Preface

This year ELP celebrated its 20th anniversary. Since the first year we have been putting out a comprehensive budget booklet and have had much appreciation from our clients and adulation from a few who have replaced our logo with theirs and put out the same publication (we take that as a compliment).

This budget is qualitatively different as it does not fall in the populist trap and makes significant strides on the new India that is emerging. Expectations were high that this budget would pick sectors and try and repair some of the impact of the Covid years. It does nothing of the sort – it is a play for the future.

Armed with the confidence of record GST collections and flush with the oil profits bonanza which was withheld from the end consumer– the FM has delivered a budget with something for all and nothing for the few who were looking out for special treatment. The usual tweaks to the tax slabs and doles to specific sectors have been foregone for a robust policy play.

With the farmer unrest (over the now scrapped legislations) and impending elections in UP and Punjab – doling out big subsidies was an easy option. Happily, the populist measures have been withheld – and we have a budget with a long-term vision to build a multi trillion-dollar economy.

Besides the additional Minimum Support Price outlay for procurement (which will go directly to the farmers) and a millet policy to improve India's global competitiveness; all the investment is in big ticket items which will benefit the farmer and make the sector self-reliant. Digital land records, drone mapping, agritech universities, eco-farming belts, use of the postal and rail network to enhance farmer efficiency will pay long term dividend and create short term jobs. The preparation for India @100 when 50% of our population will live in urban areas is a sign of the forward thinking that has been brought to bear. In this regard the focus on infrastructure, rail and road connectivity and town planning are welcome measures.

This is not a budget to be viewed in isolation. This is the logical next step in the road map for new India that began over 5 years ago. Privatization, ease of doing business, PLI schemes, a clear semi-conductor strategy, certainty in policies, and departure of government from business and reduced role in litigation are already at play. Add to this electric vehicle policies (battery swapping technology), substantial increase in long term capital expenditure outlay, 25,000kms of new road, PPP models for hilly region infrastructure, guidelines certainty payments in government contracts, streamlining in evaluation of complex tenders, and RBI led digital currency – this is the new India.

Beyond the playing to the galleries with announcements such as banning of imports of umbrella and parts from China (miniscule in terms of value and irrelevant in terms of technology) or the now oft repeated 'atmanirbhar' defense policy – the Indian economy is growing wings. The center is driving an all-India plan and not playing to various lobbies.

This needs to be continued not only in the annual budget but throughout the year – irrespective of the election cycle or the government in power. As the youngest demographic in the world, we can't afford to falter.

As ELP has always done, this booklet deep dives and analyses the budget. We as lawyers, tax advisors and policy shapers dissect the budget from multiple angles. We aim to provide our readers the practical impact of the budget and its impact on your business. Stripped of all frills and jargon, it is designed to be an easy read. We do hope you benefit from the depth, breath, and clarity of the analysis. As always, your feedback is welcome.

As a final point, an incongruous announcement on foreign universities and arbitration centers in Gujarat IFSC was made. This may not have much in terms of value, but legal services and education have been long protected bastions in the Indian economy. Clearly, the mindset has changed.

BUDGET HIGHLIGHTS

DIRECT TAXES

  • No change in base tax rates for individuals, corporates and LLPs; surcharge on specific AOPs and long-term capital gains capped at 15%
  • Introduction of tax on Virtual Digital Assets (viz. Crypto and NFT) at the rate of 30%; deduction allowed only for cost of acquisition; benefit of set off and carry forward of losses not available; gift tax provisions to apply and withholding tax at the rate of 1%
  • Tax holiday extended for start-ups incorporated up to 31 March 2023 and Special tax regime for new manufacturing companies commencing operations by 31 March 2024
  • Withdrawal of concessional tax rate of 15% on dividend received from foreign companies
  • Expenditure to provide any benefit or perquisite to any person to be disallowed if its acceptance is in violation of any laws.
  • A new updated return filing system is proposed wherein a voluntary updated return can be filed within 2 years from the end of the relevant AY on payment of additional taxes (25% or 50% of taxes and interest)
  • Bonus and dividend stripping made applicable to REITs, InvITs, AIFs and securities
  • A person providing any benefit/perquisite arising from carrying out any business or profession under Section 28(iv) of the IT Act to deduct tax at source at the rate of 10% on an amount exceeding INR 20,000

CUSTOMS

  • Import tariff rationalization in alignment to flagship "Make-in-India" program and "Atmanirbhar Bharat" policy
  • Gradual phasing out of concession duty benefits for imported capital goods including imports under the Project Imports scheme
  • Clarified that no applicability of Social Welfare Surcharge in cases, where the aggregate of customs duties (which form the base for computation of SWS) is NIL. No separate exemption notification required.
  • Legislative changes proposed to retroactively overcome Hon'ble Supreme Court ruling in Canon India; accordingly, show cause notices issued by officers of DRI, audit and preventive formations in past regularized. Going forward procedure also defined.
  • Advance Ruling, under customs, shall remain valid for three years from pronouncement or until change in law or facts, whichever is earlier
  • Overhaul of SEZ legislation & procedures proposed

GST

  • Transfer of amount available in electronic cash ledger under CGST or IGST of a distinct person has now been permitted
  • Limitation period for (a) availment of input tax credit (b) issuance of credit notes (c) rectification of error and omissions in GST return extended from the existing September 30 to November 30, of subsequent year to align with statutory timelines under various other fiscal laws
  • Power prescribed to restrict maximum proportion of output tax liability which may be discharged through the electronic credit ledger
  • Interest rate for wrongly availed & utilized ITC notified at 18% retroactively
  • Provisions introduced for claiming ITC based on auto-generated statements in GSTR 2B

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.