Union Budget Expectations 2024 – What taxpayers can expect from interim budget 2024, live updates and highlights

As we approach the onset of the new fiscal year, there is excitement regarding the interim budget for 2024-25 and the key budget expectations. The economic terrain has experienced both difficulties and successes, and there is an eagerness among both citizens and businesses to grasp the government’s strategy for the future. Today, we will look into the anticipated aspects of the upcoming budget 2024, offering insights into the crucial areas expected to receive attention.

Policy and Economy:

Current Scenario:

Growth Expansion:
India experienced a robust growth rate of 7.8 per cent in the initial quarter, primarily driven by strong domestic demand, which remained resilient despite the global economic slowdown impacting exports. In light of this Q1 GDP growth, there has been an upward revision of growth estimates for the fiscal year 2024. Projections now indicate a growth range of 6.5–6.8 per cent for FY24, with the International Monetary Fund (IMF) revising India’s growth forecast to 6.3 per cent for the same period, and taxpayers can look forward to these discussions as their budget expectations.

Infrastructure Investment:
The government has consistently increased interim budget allocations for infrastructure, with capital expenditure expected to surge from 22 per cent in FY23 to 38.9 per cent in FY24. Strategic policy actions have been instrumental in improving logistics and supply chain efficiency.

Credit Growth Acceleration:
A positive trend in bank balance sheets and a decline in non-performing assets (NPAs) across sectors has boosted banks’ willingness to lend. Credit growth has rebounded swiftly after the pandemic, with the service sector experiencing the highest growth, followed by personal loans and loans to the industry.

MSME Sector Recovery:
The Micro, Small, and Medium Enterprises (MSME) sector is gradually recovering from the pandemic-induced crisis. Various indicators, such as a 33 per cent increase in loan demand in Q1 FY23-24, point towards a signal of steady growth. Law-breaking is on the decline as NPAs improve across different segments of MSME lenders and borrowers.

Inflation Concerns:
Rising prices, especially in essential food items, pose a significant concern. Double-digit growth in pulses and cereals, major components of the Consumer Price Index (CPI) food basket, is problematic. Increasing oil prices since the last interim budget add to inflationary pressures, persisting above the Reserve Bank of India’s tolerance range despite a rate hike to 6.5 per cent since April 2022.

Elections Impact:
Upcoming national and state elections in India may lead to a temporary policy pause until the new government takes office. Priorities for the incoming government include energy supplies, climate change, sustainable development, international trade, maritime affairs, space, cyber-security, non-proliferation and cross-border terrorism.

Geopolitical Uncertainties:
Global geopolitical concerns are affecting investors and policymakers. Escalation in the Israel-Palestine conflict raises fears of a prolonged regional dispute impacting global supply chains and the economy. The Israel-Hamas conflict could destabilise steel and oil supply chains globally, with a crude oil price of US$90/bbl putting stress on India’s current account deficit. The government will address the global war crisis in the Union Budget 2024, this being a key area of the taxpayer’s budget expectations.

Diverging Demand Gaps:
Consumer spending has rebounded strongly in the high-income segment post-pandemic, indicating pent-up demand. However, rural demand has yet to see sustained growth. Segments like FMCG, entry-level auto, and two-wheelers are struggling to pick up while rising policy rates are pressuring household borrowings, particularly as EMIs rise. Additionally, unpredictable monsoons are adding stress to rural spending capabilities, making it a key discussion point of Union Budget 2024.

Expectations:

Despite global economic challenges and uncertainties, India’s growth prospects remain optimistic. The IMF has raised its projections for India this year, and we anticipate a growth range of 6.5 to 6.8 per cent during FY 2023–24, with an average of 6.65 to 7.95 per cent over the next two years as the global economy improves. India’s growth is expected to be driven by domestic demand, particularly in private consumption and investment spending. However, inflation threatens stability, with expectations of higher prices over the next 1.5 years. While the taxpayers contemplate the budget expectations this time, the overall scenario does hold key importance.

Infrastructure Focus:

• Over the last five years, the government emphasised building robust infrastructure, with spending reaching 3.3 per cent of GDP in FY 2023-24.
• Budget Expectations will include discussions on the increasing and diversifying spending toward port and shipping, green energy, and urban infrastructure to transition to energy-efficient policies.

Private Sector Investment:

• Historically, the public sector dominated investments, while private sector participation lagged.
• As we discuss the budget expectations, the increased government capital expenditure is anticipated to attract private investment, requiring government incentives for effective implementation.

Export Growth:

• GDP saw a 7.7 per cent contraction in export growth in 1Q FY24 due to a slowdown in major economies.
• Emphasis on boosting exports in new markets and revitalising existing markets is crucial for economic recovery, and this will be one of the topics of discussion in the interim budget 2024.

Subsidy Reallocation:

• Subsidies are expected to decrease to about 7 per cent of the budgetary outlay in FY 2023-24, down from 8 per cent in the previous fiscal year.
• The reallocation of savings from subsidies towards areas supporting sustainable rural income growth, such as rural infrastructure, is anticipated in Budget 2024.

Direct Taxation:

Current Scenario:

India stands on the brink of substantial economic growth, benefiting from a stable political environment amid global uncertainties. This is especially apparent as international investors actively seek to diversify and reconfigure their supply chains.

The current landscape of direct tax policies in India is in a constant state of evolution. The government is dedicated to reforming existing systems and processes to enhance efficiency and transparency. Notable measures, such as reducing corporate tax rates, introducing concessional tax regimes, and eliminating the minimum alternate tax regime, have been implemented to attract investment and create a favourable and business-friendly tax climate.

Automation using technology is being actively employed by the government to improve transparency and efficiency in tax administration. Despite ongoing efforts to harmonise tax rates and provide incentives for investment, the tax policy landscape remains intricate and challenging due to the impact of various judicial decisions and legislative amendments.

However, amidst these challenges, the present tax environment in India offers substantial opportunities for a more taxpayer-friendly and investment-attractive system. The tax policy administration can consider implementing the following measures to capitalise on this opportunity.

Expectations:

The current special corporate tax rate, set at 15%, has been essential in attracting investments to India. This rate applies to new domestic manufacturing companies, but they need to start manufacturing operations by March 31, 2024.

Since its introduction in 2019, this reduced rate has significantly increased Foreign Direct Investment (FDI) in Indian manufacturing. For instance, FDI rose from INR 89,766 crore in FY 2020-21 to INR 1,58,332 crore in FY 2021-22, a 76% increase.

To continue this positive trend, the tax policy administration might extend this special tax rate for an additional two years. This extension can contribute to India’s economic growth and make the country more attractive to investors.

Foreign investors often face tax disputes due to differences in treaty interpretation. The recent Supreme Court decision in the Nestle SA case added to this uncertainty. The tax policy administration is expected to release guidelines on interpreting treaty protocols to ensure clarity and consistency in future transactions.

To resolve existing cases with lower tax rates, a settlement scheme could be introduced. This scheme would allow taxpayers to make voluntary tax payments without interest or penalties, providing relief and certainty.

Previous tax exemptions for Indian companies engaged in exporting services are no longer available. Reintroducing a tax holiday or exemption could boost exports, aligning with the “Make in India” campaign and attracting multinational corporations to establish export hubs in India.

To support exports, the tax policy administration may consider reinstating tax exemptions for income generated from the export of both goods and services, revitalising India’s export sector.

Investing in Research and Development (R&D) is crucial for advancing manufacturing processes and technologies. The government has introduced initiatives like the Atal Innovation Mission and R&D policy in the pharma sector.

Restoring weighted deductions for R&D expenditure and donations to scientific research institutions could further encourage innovation and position India as a hub for R&D activities, especially for Global Capability Centers.

Indirect Taxation:

Current Scenario:

Direct Taxation:
Current Scenario:

India stands on the brink of substantial economic growth, benefiting from a stable political environment amid global uncertainties. This is especially apparent as international investors actively seek to diversify and reconfigure their supply chains.

The current landscape of direct tax policies, with budget expectations, in India is constantly evolving. The government is dedicated to reforming existing systems and processes to enhance efficiency and transparency, including measures outlined in the Interim budget. Notable measures, such as reducing corporate tax rates, introducing concessional tax regimes, and eliminating the minimum alternate tax regime, have been implemented to attract investment and create a favourable and business-friendly tax climate.

Automation using technology, a key aspect of Budget 2024 expectations, is being actively employed by the government to improve transparency and efficiency in tax administration. Despite ongoing efforts to harmonise tax rates and provide incentives for investment, the tax policy landscape remains intricate and challenging due to the impact of various judicial decisions and legislative amendments.

However, amidst these challenges, the present tax environment in India offers substantial opportunities for a more taxpayer-friendly and investment-attractive system, which will be reflected in the key highlights of Union Budget 2024. The tax policy administration can consider implementing the following measures to capitalise on this opportunity.

Budget Expectations:
The government should take steps to resolve long-standing disputes in the indirect tax regime and update laws to match current times, technology, and international best practices. There are numerous pending litigation matters involving large amounts of duty.

An amnesty scheme, similar to Sabka Vishwas, would be a positive move to bring an end to these prolonged disputes, particularly in Customs. If the finance government addresses the same in the interim budget 2024, that will be a positive step. The industry eagerly awaits such a scheme, providing an opportunity for individuals and small businesses to resolve past disputes and move forward with a clean slate.

Digitisation of Customs Litigation Process at Budget 2024:
The current process of adjudication and litigation under Customs is entirely physical, requiring physical submissions and signatures. This also goes against the government’s push for digital taxation, as discussed in the last interim budget. Relevant changes should be made in Customs law as part of budget expectations to allow digital filing of letters, appeals, and other correspondence in alignment with GST law.

Continued Exemption under MOOWR Scheme:
The Manufacturing in Customs Bonded Warehouse (MOOWR) scheme has been crucial for domestic manufacturing. However, recent amendments in the Finance Act 2023 introduced upfront payment of IGST and Compensation Cess at the time of import under Section 65A. This impacts working capital despite being creditable. To support the vision of Make in India and enhance India’s role in the Global Supply Chain, the government should consider holding off on the implementation of Section 65A.

Personal Taxation:

Current Scenario:

If we use personal tax collection as an indicator of economic growth, the data indicates a significant 29.53 per cent increase compared to the previous year. This year, the government is set to present a vote on account before the 2024 general elections. While it won’t be a complete budget, it is anticipated to be substantive.

Looking at the historical approach of the Finance Minister, the emphasis has typically been on implementing structural reforms rather than offering tax incentives. Given this trend, one might anticipate the government’s focus in the union budget 2024 on aspects like the New Tax Regime, expediting tax refund processes, strengthening the tax collection infrastructure, and ensuring the prompt resolution of appeals.

Budget Expectations:

Simplifying Tax Processes for Non-Residents

• TDS Compliance for NRI Sellers:
  Currently, when buying a property worth INR 50 lakh or more, home buyers must deposit 1 per cent as TDS. This process is straightforward for resident sellers but complicated for Non-Resident Indian (NRI) sellers. Simplifying the TDS process for NRI sellers similar to resident sellers, this union budget 2024 would be beneficial.
  
• Overseas Tax Payments:
  Non-residents face challenges making tax payments in India since it requires an Indian bank account. Allowing non-residents to make tax payments from their overseas bank accounts would make the process more accessible.
  
• E-Verification Using Foreign Mobile Numbers:
  Non-residents filing tax returns often face hurdles in e-verification. In Union Budget Expectations 2024, extending e-verification via OTPs to foreign mobile numbers or implementing two-factor authentication for foreign numbers and email addresses would streamline the process and reduce paperwork.
  
• Tax Refund to Overseas Bank Accounts:
  Non-residents, especially foreign nationals, leaving India may face issues with tax refunds if they’ve closed their Indian bank accounts. Allowing tax refunds to be credited to foreign bank accounts for non-resident PAN holders would address this concern.

Improving Annual Information Statement (AIS)

• Expand AIS Information:
  The Annual Information Statement (AIS) currently covers various transactions. Still, it could be enhanced q11 to include more details, such as transactions related to the Employer Provident Fund, Public Provident Fund, National Pension Scheme, and loan repayments. This would provide a comprehensive view of pre-filling tax returns.

• Add Details to AIS for Securities Transactions:
  In the interim budget, taxpayer would benefit from enhancements to AIS, which could include specific details like the date and cost of acquisition for securities transactions. This addition would make it easier for taxpayers to prepare their tax returns without having to search through records.

Merger and Acquisition Taxation:

Current Scenario:

The first nine months of 2023 have seen a slow pace in India, marked by a decline in M&A activities compared to the previous year. This can be attributed to various global events like wars, geopolitical tensions, and fluctuations in fed rates.

Consequently, Indian businesses are cautiously approaching M&A and significant fundraising endeavours like IPOs. Various factors, including the anticipation of general elections in the second quarter of 2024, contribute to this cautious approach. However, a resurgence in M&A activities is anticipated soon, presenting substantial opportunities for the growth of the Indian economy.

Given this context, we have outlined certain budget expectations for the upcoming budget that aim to stimulate and enhance M&A activities in the near future.

Interim Budget Expectations 2024:

Ensure outbound mergers are tax-neutral
Currently, Indian companies merging with foreign companies lack specific tax exemptions under the Income-tax Act of 1961. To boost cross-border M&A, a new clause in Section 47 should grant tax exemptions for such mergers.

Tax neutrality on share swaps during internalisation
Capital gains tax applies to share swaps, even in internal reorganisations within a group. Providing a specific provision to exempt these swaps, where value remains within the group, will enhance shareholder confidence and consolidate value in India.

Extend loss carry-forward benefits to service industries
Extend Section 72A benefits (carry forward of losses and unabsorbed depreciation) to service industries, promoting growth, consolidation, and competitiveness in this sector.

Exemption to foreign shareholders in mergers and demergers
Include provisions (similar to Section 47(vii)) to grant relief to shareholders of amalgamating foreign companies and shareholders of foreign demerging companies in overseas mergers and demergers.

Exemption to Indian holding company in overseas mergers
Provide tax exemption to Indian holding companies involved in the overseas merger of two foreign subsidiaries to ensure tax neutrality.

Enforce complete tax neutrality on mergers and demergers
Introduce an exemption under Section 56(2) (viib) to ensure tax neutrality for the issuance of shares in qualified mergers and demergers.

Rationalise taxation of contingent consideration:
Clarify the taxation of contingent consideration under Section 45, ensuring it is taxed as capital gains in the year of crystallisation, irrespective of the year of transfer. This aligns with the accrual concept mentioned in Section 5 of the Act.

Transfer Pricing:

Current Scenario:

The transfer pricing system in India has been in place for over two decades, and many fundamental principles and practices have been established. Judicial guidance is abundant, and the government has incorporated globally recognised best practices to instil trust in foreign investors and prevent disputes.

Examples include implementing safe harbour rules, the Advance Pricing Regime, an effective Mutual Agreement Procedure (MAP) program, and adopting the sixth method for transfer pricing analysis. Common transactions involve intra-group charges, variable royalty payments, and cross-border business arrangements.

However, despite these advancements, complexities and legal anomalies in the transfer pricing regime necessitate government consideration. The recent changes introduced by the OECD through the BEPS guidance have further impacted transfer pricing. Addressing these issues at interim budget is crucial as these may require amendments to the law during the budget process.

Budget Expectations:

Simplifying compliance for non-resident transactions
Recent amendments to Section 115A of the Income Tax Act of 1961 relieve non-resident taxpayers from filing an income tax return in India for certain income types. However, they are still obligated to file an Accountant’s Report in Form 3CEB under Section 92E. This reporting requirement, originally designed for transfer pricing, now imposes unnecessary compliance on non-residents. The government should specifically exempt transactions like dividends and bonus shares, which fall outside transfer pricing, from this reporting burden at the Union Budget 2024.

Improving Advance Pricing Agreement (APA) scheme efficiency and resolving anomalies at Union Budget 2024
Streamlining APA conclusion: The slow pace of concluding APAs due to limited resources and expertise leads to challenges for taxpayers and the government. A mechanism for corresponding tax adjustment and withholding tax refund for associated enterprises (AE) under bilateral APAs is needed to prevent excess withholding tax. Removing restrictions for unilateral APAs: Section 92(3) restrictions, intended for transfer pricing audits, should not apply to APA resolutions, which are dispute prevention mechanisms.

Revising safe harbour rules for small/medium companies at Union Budget 2024
Current safe harbour rules are limited to very small companies and have higher rates than comparable benchmarks, making them commercially unviable for medium-sized companies. To reduce litigation and APA applications, the government should re-evaluate safe harbour provisions by:

1. Narrowing the class of transactions to IT, ITeS, and business support.
2. Aligning rates more closely with comparable benchmarks.
3. Increasing the threshold to cover around 75% of companies in this spectrum.

This would provide tax certainty and ease the APA burden.

Agriculture:

Budget Expectations:

The tech-driven agriculture industry is projected to reach US$ 13.5 billion by 2023, with AI’s role expected to hit US$ 4 billion by 2026. The adoption of modern agricultural practices like crop mapping, precision farming, and automation holds the potential to empower farmers and enhance efficiency. However, challenges such as lack of awareness and small-farm fragmentation hinder digital adoption in India.

Enhancing Digital Adoption in Agriculture Union Budget 2024:

• The government has introduced initiatives like Digital Public Agriculture Infrastructure and an Agriculture Accelerator Fund to promote agro-tech growth.
• Further measures are needed to increase digital adoption, focusing on education, tech affordability, accessibility, and investments in R&D. Strengthening public-private partnerships is crucial.

Strengthening the Food Processing Value Chain:

• The Indian food processing market is anticipated to reach US$ 535 billion by 2025.
• Initiatives like Pradhan Mantri Kisan Sampada Yojana and Pradhan Mantri Formalization of Micro Food Processing Enterprises Scheme aim to boost the sector.
• Cluster development and micro-processing units should be promoted to increase processing capacity, reduce costs, and facilitate demand-driven processing.

Improving Post-Harvest Infrastructure Union Budget 2024:

• Post-harvest losses in perishable foods and fruits/vegetables are significant in India.
• Existing schemes like the Agriculture Infrastructure Fund should be utilised to enhance infrastructure capacities across states.
• Creating multi-commodity cooling centres, grading facilities, and solar-powered units near mandis, airports, and ports can reduce losses and benefit farmers.

Boosting the Export Ecosystem:

• India’s agricultural exports reached US$ 53 billion in FY2023.

Measures to boost the export ecosystem include:

• Demand mapping.
• Improving post-harvest infrastructure.
• Adhering to quality standards.
• Incentivising export promotion to establish domestic produce as a global brand.

Education:

Budget Expectations:

Facilitate foreign investments and foreign currency loans in the education sector at Union Budget 2024.

Current regulations allow 100% FDI under the automatic route, but restrictions exist for entities acting as “Trust” or “Society.” To enhance educational infrastructure and technology adoption, institutions need funds. Amendments to exchange control regulations should permit foreign investments and foreign currency loans for “Trusts and Societies” in educational institutions is something to be addressed at Budget 2024.

Streamline clearances for foreign donations and grants.

Educational institutions rely on foreign grants for income, but the current process for obtaining permission from the Ministry of Home Affairs is time-consuming. Defining clear timelines for clearance and streamlining the approval process is essential.

Introduce flexibility for foreign education institutions in GIFT City to receive student fees in Indian rupees.

IFSCA regulations require transactions by educational institutions in foreign currency, including fee payments by students. Introducing an exemption for students to pay fees in Indian currency would alleviate the financial burden caused by foreign exchange conversion charges. This exemption aligns with RBI’s previous allowance for units in IFSCA to conduct business in INR.

Expand the definition of “education” under Sections 11 and 10(23C).

The Supreme Court’s restrictive interpretation of the New Noble Education Society case raises concerns. In the evolving world, the meaning of “education” should encompass not only formal academic learning but also the systematic dissemination of knowledge and specialised training to enhance employability and contribute to national capacity building.

Specify the period of applicability for the equalisation levy.

The 2 per cent equalisation levy introduced in 2020 poses challenges for foreign education institutions. A provision limiting its applicability until March 31, 2024, aligned with the India-US Joint Statement, should be incorporated. Transitionary measures from the joint statement need proper integration into the law.

Provide tax clarifications/incentives for foreign universities.

Current regulations outline procedures for foreign universities setting up International Branch Campuses/Offshore Educational Centers. Key tax clarifications are needed:

Consider perpetual tax exemption for top universities established under IFSCA, mirroring exemptions in their home countries. Amend Section 80LA to provide a perpetual exemption for up to 10 years, subject to specified conditions.

Clarify that prescribed transactions/interactions by IBC/OEC in India won’t lead to a “Significant Economic Presence” and subsequent business connection to attract foreign players.

Healthcare:

Budget Expectations:

Healthcare Delivery: Strengthening the Healthcare System at Union Budget 2024

Over the past years, the government has prioritised the healthcare sector, evident in increased budget allocations. In the Union Budget 2022-23, the Ministry of Health and Family Welfare received a notable allocation of INR 86,200 crore, marking a 16.5 per cent increase from the previous year. To enhance digital health penetration, the following measures can be undertaken:

• Conduct campaigns for diseases and promote awareness of nearby patient care facilities.
• Improve chronic disease management by consolidating health records and past medical data.
• To enhance digital healthcare capabilities, provide telemedicine training for nurses, midwives, and support staff.
• Establish satellite kiosks for emergency care and explore drone facilities for the delivery of medicines.

Direct Tax:

• Extend the deadline for new manufacturing domestic companies to qualify for a concessional tax rate until March 31, 2026, in line with the government’s “Make in India” initiative.
• Expand the scope of concessional tax rates under Section 115BAB to include companies solely engaged in research-related activities, promoting research, innovation, and development.
• Extend the concessional tax rate of 5 per cent on interest income from borrowings in foreign currency until March 31, 2026, to support the vision of “Make in India.”
• Clarify that the distribution of free product samples within permissible limits, as a legitimate marketing expense, is eligible for deduction under Section 37, excluding it from the provisions of Section 194R.
• Reintroduce weighted deduction under Section 35(2AB) for expenditure on research and development, extending eligibility to companies opting for the new tax regime.

Indirect Tax:

• Issue clarifications are allowing ITC on business expenditures made to medical practitioners, aligning with the changes in income tax provisions.
• Align the Goods and Services Tax (GST) rate for Active Pharmaceutical Ingredients (APIs) with the lower rates applicable to formulations, addressing credit accumulation issues.
• Clarify that ITC reversal under GST laws does not apply to physician samples or expired drugs, providing relief to the pharmaceutical industry.
• Provide clarification on GST, interest, and ITC applicability under RCM for payments to foreign group entities for seconded expat employees, relieving the financial burden on pharmaceutical companies.

Media and Communications:

Budget Expectations:

Direct Tax:

Clarity on the Definition of “Online Game”

In the digital age, online platforms often use promotional schemes, like spin the wheel or scratch cards, for marketing purposes rather than as actual games. A circular defining the activities constituting an “online game” is needed to prevent various sectors from facing undue withholding tax obligations under Section 194BA.

Taxation Clarification for Non-Resident Telecom Operators

Payments made by Indian telecom operators to foreign counterparts have faced taxation issues. Recent rulings have clarified that payments for inter-connectivity use and bandwidth charges are not royalty. The Income-tax Act should explicitly state that payments for telecom services are not subject to income tax.

Expand Provisions for Loss and Depreciation Carry Forward

Currently, amalgamation benefits for carrying forward losses and unabsorbed depreciation are limited to companies owning “industrial undertakings.” To promote industry consolidation, extend Section 72A benefits to capital-intensive sectors like media, entertainment, and infrastructure services.

Indirect Tax

GST TCS Exemption for E-commerce on Zero-rated Supplies

E-commerce operators face challenges due to GST TCS obligations on zero-rated supplies, causing cash flow issues for exporters. Amendments exempting GST TCS on e-commerce operators for zero-rated supplies are necessary to ease exporters’ financial burdens and simplify compliance.

PLI Schemes for Space Tech Start-ups

Provide Production Incentive (PLI) schemes for space tech start-ups to encourage domestic production, attract investments, and foster research and development in the emerging private space sector.

Alignment of Classification and Concession Eligibility for Telecom Products

Clarify and amend the eligibility criteria for concessional duties on telecom products under Notification No. 57/2017 to resolve issues related to interpretation. Examples include removing references to VOIP from specified entries and considering certificates from recognised agencies for eligibility.

Personal Tax

Discontinue TCS on Overseas Remittance for Employee Stock Option Plan

If taxes are already deducted under Section 192, the expectation is to discontinue TCS on overseas remittances for participating in employees’ stock option plans.

Allow Employer to Claim Foreign Tax Credit

Permit employers to claim foreign tax credit at the time of withholding taxes under Section 192 on salary income.

Consumer Industry:

Budget Expectations:

Tax and Regulatory Framework

Ensure Regulatory Stability

A flexible regulatory environment is crucial in the dynamic retail sector, where retailers operate at various scales. More than 5,000 regulatory updates were disseminated in fiscal year 2023, necessitating a compliance system tailored to each retailer’s scale and risk profile.

Clarify Valuation Rules for Electric Vehicles

Clarify perquisite valuation rules for electric vehicles, as existing rules based on engine cubic capacity create ambiguity. Corporations providing electric cars through leasing face challenges due to the absence of specific valuation guidelines.

Resolve TCS Compliance Hardship for E-commerce Operators

Address economic hardship faced by e-commerce operators for Tax Collected at Source (TCS) compliance on the sale of air tickets. Consider amending TCS provisions to exclude airline taxable supplies, given the aviation industry’s organised and regulated nature.

Make Compensation Cess Consumer-Friendly

Reconsider high rates and the longevity of compensation cess on Motor Utility Vehicles (MUVs) and luxury sedans, as these rates have made the segment unaffordable. Restructuring import duties for this segment and Electric Vehicles (EVs) can support the automotive sector and promote green mobility.

Provide Relief and Clarifications for Equipment Placement

Clarify the taxability of transactions where companies place equipment at customer locations with a minimum purchase obligation. Stakeholders seek clarity on whether this obligation serves as a consideration for equipment placement.

Clarify Taxation of Benefits and Perquisites

Define “benefit and perquisite” under section 194R, providing separate valuation rules. Specify that withholding tax applies at one level in multi-level distribution channels and only to the actual recipient’s hands in pass-through arrangements.

Rationalise Withholding Tax Provisions for E-commerce

Apply withholding tax under section 194-O only on incremental amounts in transactions involving multiple e-commerce operators to avoid cascading effects. Increase the threshold to INR 40 lakh and align TDS provisions with GST for clarity.

Streamline TDS and TCS Provisions on Goods

Harmonize TDS and TCS provisions on the sale and purchase of goods. Simplify the process by making TDS applicable on the purchase of goods, with the buyer responsible for the deduction. Clarify that TCS provisions are not applicable to non-resident e-commerce operators.

Artificial Intelligence:

Budget Expectations:

Boost Research and Development in AI, Especially in Taxation

The government should increase investments in AI research, focusing on areas like quantum computing, Explainable AI (XAI), digital nudges for social good, and smart connected cities. Promoting collaboration between academia and industry is crucial. A dedicated team of officers with AI expertise in direct and indirect taxes can utilise AI for tax assessment, administration, and facilitating taxpayers.

Encourage Public-Private Partnerships (PPP) with a Value-Based Approach

Prioritise sectors like agriculture, education, and healthcare in the AI strategy, implementing solutions with maximum societal impact. Under a PPP model, digitise legal processes, predict health scores using lifestyle-based data, leverage AI for fraud prevention in government schemes, enhance education in local languages, and improve the crop insurance claims process using satellite images.

Develop Centralized Data Repositories

Strengthen trust in data protection, especially with initiatives like Aadhaar and CoWin. Ensure data completeness, such as Electronic Health Records (EHR), for effective healthcare solutions. As budget 2024 expectations, the government should allow limited but permissible access for research and industry use while changing negative perceptions surrounding data security.

Focus on Trustworthy AI Governance

Establish governance mechanisms for trustworthy AI, covering data sourcing, storage, and AI applications. Develop frameworks addressing data privacy, model transparency, reliability, fairness, and safety. This includes creating guidelines for ownership of AI results and ensuring accountability throughout the AI development and application process.

Digital Infrastructure:

Budget Expectations:

Simplify Reporting through Unified Digital Infrastructure

Taxpayers often face the burden of filing multiple reports under various laws, such as tax, company law, and foreign exchange regulations. The government should streamline its digital infrastructure to automatically use data filed under one law for reporting under others. This can be achieved by centralising information requirements, with the Standard Audit File for Tax (SAF-T) as a starting point, reducing redundant filings and ensuring consistency in reporting.

Implement Standard Audit File for Tax (SAF-T)

Introduce SAF-T, a global OECD standard already adopted by many European countries, for direct and indirect taxes. SAF-T involves creating a standardised data file containing business accounting transactions and automating the submission of data to tax authorities. This will enhance the tax audit process in near real-time, minimising errors, delays, and inconsistencies, benefiting tax administration and taxpayers.

Develop New Digital Public Infrastructure and Open Networks

India’s commitment to Digital Public Infrastructure (DPI) has transformative potential. Focus areas as per the budget 2024 expectations include –

• Geo-spatial analytics: Introduce an open network for geo-spatial analytics to address geographical challenges, aiding sectors like urban planning, agriculture, disaster preparedness, and transportation.
• Purple economy: Allocate funds for DPI-led research and development in healthcare, assistive technologies, and training programs for differently-abled citizens to integrate them into the workforce.
• Online dispute resolution: Allocate resources for the phased rollout of an open network for online dispute resolution, starting with small commercial disputes, reducing the burden on the judicial system and ensuring fast-tracked resolutions.

The DPI approach aligns with India’s goal of enabling cross-border data flows and contributing to global digital governance, including the creation of a Global Digital Public Infrastructure Repository (GDPIR).

Supply Chain:

Budget Expectations:

Increase interim budget allocation for Research and Development (R&D) activities to boost competitiveness in high-technology manufacturing sectors like semiconductors, medical devices, defence and aerospace, clean technologies, and intermediary goods manufacturing.

• India’s R&D investment has been stagnant at 0.6-0.7% of GDP, significantly lower than other major economies. Netizens Budget 2024 Expectations include that the government should expedite R&D efforts, focusing on mineral exploration, resource efficiency, recycling, and finding substitutes for critical minerals.
• While recent initiatives emphasise R&D, there’s a need for a comprehensive National R&D policy to enhance innovation and intellectual property development in India.

De-risk credit inflows to MSMEs in manufacturing for capital investment and skill development in advanced manufacturing of intermediary goods.

• Promote risk mitigation tools like credit guarantees and insurance schemes to reduce risks in capital flows to MSMEs, especially in key industries like automotive, electronics, machinery, and chemicals.
• Despite credit accessibility initiatives, innovative solutions are required to address the significant credit gap faced by MSMEs and this is what MSMEs’ Budget 2024 Expectations include.

Implement investment promotion schemes to attract increased Greenfield investment in manufacturing and export of intermediary goods.

• Sustain the momentum in attracting Foreign Direct Investment (FDI) by continuing successful initiatives like the goods and services tax, corporate tax rate reduction, and the Make in India program.
• The Production Linked Incentive (PLI) scheme has been effective; future initiatives should focus on ecosystem development through progressive localisation based on sector potential and local supply chain maturity.