To promote investments and support the progressive growth of manufacturing companies, the concessional tax rate at 15 percent should be revived. The timeline for commencement of operations of domestic manufacturing companies for applicability of 15 percent concessional rate may be re-introduced. This will immensely help to increase manufacturing activities in Indian industries.

The Government may consider providing enhanced depreciation in specified fields to boost competition in identified activities. To create additional jobs, the additional deduction under 80JJAA may also be expanded.

To further incentivise new age industries and technology like artificial intelligence, electric vehicles and renewable energy production etc. additional benefits should also be granted.

Streamlining tax litigation

The Government may consider expanding the scope of Dispute Resolution Committee and increasing the threshold amounts. Strict deadlines for completion of assessment and appellate proceedings should also be introduced which will go a long way in reducing the litigation period and choking of the Indian judiciary.

Deferment of ESOP taxes

Presently, listed companies and large private companies are required to withhold tax at the time of allotment of shares under ESOP Scheme even though no monetary exchange takes place. In case of a reduction in value, the beneficiary employees may suffer significant losses. In order to avoid such notional losses, tax incidence of ESOP may get deferred to actual realization.

Streamlining the withholding tax regime

The current withholding provisions provide for seven rates – ranging from 0.1 percent to the maximum marginal rate. Having multiple rates creates confusion for taxpayers and increases compliance costs and even leads to litigation if TDS is deducted under certain incorrect provisions. The Government can consider rationalising the rates under four broad categories:

1. Applicable rate for salaried individuals and non-residents;

2. 1 percent for transactions involving the purchase of tangible/material goods;

3. 2 percent for transactions involving the supply of any type of services;

4. 10 percent for residuary transactions such as professional fees, interest, dividend, etc.

This will simplify the regime for taxpayers and reduce compliance costs for the taxpayers as well as the tax authorities.

Capital gains tax

Taxpayers are hopeful of either re-introduction of indexation or similar benefits. While it was clarified that it was a revenue neutral mechanism, a number of taxpayers seem to disagree and in specific situations, actually they have to bear a higher tax burden. Hence, this should be reconsidered.

The period of holding in case of slump sale should be reduced from 36 months to 24 months so that it is in line with the holding period of capital assets other than listed securities.

Personal income tax

Individual taxpayers, especially the salaried middle-class taxpayers are keenly awaiting some relief to assist them to cope with inflation. As there are discussions about a complete overhaul of personal taxation, taxpayers expect to get some significant benefit in the budget for 2025-26. Basic exemption limit should be increased to Rs 5 lakh. The subsequent slabs should be for Rs 5 to 10 lakh, Rs 10 to Rs 50 lakh, and above Rs 50 lakh which can be taxed at the rates of 10 percent, 20 percent and 30 percent respectively.

Further, the Finance Minister may consider some additional benefits to individuals in the fields of construction or purchase of a residential house, affordable healthcare benefits, benefits for people taking insurance products, etc. which will go a long way in providing impetus to Real Estate, Healthcare, Pharmaceutical and leave enough in their hands to purchase food and other daily necessities and consumables.

To further popularise electric vehicles, the Government should also encourage companies to purchase them at concessional rates to provide to their employees. This incentive may not be included as a taxable perquisite in the hands of the beneficiary employee.

IFSC

For incentivising new players to set up operations in the IFSC, it is recommended that the sunset clause on the tax holiday period be extended for another five years, including offshore banking units, ship leasing companies, aircraft leasing businesses, etc. which are expiring on March 31, 2025.

The existing units at IFSC may be taxed at the concessional rate of 15 percent. A separate authority may also be set up for speedy disposal of tax disputes involving IFSC units. These changes would provide certainty, stability and predictability of the taxation regime.

Conclusion

With the NDA Government getting its third term recently and this being the first full year budget, industries, tax professionals and taxpayers are extremely excited about the budget. The Government is also able to carve out its ambitious plan for the next term. With everyone expecting a far-sighted budget to propel the county to becoming a developed nation by 2047,  we hope that the new regime is simple, fair and reasonable and is in line with global best practices. It should create an investor-friendly and internationally competitive tax regime in line with other jurisdictions.