In her record 8th budget presentation, the Honorable FM ushered a vision and bold steps towards a stronger and more inclusive India. At its heart lies the middle class, the driving force of our economy, the dreamers and doers who fuel our nation’s progress. Tax reforms and streamlining structures are pushing the needle towards fairness, simplicity, and enabling businesses to thrive, and reinforcing socio-economic welfare will help create a more vibrant and competitive economy. By taking a two-pronged approach-boosting consumption and accelerating investment, the government has added more firepower to the engines of economic growth.
Enhancing disposable income and stimulating consumption
Undeniably, one of the standout features of the 2025 budget is the enhancement of the ‘Zero’ income tax limit to INR 12 lakhs and rationalisation of the income tax slab rates under the new tax regime while ensuing a revenue loss of Rs. 1 Lakh cr. Besides spiraling consumption driven growth through the additional disposable income, this also seems to push the government’s agenda to push to the new regime.
Promoting Investment, Ease of Doing Business and Fillip to Technology
This budget also has a pervasive impact across industries and sectors such as banking, IT, manufacturing, retail, pharmaceuticals, finance, artificial intelligence, EV, automobile sector, GCCs etc. The Make in India pillar finds added vigour with the focus on the electronics, toys and footwear sectors and comes at an opportune time to bolster the China +1 strategy amidst the increased tariff apprehension by the Trump 2.0 regime.
In a strategic move to strengthen India’s position as the global hub for electronics system design and manufacturing, the Honourable FM has proposed to introduce a new presumptive tax scheme for non-residents. Under this scheme, non-residents providing services/ technology for setting up electronic manufacturing facility in India can deem 25% of the aggregate amount received/ receivable from India as their taxable income.
From the perspective of promoting investment, extension of sunset date to 31 March 2030 for several tax concessions in International Financial Services Center (IFSC) and investments by Sovereign Wealth Funds (SWF) and Pension Funds (PF) is a welcome step. These will benefit exemptions on capital gains and royalty earned by non-resident on transfer / lease of aircraft and vessels and transfer of certain capital assets and interest / dividend from the specified investment vehicles. Rationalisation of the definition of 'dividend' for treasury centers in IFSC to exclude certain advances or loans between group entities will also smoothen group funding.
Rationalisation and thrust on compliance
Removal of TCS on purchase transactions which were grappling with the parallel levy of TDS on such transactions, withdrawal of applicability of higher TDS/ TCS rate for non-tax return filer cases, decriminalisation of delay of TCS deposit upto the date of filing the return, rationalisation in rates and applicability of higher thresholds, removal of TCS on certain overseas remittances, etc. demonstrates a commitment to ease of compliance and certainty. Additionally, option for block TP assessment for a three-year period for matters within the same fact pattern and expansion of safe harbor will hopefully pave the way for reduced litigation and more certainty in international taxation matters.
The way forward
The Honourable FM also alluded to digitization of processes including giving effects to appellate orders. While this is a welcome announcement, much will depend on effective implementation on the ground. The enacted faceless assessment and appeal schemes are still mired with exorbitant pendency and loopholes. On the post appeal scene, the department is excruciatingly slow in delivery on appeal effect orders and due refunds, driving many tax payers to seek court interventions. Perhaps,'a legislative intervention is needed here to earnestly equip and enhance the systems and the machinery to deliver a seamless experience to compliant tax payers.
And finally, the much talked about new Income Tax Bill is finally around the corner. Announced to be tabled next week, the Honourable FM indicated that the new Bill shall address the needs of the 21st century India and will be clear and direct in text, containing half the content as that of the present tax law. Hopefully, this much anticipated bill will signal the dawn of a more modern, investment-friendly India taking the leap of faith in its journey towards Viksit Bharat.
A version of this article was published in Forbes India Online on February 03 2025. The same can be read here
Author
Naveen Aggarwal
Partner, Office Managing Partner – Delhi NCR, U.S.-India Corridor leader
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