The Union Budget 2024-25 has introduced significant tax reforms aimed at improving the tax system for individuals and businesses, ensuring fiscal prudence and economic stability. The focus is on simplifying tax processes, enhancing compliance, and fostering a robust investment climate.
KEY TAX REFORMS
1. Unified Capital Gains Tax Structure
• Simplification: The Budget proposes unifying the capital gains tax rate to 12.5% (without indexation) across different types of assets. This replaces the existing regime with rates of 10% or 20%, depending on the duration and type of asset. • Impact: Simplifies the tax calculation process, making it easier to understand and comply with for taxpayers.
2. Abolition of Dividend Distribution Tax (DDT)
• Objective: To remove the cascading effect of taxation and support the Indian startup ecosystem. • Mechanism: Dividend income will now be taxed in the hands of shareholders, based on their applicable tax slab rates.
3. Abolition of Angel Tax
• Objective: To promote investment in startups by removing the tax on capital raised by unlisted companies above their fair market value. • Impact: Encourages angel investors to invest in startups without the fear of additional taxation, fostering innovation and growth in the startup ecosystem.
4. Abolition of Equalisation Levy
• Objective: To eliminate the 2% equalisation levy on e-commerce operators. • Impact: Reduces the tax burden on digital companies, promoting the growth of the digital economy and ensuring a level playing field for domestic and international players.
5. Rationalisation of Tax Rates and Provisions
• Adjustment of Tax Rates: Various tax rates and provisions have been rationalised to reflect the current economic environment and streamline the tax process. • Reduction in Securities Transaction Tax (STT): Rates on certain transactions have been adjusted to curb excessive trading and speculative activities.
6. Resolution of Tax Disputes
• Scheme for Pending Cases: A new initiative aims to close direct tax disputes efficiently. It includes cases with filed appeals but not yet heard, promoting quicker resolution and reducing litigation. • Coverage: The scheme’s scope includes tax disputes from previous assessment years, encouraging taxpayers to settle outstanding issues.
7. Advance Pricing Agreements (APAs)
• Transfer Pricing Compliance: The government will streamline the APA mechanism to ensure compliance and reduce disputes related to transfer pricing. • Predictability for MNCs: This measure provides predictability for multinational companies operating in India, fostering a more stable investment climate.
8. Revamped Tax Administration
• Technology Integration: Enhanced use of technology to streamline tax filing and compliance processes, ensuring transparency and efficiency. • Focus on Automation: Automation of tax processes aims to reduce human intervention and errors, making the system more taxpayer-friendly.
IMPACT ON ECONOMY AND INVESTORS
• Investor Confidence: Simplified tax structures and reduced compliance burdens are expected to boost investor confidence. • Economic Growth: Tax reforms aim to foster a conducive environment for economic growth, encouraging investments and business expansion. • Compliance and Fairness: Enhanced compliance measures ensure a fair tax system, promoting voluntary compliance among taxpayers.
These tax reforms underscore the government’s commitment to a transparent, efficient, and growth-oriented tax regime, positioning India for sustained economic development.
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