– By Abhishek Mundada
As we bring down the curtains for 2024, India witnessed several major tax reforms in the year with an aim to stimulate economic growth, create employment opportunities and enhance the ease of doing business. While these reforms underscored the Government’s objective, among other things, to simplify tax structure, reduce compliance burdens, and resolve tax disputes, it had a sweet-bitter impact on Indian businesses.
Key Tax Reforms in 2024
Angel Tax – Angel tax was seen as one of the biggest bottlenecks on fundraising at a premium valuation, especially impacting the start-up ecosystem, and created uncertainty in investor communities. With the abolition, Indian businesses witnessed greater flexibility in fundraising without any concern to justify the pricing, which has boosted the prospects of ease of doing business.
Capital Gains Tax – The capital gains tax rates across different asset classes have been standardised, with STCG taxable at 20% and LTCG taxable at 12.5% without indexation benefit. This has led to simplification of computing capital gains as compared to a complex working across different asset classes. While taxpayers in certain cases felt the pinch of withdrawal of indexation benefit, huge relief has been provided to individuals / HUF by retaining indexation benefit on immovable properties acquired before 23 July 2024, where the impact would have otherwise been very significant.
Buy-back – The Union Budget (wef 1st October 2024) abolished tax on buy-back of shares (i.e. 20%) and brought it at par with taxability of dividends (normal/slab rates). One has witnessed record buy-back being undertaken prior to 30 September 2024, especially by promoters of private companies. While both are means of rewarding the shareholders, the underlying objective of the buy-back and dividend is different, which merits differential tax treatment for maintaining the attractiveness of both. The tax treatment of buy-back as dividends would make buy-back less lucrative in future.
International Tax – The withdrawal of 2% equalisation levy on e-commerce transactions with foreign players has been a welcome decision. The levy was introduced as an interim measure until BEPS (Pillar 1 and Pillar 2) provisions were introduced. However, the ambiguity surrounding the applicability, compliance, and discharge of equalisation outweighed the intended increase in tax collection, resulting in its ultimate abolition.
While BEPS Pillar 2 measures are getting introduced in bits and pieces across the globe, amidst ongoing uncertainty about its successful implementation, India is mulling over thought to defer its implementation (though committed to implement) given probable limited net gains from it.
Tax Disputes – As per recent media reports, the direct tax appeals pending at various forums (ITAT to SC) rose from 51,567 cases involving disputed amount of Rs.6.64 lakh crores in FY 2021-22 to 64,311 involving disputed amount of Rs.14.21 lakh crores (i.e. more than double) in FY 2023-24. This is over and above 5.8 lakh cases pending before Commissioner (Appeals)/Joint Commissioner (Appeals).
While the Government has been increasing monetary limits for appeals to be filed by tax authorities and also introduced measures such as Vivad Se Vishwas Scheme 2.0 to reduce number of pendency, looking at the increase in pendency numbers, there is much more that needs to be done by the Government to reduce tax disputes. The Government may set up a committee to expeditiously identify and review issues pending and take a policy decision to withdraw appeals / issue clarifications on certain issues to reduce such a large pendency, reduce litigation costs for taxpayers and Government and enhance India’s reputation as a stable and predictable investment destination.
Outlook for 2025: A Promising Future
Pursuant to the FM’s speech in the Union Budget 2024, the CBDT formed an internal committee to oversee a comprehensive review of the Act, with the goal to make the Act concise, clear and easy to understand and also invited public suggestions with respect to language simplification, litigation / compliance reduction and redundant / obsolete provisions.
In 2025, businesses are likely to benefit from continued investments due to several tax reforms introduced in 2024. These reforms will particularly support start-ups and innovation-driven sectors. The easing of tax laws and streamlining of tax compliance will enable businesses to focus more on expansion and less on administrative burdens.
(Abhishek Mundada is Partner at Dhruva Advisors.)
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