Taxmann’s Union Budget – Highlights of the Finance (No. 2) Bill 2024

Taxmann presents a comprehensive overview of the key fiscal changes proposed in the Finance (No. 2) Bill 2024, focusing on direct and indirect taxes. This analysis details the adjustments in tax rates, deductions, exemptions, and business implications that are set to redefine the economic landscape. Significant alterations include modified tax slabs for individual taxpayers, reduced tax rates for foreign companies, and enhanced deductions under various sections. Moreover, the bill introduces new compliance mechanisms and amends penalties across both direct and indirect tax regimes, aiming to streamline tax administration and encourage compliance.

Table of Contents

1. Direct Taxes
2. Indirect Taxes

1. Direct Taxes

1.1 Tax Rates

• Under the new tax regime of Section 115BAC, the 5% and 10% tax slabs will apply to income up to Rs. 7 lakh and Rs. 10 lakh, respectively, thereby increasing the income brackets by Rs. 1,00,000 in both cases. The tax rates under the new tax regime will be as follows

• The rate of tax in case of foreign company shall be reduced from 40% to 35%.

1.2 Deductions and Exemptions

• The standard deduction for employees paying tax under the new regime is increased from Rs. 50,000 to Rs. 75,000.
• Persons paying tax under the new regime of Section 115BAC will get a deduction under Section 57 for the family pension of up to Rs. 25,000, compared to Rs. 15,000 previously.
• Non-government employees will be allowed a deduction under Section 80CCD for employer’s contributions to NPS of up to 14% of their salary. This increased deduction applies only if the employee’s salary is chargeable to tax under the new regime Section 115BAC. A consequential amendment has also been made under Section 36(1)(iva) to allow a deduction to employers.
• Section 80G is amended to provide deduction of any sums paid as donations to the National Sports Development Fund set up by the Central Government.
• The definition of ‘specified funds’ for exemption under section 10(4D) is amended to include retail funds and Exchange Traded Funds in IFSC
• The specified income of Core Settlement Guarantee Funds set up by recognized clearing corporations in IFSC will be exempted under Section 10(23EE) by amending the definition of “recognized clearing corporation”.
• The requirement to explain the source of funds to avoid addition under Section 68 does not apply if the amount is credited to a Venture Capital Fund or Venture Capital Company registered with SEBI. It is now proposed to extend this relaxation to VCFs regulated by the IFSCA.

1.3 Business or Profession

• A new presumptive taxation regime under Section 44BBC will be introduced for non-residents operating cruise ships. Also, income from lease rentals for a foreign company will be exempt under Section 10(15B) if both the foreign company and the cruise ship operator have the same holding company.
• To prevent misuse of expense deductions claimed by life insurance businesses, any expenditure not admissible under Section 37 for computing business profits and gains must be added back to the profits and gains of the life insurance business.
• The prohibitive expenditure for disallowance under Section 37(1) shall include any expenditure incurred to settle proceedings related to legal contraventions, as notified by the Central Government.
• For the first Rs. 6,00,000 of book profit or in case of a loss, the limit of remuneration to working partners in a partnership firm is increased to Rs. 3,00,000 or 90% of the book profit, whichever is higher.
• Clarification has been inserted under Section 28 of the Income-tax Act that any income from letting out a residential house or part thereof by the owner shall be chargeable under the head “Income from house property” rather than “Profits and gains of business or profession.”

1.4 Capital gains

• There will only be two holding periods, 12 months and 24 months, for determining whether the capital gains is short-term capital gains or long term capital gains. For all listed securities, the holding period is proposed to be 12 months and for all other assets, it shall be 24 months.
• The rate for short-term capital gains under Section 111A on STT-paid equity shares, units of equity-oriented mutual funds, and units of a business trust is proposed to be increased to 20% from the current rate of 15%.
• Indexation available under second proviso to section 48 is proposed to be removed for calculation of any long-term capital gains.
• Unlisted debentures and unlisted bonds are proposed to be brought to tax at applicable rates by including them under provisions of section 50AA.
• Sections 115AD, 115AB, 115AC, 115ACA, and 115E are amended to align with the new tax rates on long-term and short-term capital gains The tax rate on long-term capital gains is proposed to be 12.5% in respect of all category of assets.
• The exemption from long-term capital gains under Section 112A on STT-paid equity shares, units of equity-oriented funds, and business trusts is increased from Rs. 1,00,000 to Rs. 1,25,000.
• Only mutual funds that invest more than 65% of their total proceeds in debt and money market instruments will be covered under Section 50AA. Therefore, ETFs, Gold Mutual Funds, and Gold ETFs will not be considered specified mutual funds.
• Section 47(iii) is amended to specify that only the transfer of a capital asset under a gift or will, or by an irrevocable trust, by an individual or HUF will not be considered a transfer. Thus, gifts made by a company will be subject to capital gains tax.
• The sum paid by a domestic company on buy back of shares will be treated as dividend in the hands of shareholders. Additionally, the cost of acquisition of the shares bought back will generate a capital loss, which can be set off against any other capital gains from the sale of shares or otherwise in the future.
• Section 55(2)(ac) is amended to provide FMV for unlisted shares or shares acquired under IPO before 31-01-2018 but subsequently listed on stock exchange would be cost of acquisition adjusted for CII.

1.5 Charitable & Religious Trusts

• Approval based exemption for charitable trusts under Section 10(23C) is proposed to be sunset and merged into the exemption scheme under Sections 11 to 13.
• Principal Commissioner/Commissioner is now empowered to condone delays in filing registration applications by trusts or institutions for reasonable causes.
• Timelines for disposing of applications filed by charitable trusts for the renewal of regular registration or the conversion of provisional registration to regular registration have been extended to six months from the end of the quarter in which the application was received by the PCIT/CIT.
• A new Section 12AC is inserted to facilitate the merger of approved/registered charitable trusts with other trusts or institutions with similar objectives without imposing exit tax.
• References of clause (23EA), clause (23ED), and clause (46B) of Section 10 have been inserted in Section 11(7) to enable trusts registered under Section 12AB to claim exemptions under these specific clauses of Section 10.

1.6 Assessment & Appeals

• A new block assessment scheme will be introduced for search and requisition cases. The ‘block period’ will include the year when the search or requisition was initiated and the six assessment years before that year.
• Tax for the block period shall be charged at 60% as per Section 113 of the Act. The proviso to Section 113 has been amended to stipulate that the tax chargeable under this section shall be increased by any applicable surcharge levied by any Central Act. Currently, no surcharge is proposed for income chargeable to tax for the block period. Furthermore, no interest under Sections 234A, 234B, or 234C, nor any penalty under Section 270A, shall be imposed on the assessee regarding the undisclosed income assessed or reassessed for the block period.
• A penalty on the undisclosed income of the block period, as determined by the Assessing Officer, shall be levied at 50% of the tax payable on such income. However, no penalty shall be levied if the assessee discloses the undisclosed income in the return furnished in response to the search and pays the tax along with the return.
• Time limit for completing the block assessment of the searched assessee shall be twelve months from the end of the month in which the last authorization for search under Section 132, or requisition under Section 132A, was executed or made. For any other person, the time limit for completing the block assessment shall be twelve months from the end of the month in which the notice under Section 158BC, pursuant to Section 158BD, was issued to such person.
• Assessments can be reopened after 3 years but before 5 years only if the escaped income is Rs. 50 lakh or more.
• Section 151 has been substituted to provide that specified authority for the purposes of sections 148 and 148A shall be the Additional Commissioner or the Additional Director or the Joint Commissioner or the Joint Director.
• The assessment of returns filed as a result of order under section 119(2)(b) to be completed within 12 months from the end of the financial year in which such return is furnished.
• A reference of section 250 inserted in section 153(3) in order to provide the time limit for disposal of cases which are proposed to be set aside by the Commissioner (Appeals).
• Time limit for filing an appeal to the ITAT under Section 253 has been changed from 60 days to within two months from the end of the month in which the order being appealed is communicated to the assessee or the Principal Commissioner/Commissioner, as applicable.
• Reference of Section 158BFA has been inserted in Section 253 to enable an aggrieved assessee to file an appeal to ITAT against penalty orders passed by the Commissioner (Appeals).
• Direct Tax Vivad Se Vishwas Scheme, 2024, to be introduced to offer a settlement mechanism for disputed issues, aiming to reduce litigation at a minimal cost.

1.7 TDS & TCS

• A new section 194T has been introduced, requiring 10% TDS on salary, remuneration, interest, bonus, or commission payments to partners by a partnership firm. TDS liability arises if the total payments exceed Rs 20,000 in a financial year.
• Purchasing notified luxury goods exceeding Rs. 10 lakh will be subject to TCS under section 206C(1F).
• In the case of multiple transferors or transferees in the transfer of immovable property, the threshold for tax deduction under Section 194-IA will be the total sum paid or payable by all transferees to all transferors.
• Section 193 TDS will apply while paying interest exceeding Rs. 10,000 on Floating Rate Savings Bonds (FRSB) 2020 (Taxable) and any securities notified by the government.
• Sums deducted under Chapter XVII-B and income tax paid abroad, for which a credit is allowed, are deemed to be income received for computing the assessee’s income.
• Any sum referred to in sub-section (1) of section 194J shall not be treated as “work” for the purposes of TDS under section 194C.
• Credit of TCS of the minor shall be allowed where the income of the minor is being clubbed with the parent under section 64(1A).
• No prosecution under section 276B if the deductor has deposited TDS before the due date prescribed for filing the TDS statement of the quarter.
• 5% TDS rate under Section 194D, Section 194DA, Section 194G, Section 194H, Section 194-IB, Section 194M has been reduced to 2%.
• TDS rate under Section 194-O on payment by e-commerce operator to e-commerce participant is proposed to be reduced from 1% to 0.1%.
• Section 194F providing for TDS from payments on account of repurchase of units by Mutual Fund or Unit Trust of India is omitted.
• No order can be issued treating a person as assessee-in-default for failing to deduct or collect tax after six years from the end of the financial year of payment or credit, or two years from the end of the financial year when the correction statement is delivered, whichever is later.
• Board may make scheme for processing statement filed in Form No. 26QF which is filed by an Exchange wherein the deductee is filing details of the tax.
• TCS credit will be allowed for the calculation of tax to be deducted from salary.
• Lower TDS and TCS certificates can be applied for Section 194Q and Section 206C(1H).
• Tax collection shall be at a lower rate or not collected at all for specified transactions from persons or entities notified by the Central Government in the Official Gazette.
• The interest rate is increased from 1% to 1.5% where TCS has been collected but not been deposited to Government account.
• Section 55(2)(ac) is amended to provide FMV for unlisted shares or shares acquired under IPO before 31-01-2018 but subsequently listed on stock exchange would be cost of acquisition adjusted for CII.
• A TDS/TCS correction statement cannot be filed beyond six years after the end of the financial year in which the original statements under Section 200 and Section 206C were filed.

1.8 Penalties

• Penalty under section 271FAA applicable if the person under section 285BA(1) if the inaccurate information is furnished or failed to comply with due diligence.
• No penalty will be imposed if the person proves that, after paying TDS/TCS with fees and interest, the statement was filed within one month of the due date.

1.9 Prohibition of Benami Property Transactions Act, 1988

• A 3 months deadline has been proposed to be set for a Benamidar/Beneficial owner to furnish a reply/submission to the show cause notice issued by the Initiating Officer (IO)
• The proposed amendment extends the period to decide on provisional attachment actions by IO from 90 days to four months from the end of the month in which the show cause notice was issued.
• The proposed amendment extends the provisional attachment period from 90 days to four months from the end of the month in which show cause notice was issued.
• The proposed amendment allows the IO one month to refer the case to the Adjudicating Authority (AA) after passing the attachment order; earlier, 15 days was prescribed.
• The new section 55A has been proposed to be inserted into the Act, empowering the Initiating Officer to tender immunity to Benamidars or other persons (excluding beneficial owners) from penalties related to Benami transactions under specific conditions to encourage full disclosure.

1.10 Black Money Act, 2015

• A reference of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 is inserted in section 132B of the Income tax act, 1961 to recover the existing liabilities.
• The threshold limit for reporting the value of foreign assets (excluding immovable property) in the Income Tax Return has been increased from Rs. 5 lakh to Rs. 20 lakh.

1.11 Miscellaneous

• Angel tax under Section 56(2)(viib) is abolished from the assessment year 2025-26.
• Everyone allotted a Permanent Account Number based on their Aadhaar Enrolment ID must provide their Aadhaar number by a notified date. The provision allowing quoting of an Aadhaar Enrolment ID in place of an Aadhaar number is discontinued.
• The provisions of section 139 are made applicable to the returns of income furnished under section 119(2)(b).
• Equalisation levy at the rate of 2% shall not be applicable to consideration received or receivable for e-commerce supply or services, on or after 01-08-2024.
• Provisions of the Dispute Resolution Panel (DRP) shall not apply to assessment proceedings in search cases.
• A reference to Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 is introduced in section 230(1A) for the purpose of obtaining a tax clearance certificate.
• Section 245Q is amended to allow withdrawal applications by October 31, 2024, for transferred cases before BAR (from AAR) where no order under Section 245R(2) has been passed. The Board for Advance Rulings may reject the application as withdrawn by December 31, 2024, upon receipt of a withdrawal request.
• STT rates on the sale of an option in securities increased from 0.0625% to 0.1%, and on the sale of futures in securities increased from 0.0125% to 0.02.

2. Indirect Taxes

2.1 Demand and Recovery under GST

• New Section 74A has been inserted to provide a mechanism of demand and recovery under GST to be applicable from the financial year 2024-25.
• This section aims to provide a common mechanism and time-lines for issuing notice and order for proceedings in case of malafide (i.e. fraud, misrepresentation of facts etc.) and bonafide cases. However, where the intentions of the taxpayers subsequently turns out to be fraudulent, the quantum of penalty would very.
• Section 74A provides that the proper officer may serve a notice to the person chargeable with tax where it appears to him that any tax has not been paid/short paid or erroneously refunded, or where input tax credit has been wrongly availed/utilised.
• Time Limit to issue Show Case Notice:

• After considering the representation made by the person, the proper officer would determine the amount of tax, interest and penalty due from such person and issue an order.
• Time Limit to issue Demand Order: Time limit for issuance of order would be 12 months from the date of notice. Further, such time limit of 12 months may be extended for a maximum upto 6 months.
• The new Section 74A provides that where tax is paid within 60 days of issuance of notice, the proceedings will be deemed to be concluded and the benefit of reduced penalty will be available to the person. Applicable penalties are summarised below:

• As a result of insertion of Section 74A w.e.f the financial year 2024-25, applicability of Section 73 and Section 74 has been restricted upto the financial year 2023-24 only
• Consequential amendment has been made in various provisions to include Section 74A of the CGST Act such as in Section 10, Section 21, Section 35, Section 49, Section 50, Section 51, Section 61, Section 62. Section 63, Section 64, Section 65, Section 66, Section 75, Section 104, Section 107, Section 127

2.2 Waiver of interest or penalty or both related to demands raised under section 73

• A new Section 128A has been inserted to provide a waiver of interest and penalties for demand notices issued under Section 73 of the CGST Act, 2017.
• This would be applicable for the period from 01-07-2017 to 31-03-2020.
• This waiver is applicable if the person pays the full amount of tax demanded on or before a date notified by the Government. This section applies in the following cases:

1. 1. A notice issued under section 73 but no order issued; or
   2. an order passed under section 73, and where no order of appeal under section 107 or section 108 has been passed; or
   3. an order passed under section 107 or section 108, and where no order of Appellate Authority has been passed

• Where a notice was issued under Section 74 but it is concludes that the notice is not sustainable under section 74, then the notice or order shall be considered as a notice or order under clause (a) or (b) of this section.
• It is also provided that where an application is filed by department under section 107 or section 112 or HC or SC or where any proceedings are initiated under section 108, the taxpayer would be liable to pay the additional amount determined by the Appellate authority, Appellate Tribunal, HC or SC, as the case may be. This additional amount should be paid within three months from the date of the said order.
• The waiver of interest or penalty does not apply to amounts payable due to erroneous refunds.
• The benefit of waiver of interest and penalty would not be available if an appeal or writ petition filed by the person is pending before the Appellate Authority or Tribunal or Court and has not been withdrawn by the notified date.
• No further appeal can be made where tax has been paid by the person under section 128A.
• It may be noted that where the interest and penalty has already been paid, no refund would be granted.

2.3 GST Levy

• Section 9 of CGST Act and Section 5 of IGST Act to be amended to exclude un-denatured Extra Neutral Alcohol or rectified spirit used for manufacture of alcoholic liquor, for human consumption from the scope of GST levy. Similar amendment has been proposed under IGST and UTGST Act.
• Section 11A is to be inserted to empower the Government to regularize non-levy or short levy of GST, where tax was being short paid or not paid due to any general practice prevalent in trade. The intention behind this provision is to allow Government to minimise litigation and to regularize GST liability on certain goods and services on the basis of any subsequent development or clarification issued by the CBIC.
• In case of co-insurance agreements, where GST on entire premium amount is paid by the lead insurer, the apportionment of co-insurance premium by lead insurer to co-insurer for insurance services jointly supplied, shall be declared as no supply under Schedule III of the CGST Act.
• In case of ceding and reinsurance services, ceding commission or the reinsurance commission is deductible from reinsurance premium provided GST is paid by the reinsurer on the gross reinsurance premium inclusive of the ceding commission.

2.4 Input Tax Credit

• For FY 2017-18, 2018-19, 2019-20 and 2020-21, taxpayers who have filed their returns upto 30-11-2021 are eligible to avail ITC on invoices and debit notes pertaining to the said years in such return. This is irrespective of time limits prescribed under Section 16(4).
• Person whose registration is revoked would be eligible to avail ITC in the return for the period(s) from effective date of cancellation till date of revocation order subject to filing of return within 30 days of order of revocation of cancellation of registration. This is subject to the condition that time-limit for availment of credit in respect of said invoice or debit note should not have already expired under Section 16(4) on the date of order of cancellation of registration. The aforesaid amendments are made effective from 01-07-2017.
• Section 17(5) is amended to restrict non-availability of ITC in respect of tax paid under Section 74 only for demands up to FY 2023-24. This amendment is done to accommodate the changes due to introduction of section 74A.
• Also, reference to Sections 129 and 130 which deals with detention and confiscation of goods during the course of movement is proposed to be removed from the credit restriction under Section 17(5).
• Eligibility of CENVAT credit on input services received by ISD prior to the appointed day, for which invoices were also received prior to the appointed date would be eligible for distribution.

2.5 Issuance of Self-Invoice and Time of Supply

• Section 31(3)(f) to incorporate an enabling provision for prescribing time period for issuance of self-invoice by recipient in case of RCM supplies. The time limit to be prescribed by way of CGST Rules.
• Corresponding amendment is made in Section 13(3) to consider date of issuance of invoice by recipient for determining time of supply of service in case of RCM supplies.

2.6 Anti-profiteering provisions

• The provision of Section 171 to be amended to provide a power to the government to insert sunset clause in the anti-profiteering provisions under GST
• The anti-profiteering provision provides that the Government may empower an existing authority under any law for the time being in force, to examine the applications for anti-profiteering. In respect of the same, an explanation has been added in Section 171 to provide that the Appellate Tribunal may be considered as an authority for the purpose of Section 171

2.7 Other Provisions

• Monthly return filing is made mandatory for TDS deductors, with a facility to file Nil return where no deduction is made in a particular calendar month.
• Refund of unutilized ITC as well as IGST to be restricted on zero-rated supply of goods where such goods are subjected to export duty.
• Reduction in Pre-Deposit Amount during Appeals under GST

• Section 109 to be amended to provide that matters pertaining to anti-profiteering would be examined and adjudicated by Principal Bench of GSTAT. Further power is given to the Government to notify any other cases which shall be heard only by the Principal Bench of GSTAT.
• Penalty provision on E-commerce operators (ECOs) under Section 122(1B) is to be revised for restricting its applicability to ECOs who are required to collect tax at source under Section 52.
• Allowing an authorized representative to appear on behalf of the summoned person before the proper officer, in compliance with the summons issued by the officer, to give evidence, produce documents or any other required information in an inquiry.

2.8 Appellate Tribunal

• Recognizing that the Appellate Tribunal has not been operational, an amendment has been made to allow the time period for filing appeals to start from either the date the order is communicated to the person or a date to be notified by the Government, whichever is later. This amendment shall be applicable with effect from the 01-08-2024.
• Section 112(6) provides a time limit for admitting the appeals filed by the taxpayer before the appellate tribunal. Now the Section has been amended to prescribe the time limit for filing of appeal by the department.

2.9 Customs

• For claiming preferential rate of duty under Customs, acceptance of ‘proof of origin’ would be required instead of ‘certificate of origin’. This amendment would align Customs provisions with new trade agreements to allow importers to claim preferential rate of duty on the basis of either certificate issued by authority or self-certification.
• New proviso to be inserted in Section 65(1) to empower Govt. to specify the manufacturing processes and other operations in relation to ‘class of goods’ that shall not be permitted in a warehouse.

2.10 Excise

• Clean Environment Cess, levied and collected as a duty of excise, is being exempted on excisable goods lying in stock as on 30-06-2017.
• This is subject to payment of appropriate GST Compensation Cess on supply of such goods on or after 01-07-2017.