The Budget 2024-25 announced by the Hon’ble Finance Minister emphasizes on job creation, tax rationalization, employment generation and measures aimed at benefiting the common man.
The government has reiterated its focus on skill development, inclusive growth and streamlined business operations which is expected to stimulate consumer spending.
In turn, we can expect development and growth within areas such as consumer goods, real estate, automobiles, renewable energy, tourism, agriculture and areas requiring consumer spending.
The budget's 9 priority areas — agriculture, employment, inclusive development, manufacturing, services, urban development, energy, infrastructure, innovation and R&D — align with the government's overarching goals. One can anticipate these sectors to experience significant growth and momentum in the coming years.
From a Corporate India perspective, the following are among the announcements that could aid and impact India:
Fiscal Deficit: The government has lowered its fiscal deficit target for the current financial year to 4.9 per cent of its GDP, which is a more conservative figure than the initial estimate of 5.1 per cent. By striking a balance between expenditure and savings, the government demonstrates its commitment to fiscal consolidation. A lower fiscal deficit could boost foreign investor confidence and reduce borrowing costs for corporations.
EPFO: The government's commitment to job creation is evident as eligible Employees' Provident Fund Organisation (EPFO) members who are new to the workforce will receive a month's salary in three instalments, up to a maximum of ₹15,000. A ₹10,000 crore outlay will incentivize hiring first-time employees in the manufacturing sector, benefiting both employees and employers through EPF contributions. Additionally, employers will receive a ₹3,000 per month reimbursement for two years for EPF contributions of new employees earning up to ₹1 lakh per month. The budget also introduces several measures to ease compliance for professionals. Additionally, the National Pension System (NPS) deduction limit has been increased to 14 per cent of salary from 10 per cent, providing tax benefits to salaried individuals. These measures, combined with existing PLI schemes and income tax benefits, are expected to accelerate employment opportunities, and workforce growth and strengthen the Make in India initiative.
Taxation: The government has aimed to simplify the GST tax structure through changes to the capital gains structure. The Union Budget for 2024-25 has hiked the Long-Term Capital Gains tax to 12.5 per cent from 10 per cent, while Short-Term Capital Gains tax is now 20 per cent on all financial assets. Further, the LTCG non-taxable limit has been increased from ₹1 lakh to ₹1.25 lakh. It is prudent to note that under the new Income Tax slabs, the income received on the buyback of shares will now be taxed as dividend in the hands of the recipient. This ensures that shareholders are directly taxed on the gains they realize from buybacks. The taxation structure of the buy-back of shares may require a comprehensive review.
Start-ups and abolition of Angel Tax: The complete abolition of the Angel Tax is a major win for India's startup ecosystem especially for start-up founders and PE/ VC investors. This will significantly boost entrepreneurial spirit and innovation by removing a burdensome tax that has hindered early-stage investments. By eliminating the uncertainty and compliance challenges associated with Angel Tax under FEMA regulations, the government has created a more attractive environment for both domestic and foreign investors. This could lead to more foreign investments, unlock domestic capital, encourage increased angel investments and accelerate startup growth.
MSMEs: While the abolition of the Angel Tax is a major boost for startups, the increased credit availability for MSMEs is a much-needed relief. Key measures include a credit guarantee scheme to facilitate collateral-free loans, expanding Mudra loan limits for successful borrowers, and leveraging digital data to improve loan eligibility assessment. These initiatives, coupled with technology support packages and targeted credit for machinery purchases, will enhance MSMEs' access to finance, stimulate growth, and strengthen the manufacturing sector.
Litigation and Disputes: The government's focus on simplifying the tax regime and reducing litigation is a welcome step. Initiatives like the continued implementation of the Vivad se Vishwas scheme demonstrate a commitment to resolving tax disputes. Additionally, the comprehensive review of the Income Tax Act aims to create a clearer, more understandable tax code, thereby reducing potential litigation.
Insolvency and Bankruptcy: The government has announced an integrated technology platform to streamline the insolvency and bankruptcy process. While the IBC has already yielded significant recoveries, the NCLT has been burdened with a heavy caseload, leading to delays in corporate restructuring. The new platform, coupled with increased NCLT benches, can play a pivotal role in expediting case resolutions and enhancing creditor recoveries, and bolster India's insolvency ecosystem.
Real Estate and Urban Planning: The government's proposed policy for a transparent rental housing market is a significant step towards formalizing the sector and attracting institutional investment. This coupled with the push for States to rationalize stamp duty and offer incentives to women buyers, is a positive step to encourage more women-owned properties. The substantial allocation to the PMAY credit-linked subsidy scheme will likely accelerate affordable housing development. Digitizing land records is a crucial reform that will bring transparency, efficiency, and security to property transactions. However, a potential challenge could emerge while selling real estate especially residential homes given the new changes in the capital gains structuring.
At a cursory glance, the budget aims to offer some relief for consumers with potential price drops on mobile phones and accessories. Additionally, lower gold and silver prices could benefit consumers, especially as the festive season approaches. The affordability of essential items like certain cancer medicines and critical minerals is also helpful. From a business standpoint, businesses in areas such as agriculture, mining, aquaculture, and renewable energy sectors could see a fillip. While the revised capital gains tax rates may spur initial reactions, a detailed analysis of the budget allocations will be crucial to assess the full impact of these measures.
About the author: Prem Rajani is the Managing Partner of Rajani Associates.
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