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Amidst continuing global economic uncertainty, India remains a strong performer, and is well positioned to take advantage of the many economic opportunities that the coming years have to offer. GDP growth remains strong at 7 per cent in FY 2023 and is projected to remain above 6 per cent in FY 2024 as well. Tax revenues saw notable growth in the current year, and the Government is confident of reining in the fiscal deficit to below 4.5 per cent by 2025-26.

In this backdrop, it comes as no surprise that budget focuses on continuity and stability on many fronts, including taxation.

The Government’s ambitious economic agenda focuses on three key aspects- first, to provide opportunities to citizens, second, to provide a strong impetus to growth and job creation and finally, to strengthen macro-economic stability. Among the many priority areas outlined in the budget, agriculture and infrastructure are key. There is a sustained push towards building of digital public infrastructure in agriculture, strengthening credit to farmers and promotion of the cooperative sector.

The Government rightly sees infrastructure development as a driver of growth and employment. This is reflected in record capital outlays this year, which saw a 33 per cent increase to reach INR10 lakh crore. There is also a focus on enhancing private investment in this sector. Capital outlays for the railways too has seen a significant increase over the years.

Medium, small and micro enterprises (MSMEs) is another important area where the Budget makes strong policy interventions. In addition to enhanced funding for credit guarantees for this sector, the Government also proposes to return 95 per cent of sums forfeited due to non-execution of contracts by MSMEs. A scheme to settle contractual disputes with graded settlement terms is also on the cards.

The Budget also reiterated India’s commitment to green growth and to move towards a net-zero carbon emission by 2070. To this end, several measures are envisaged in the Budget including increased funding of energy transition and promotion of energy-efficient coastal shipping.

For the financial sector, the Government plans to undertake a comprehensive review of financial sector regulations to simplify and ease compliance. The IFSC framework is sought to be expanded by several policy changes including a single window clearance system, recognition of offshore derivative instruments, enabling of acquisition financing and setting up of data embassies.

On the direct tax front, the Budget continued its focus on easing compliance, widening the tax base and rationalisation of various provisions. The new tax regime introduced for individuals in 2020 saw a series of changes designed to make it more attractive for taxpayers, including through a change in the slab rates, rebate and surcharge. Provisions benefitting MSMEs and start-ups were also introduced.

Anti-abuse provisions that targeted companies raising capital at high premiums were expanded so as to cover investments by non-residents. This is an important change and could have a bearing on foreign inflows into India.

As many countries move to implement the Global Minimum Tax Rules (GLobE), there was an expectation that the Government would provide guidance on India’s adoption of these rules, including through a detailed public consultation process. However, there was no announcement in this regard.

As regards indirect taxes, the proposals aim to boost domestic manufacturing, promote exports, and enhance domestic value addition, encouraging green energy and mobility. From a GST perspective, restrictions are placed on Input Tax Credit on activities pertaining to Corporate Social Responsibility obligations as per Companies Act, 2013. Penal provisions are introduced on electronic commerce operators for contravening provisions relating to supply of goods made through them by unregistered persons or composition taxpayers making interstate supplies. The monetary threshold for launching prosecution for offences under the GST law is also increased from INR1 crore to INR2 crore, except for issuance of fake invoices.

Decriminalisation of certain provisions in GST law, such as obstructing an officer from discharge of duties, possession of illegally supplied goods, destruction of evidence/documents was also announced in the budget. The Online Information and Database Access or Retrieval services (OIDAR) of IGST Act are also proposed to be amended to remove the condition of rendering of the said supply being essentially automated and involving minimal human intervention.

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