Corporate tax amendments in the budget

 The Finance Minister tabled the Finance Bill for the FY 2024-25. The Bill inter-alia incorporates certain amendments to the direct tax law.

 

We have summarized the key amendments below (with the key relevant amendments in bold). We have also separately enclosed a document containing a summary of the budget from an economic perspective.

 

Area	Description
Encourage states to moderate stamp duty rates	States levy stamp duties on execution of certain instruments – for instance: a lease deed, a business transfer agreement, etc. These duties can range from 0.5% to 5% of transaction value - depending on the nature of the document A potential rationalization of stamp duty costs could reduce transaction costs
Simplifying the direct tax law to make it concise, easy to read and understand - with the intent to reduce litigation and bringing certainty to taxpayers	The direct tax law as on date is complex and sometimes subject to varied interpretation leading to increased litigation and tax uncertainty This law is proposed to be simplified through a comprehensive review to make it easier to interpret and to reduce litigation – to usher in more stability and certainty
Reduction of timeline available to the tax authorities to re-open assessments	The tax authorities presently have up to 11 FYs in certain cases to re-open assessments (while the timeline is restricted to 4 years for the larger number of taxpayers) With the amendment, the tax authorities would have the power to initiate a re-assessment beyond the 4-year time frame only if escaped income >INR 50 Lakh. This too is capped to 6 years and 3 months (when compared to the existing 11-year time frame) This will contribute to tax certainty for taxpayers
Holding period with respect to capital gains characterization	There will only be 2 holding periods – 12 and 24 months 12 months holding period – applicable to all listed securities 24 months holding period – relevant to unlisted securities and other assets
Short term capital gains tax	On listed equity shares, equity-oriented funds and units of a business trust - on which STT is paid – to be taxed at 20% (presently 15%) Other assets – at applicable rates
Long term capital gains tax – non-residents	Long term gains on exit by shareholders will now be taxed at 12.5% of gains (presently 10%) Short term gains on exits from unlisted shares will be subject to a tax of 35% (presently 40%) Treaty benefits, if any, will continue to be available to non-residents
Tax on long term capital gains for residents	The tax rate has been reduced to 12.5% (from the earlier 20%) Indexation benefit has been withdrawn
Angel Tax	Angel tax on all classes of investors abolished w.e.f. 1 April 2024
Buy-back tax	The buy-back tax incidence is now moved from the company to the shareholder and will be considered as dividends in the hands of the shareholder. The shareholder can potentially access the treaty for a beneficial rate and a credit in the home country Specific guidelines have been prescribed with respect to the computation in the hands of the shareholders
Equalization Levy on e-commerce transactions @ 2%	Was earlier introduced on digital sale of goods and services @ 2% of gross revenues of non-residents Now abolished w.e.f. 1 August 2024 therefore reducing compliance burden for such non-residents
Introduction of a new amnesty scheme (Vivad se Vishwas, 2024)	A fresh opportunity for taxpayers to settle legacy tax litigation with savings in respect of interest and penalties and immunity for prosecution The details of the scheme are to be released and analyzed subsequently
Amendments to the withholding tax regime – from resident payments – w.e.f. 1 October 2024	WHT on Commission or brokerage – reduced from 5% to 2% Payments by e-commerce operators to e-commerce participants – reduced from 1% to 0.1% Applicability of the lower withholding tax certificate facility to 194Q transactions
Insertion of a WHT requirement from payments made to partners by the partnership firm	Payments of salary, remuneration, commission, bonus and interest to the partners by the firm aggregating to more than INR 20,000 in a financial year will attract a WHT @ 10%
Abolishment of corporate gifting under Section 47(iii)	Previously all transfers by way of gift or will were considered to be exempt from capital gains tax in the hands of the transferor/ donor (including gifting of assets by corporates) Now, such benefit is available only to individual/ HUF transferors