new sectors. Taxpayers especially the middle class is not happy as many posted their reactions after the increased taxes on investment in equity on the social media site – X.

Indirect Taxes and GST

Building on the success of GST, the government envisages further rationalization and simplification of the tax structure. At this step, it visualizes bringing more and more sectors under the blanket of GST so that there is uniformity in the sphere of taxation and less complication in the system. This would foster compliance and augment revenue collections.

Sector Specific Customs Duty Proposals

A number of sector-specific proposals have been brought in for adjusting rates of Basic Customs Duty, reflecting the focus of the government to promote domestic manufacturing and make imports of essential items cheaper.

Medicines and Medical Equipment: The customs duties have fully been exempted for three cancer drugs — Trastuzumab Deruxtecan, Osimertinib, and Durvalumab. More in the view of the Phased Manufacturing Programme, changes in BCD on X-ray tubes and flat panel detectors for use in medical x-ray machines were announced.

Mobile Phones and Connected Accessories: The BCD on mobile phones has been brought down to 15 per cent, from the present level of mobile Printed Circuit Board Assembly (PCBA), and mobile chargers, to make devices affordable and with an intent to encourage domestic production.

Precious Metals: Customs duty on gold and silver was reduced to 6 per cent and on platinum to 6.4 per cent, which seems to make these metals more affordable and bring cheer to the jewellery sector.

Other Metals: BCD has been withdrawn on ferro nickel and blister copper, ferrous scrap, and nickel cathode. A concessional BCD of 2.5% has been introduced for copper scrap to support the metal industry.

Electronics: BCD has been removed subject to conditions on oxygen free copper used in the manufacture of resistors, encouraging the electronics manufacturing sector.

Chemicals and Petrochemicals: The BCD on Ammonium Nitrate has been raised to 10 % from the existing 7.5 % to make domestic manufacturing advantageous and less dependent upon imports.

Plastics: The BCD on the PVC flex banner is to be raised from 10 % to 25 % to promote local manufacturing.

Telecommunication Equipment: The BCD on PCBA of the specified telecom equipment has been raised from 10 % to 15 % to make domestic production better.

Trade Facilitation and Critical Minerals

The period of export of goods imported for repairs has been increased from six months to one year and that for reimport of goods for repairs under warranty from three to five years in order to promote domestic aviation and boat & ship MRO services.

A major decision has now been taken to totally exempt 25 critical minerals from customs duties, and BCD on two critical minerals has been reduced. This shall ensure the continuous availability of crucial minerals for multiple industries.

Solar Energy and Marine Products

Capital goods related to the manufacture of solar cells and panels have been fully exempted from customs duty to push for solar energy. BCD on certain broodstock, polychaete worms, shrimp, and fish feed was reduced to 5%, and various inputs for the manufacture of shrimp and fish feed were wholly exempted from customs duty to support the marine products industry.

Leather and Textile Industry

BCD on real down-filling material from duck or goose has been reduced. The BCD on methylene diphenyl diisocyanate (MDI) for the manufacture of spandex yarn has been brought down from 7.5% to 5%.

Direct Taxes: Simplification and Rationalisation

The government remains committed to simplification of direct taxes, taxpayer services, and tax certainty. Efforts shall be taken for improvement of revenues for development and welfare programmes.

Charities and TDS Simplification: Merging two different charitable trust exemption regimes into one. Merging the TDS rate of 5% on most of the payments, reducing it to 2%, and withdrawal of 20% TDS rate on repurchase of units by mutual funds or UTI. The rate under TDS on e-commerce operators has been reduced from 1 per cent to 0.1 per cent; delay in payment of TDS up to the due date of filing the statement has been decriminalised.

Simplification of Reassessments: Reopen the assessment beyond three years and up to five years from the end of the Assessment Year if so required, when the escaped income is ₹50 lakhs or more. In search cases, the time limit has been reduced from ten to six years prior to the year of search.

Capital Gains Rationalisation: While the short-term gains on certain financial assets shall be subjected to 20% taxation, long-term gains on all financial and nonfinancial shall attract a 12.5% tax. Also, the exemption limit of capital gains on certain financial assets shall be increased to ₹1.25 lakhs per year.

Within two years, all the remaining services of Customs and Income Tax, including rectification and order giving effect to appellate orders, shall be digitised. The ‘Vivad Se Vishwas Scheme, 2024’ will aim at resolving income tax disputes pending in appeal. Monetary limits for filing direct taxes, excise and service tax-related appeals in Tax Tribunals, High Courts, and the Supreme Court have been increased to ₹60 lakh, ₹2 crore, and ₹5 crore respectively.

Benefits in terms of Employment, Investment, and Social Security The administration has done away with angel tax across all classes of investors in order to give impetus to the ecosystem for startups. A simpler tax regime for foreign shipping firms operating domestic cruises, in turn, helps the promotion of cruise tourism. The corporate tax rates for foreign companies were reduced from 40 per cent to 35 per cent.

To deepen the tax base, the already existing security transaction tax in the case of futures amounted to 0.012% and for options of securities is amended to 0.02%; for other options, it is increased to 0.1%. Income received on the buyback of shares in the hands of the recipient will be no longer exempted. This aspect shall have an impact in the cases of mergers and acquisitions apart from buyback by companies for their own shares. For the benefit of salaried employees, the deduction of expenditure incurred by employers towards the National Pension System (NPS) has been increased from the present 10% to 14% of the employee’s salary.

Changes in Personal Income Tax

There are fundamental changes in personal income tax in the new regime. It has increased the standard deduction for salaried employees from ₹50,000 to ₹75,000, and for pensioners, it increased the deduction on family pension from ₹15,000 to ₹25,000. A salaried employee under the new tax regime is going to get ₹ 17,500 more in terms of income tax. Though how much impact will it have on the taxpayers this needs to be seen.

The Budget 2024 aimed domestic manufacturing; and improvising taxpayer services, which are to be instrumental in socioeconomic growth, friendly investment conditions, and efficacy in the functioning of the tax system. However, it draw mixed reactions while some said the tax was growth-friendly, other felt it will kill the stock market investments as it discourages the short and long-term trades.