Introduction

Budget 2024 ushered in a new era of tax planning for Indian taxpayers, with a slew of amendments reshaping the income tax landscape. The Finance Act, 2024 introduced significant changes to the tax structure, including modifications to tax slabs, deductions, exemptions, and compliance requirements. This article delves into the key alterations brought about by the Budget, providing insights into how these changes will impact individuals and businesses alike.

PERSONAL TAX

New tax regime becomes even more lucrative

Taxation under the new tax regime becomes even more lucrative. Changes in tax rates are as follows:

1. For individuals and HUF, the tax slabs have been improved under the new regime. There will be no tax on total income up to INR 3,00,000. Thereafter, a 5% tax shall apply to income up to INR 7,00,000 instead of INR 6,00,000. Similarly, a 10% tax shall apply to income up to INR 10,00,000 instead of INR 9,00,000 slabs. Thereafter, the tax rates remain the same.
2. There is no change in tax rates under the old regime of taxation.
3. The foreign companies are now required to pay tax at the rate of 35% instead of 40%.
4. There is no change in the basic exemption limit or tax rates for any other class of assessee.
5. There is no change in the education cess rate.
6. There is no change in tax rates for other types of taxpayers.

Standard Deduction

For taxpayers opting for the new tax regime under section 115BAC, the standard deduction under section 16(i) will be increased from INR 50,000 to INR 75,000. This means that taxpayers will be able to deduct a higher amount from their salary income before computing their taxable income. Similarly, for income from family pensions, the deduction under section 57(iia) will be raised from INR 15,000 to INR 25,000 for those using the new tax regime. These amendments will be effective from April 1, 2024, and shall apply from financial year 2024-25 onwards.

Contribution to Employees’ Pension

Section 36(1)(iva) allows an employer to deduct contributions made to a pension scheme referred to in Section 80CCD, up to 10% of the employee’s salary in the previous year. Meanwhile, Section 80CCD(2) provides that contributions by employers to an employee’s pension scheme can be deducted up to 14% of the employee’s salary in the case of Government employees and up to 10% of the employee’s salary, in the case of others. With the latest amendments, the deduction limit for employer contributions is increased from 10% to 14% of the employee’s salary. Employers can now contribute up to 14% of an employee’s salary towards pension schemes, which will provide a larger tax deduction. These amendments will be effective from April 1, 2024, and shall apply from financial year 2024-25 onwards.

TCS credit while deducting TDS on Salary

Section 192 of the Income Tax Act governs the deduction of tax at source (TDS) on salary income. Sub-section (2B) allows for consideration of income under any other head and the corresponding tax deducted thereon for computing the TDS on salary. Employees were facing difficulties as TCS (Tax Collected at Source) and other forms of TDS, were not accounted for while computing the TDS on salary. After amendments, TCS and all forms of TDS will have to be considered in the calculation of TDS on salary. This adjustment will help employees avoid cash flow issues and reduce the need for claiming refunds, thus simplifying compliance and administrative procedures. These amendments will take effect from October 1, 2024.

Threshold for Disclosure of Foreign Assets

Section 42 deals with the assessment and determination of undisclosed foreign income and assets. Section 43 addresses the penalty provisions related to the concealment of foreign income or assets. The proposed amendment introduces a threshold of 20 lakhs whereby the provisions of Sections 42 and 43 will not apply to assets excluding immovable property where the aggregate value of such assets does not exceed 20 lakhs. Taxpayers holding undisclosed assets below the 20 lakh threshold will benefit from simplified compliance requirements.

ESOPs will not be covered under Section 47(iii)

Section 47(iii) excludes certain transfers from the purview of capital gains tax, including those made under a gift, will, or irrevocable trust. First Proviso to Section 47(iii) makes an exception for specified Employee Stock Option Plans (ESOPs), where capital gains tax applies. Meanwhile, section 50D requires the fair market value (FMV) to be considered as the full value of consideration when the actual consideration is not ascertainable. Section 50CA mandates that the FMV of unquoted shares be used as the consideration if it exceeds the actual consideration received or accruing. Certain taxpayers have litigated that gifts of shares by companies should not be subject to capital gains tax as Section 47(iii) applies to the same. Therefore, section 47(iii) has been amended to specify that the exclusion applies only to transfers made by an individual or a Hindu Undivided Family (HUF). Transfers made by entities such as companies will no longer be exempt under this clause. Thus, Gifts and transfers of capital assets made by individuals or HUFs will still benefit from the exclusion from capital gains tax. Gifts of shares or other capital assets by companies or entities will be subject to capital gains tax based on the FMV provisions. These amendments will be effective from April 1, 2025, and shall apply from financial year 2025-26 onwards.

TDS withheld on Foreign Income

Section 198 of the Income Tax Act stipulates that any sum deducted or tax deducted at source (TDS) is considered part of the income of the taxpayer. It has been observed that some taxpayers while reporting foreign income, do not include the tax withheld in income when calculating their total income. This results in the total income being under-reported since only the net income (after foreign tax deduction) is being offered for taxation. It is proposed to amend Section 198 to clarify that all sums deducted following Chapter XVII-B, as well as income tax paid outside India for which a credit is allowed under the Act, should be deemed as income received to compute the total income of the assessee. This amendment will be effective from October 1, 2024.

BUSINESS INCOME

Remuneration to Working Partners

Section 40(b) of the Income Tax Act outlines the amounts that cannot be deducted when computing the income under the head Profits and gains of business or profession. Section 40(b)(v) disallows deductions for payments of remuneration to working partners in a partnership firm if such payments exceed certain limits. For the first INR 3,00,000 of the book profit, the allowable deduction is either INR 1,50,000 or 90% of the book profit, whichever is higher. For the balance of the book profit, the allowable deduction is 60% of the remaining book profit. Now, after amendments, for the first Rs. 6,00,000 of the book profit, the allowable deduction is increased to INR 3,00,000 or 90% of the book profit, whichever is higher. For the balance of the book profit, the allowable deduction remains at 60% of the book profit. These amendments will be effective from April 1, 2024, and shall apply from financial year 2024-25 onwards.

Settlement expenses are disallowed

Section 37 provides that expenditures laid out or expended wholly and exclusively for business or profession are allowable as deductions. However, any expenditure incurred for purposes that are offences or prohibited by law is not deductible. These expenditures include expenses for offences under laws enacted in or outside India and to provide benefits or perquisites in violation of laws or regulations. Settlement amounts paid to resolve legal contraventions are currently being claimed as business expenses by some taxpayers. Since these settlements arise from infractions of laws, they are not legitimate business expenses and should not be deductible. The proposed amendment aims to clarify that any expenditure incurred by an assessee to settle proceedings related to contraventions under any law is considered an expenditure incurred for any purpose which is an offence or which is prohibited by law.

Abolition of Angel Tax

Section 56(2)(viib), introduced by Finance Act, 2012, was inserted to address the issue where private companies issue shares at a premium. If a company (not listed on stock exchanges, hence a private company) receives consideration from a resident for issuing shares that exceed their face value, the excess amount over the fair market value of the shares is treated as income and is taxable under the head Income from other sources. The government has decided to discontinue the application of this provision. Investors buying shares at a premium from private companies (usually startups) will no longer face tax implications related to the excess amount over face value under this section. These amendments will be effective from April 1, 2024, and shall apply from financial year 2024-25 onwards.

Arms Length Price for Specified Domestic Transactions

Taxpayers are required to file an audit report under Section 92E detailing all international transactions and SDTs undertaken during the year. Section 92CA allows the Assessing Officer to refer matters concerning the determination of Arm’s Length Price to the TPO, with prior approval from the Principal Commissioner or Commissioner. However, if a transaction is not reported in this audit report, the AO would typically not be aware of it to make a referral to the TPO. Therefore, Section 92CA(2A) and (2B) enable the TPO to determine the ALP not referred by the AO, and those not detailed in the audit report. Presently, these provisions apply only to international transactions. The TPO will be empowered to determine the ALP for SDTs not included in the audit report or not referred by the AO. This ensures that all relevant transactions are covered, irrespective of whether they were initially reported or not. These amendments will be effective from April 1, 2024, and shall apply from financial year 2024-25 onwards.

Disclosing Income from House Property in ITR

Some taxpayers have been incorrectly reporting rental income from letting out house property under the head Profits and Gains of Business or Profession rather than under the appropriate head Income from House Property. This misclassification allows them to reduce their tax liability substantially. Income from House Property does not allow the same level of deductions as business income. It is generally subject to specific rules and deductions such as a standard deduction of 30% of the net annual value, along with municipal taxes paid. Clarification has been added in section 28 that income from letting out of a residential house or a part of it by the owner must be reported under Income from House Property and not under Profits and Gains of Business or Profession. These amendments will be effective from April 1, 2024, and shall apply from financial year 2024-25 onwards.

CAPITAL GAINS

Changes in the Holding Period for Capital Gains

Capital gains are classified as short-term or long-term based on different holding periods for various assets. For instance, listed equity shares – 12 months, unlisted shares – 24 months, Immovable property – 24 months, Bonds and debentures – 36 months. The holding period will now have only two categories – 12 months and 24 months. The holding period has been reduced to 12 months for listed equity shares, units of equity-oriented mutual funds, and units of business trusts (previously 36 months for business trusts). The holding period for all other assets such as bonds, debentures, unlisted shares, immovable property and gold reduced from 36 months to 24 months. These amendments will take effect from July 23, 2024.

Changes in the Tax Rates for Capital Gains

Short-Term Capital Gains are currently taxed at 15% under section 111A for STT-paid equity shares, units of equity-oriented mutual funds, and units of business trusts. This rate has been increased to 20%. Long-Term Capital Gains are currently taxed at 10% under section 112A for STT-paid equity shares and at 20% with indexation under section 112A for other assets. Now, one single tax rate of 12.5% shall apply to all assets. The indexation benefit has been permanently removed. Exemption of 1 lakh for LTCG on equity shares, equity-oriented mutual funds and units of business trust has been increased to 1.25 lakh. Unlisted bonds and debentures will be taxed at applicable slab rates whether held for short-term or long-term. The tax rates for long-term and short-term capital gains between resident and non-resident assessees are now the same. Sections 115AD, 115AB, 115AC, 115ACA, and 115E have been amended to bring rates in line with those proposed for residents. These amendments will take effect from July 23, 2024.

Definition of Specified Mutual Funds

The Finance Act, of 2023 introduced Section 50AA, which established a special taxation regime for Market Linked Debentures and Specified Mutual Funds. Under this regime, gains from such instruments were deemed to be short-term capital gains, irrespective of the holding period. However, the previous definition of Specified Mutual Fund has raised concerns among various stakeholders. The requirement that a specified mutual fund must invest more than 35% in equity shares has adversely impacted funds that invest less than 35% in equity but are still not purely debt-oriented, such as ETFs and Gold Funds. Further, ambiguity existed regarding the classification of FoFs, which invest in other mutual funds. To address these issues and provide greater clarity, the definition of Specified Mutual Fund under Section 50AA will be revised to (a) A mutual fund that invests more than 65% of its total proceeds in debt and money market instruments, (b) A fund that invests 65% or more of its total proceeds in units of a fund described in sub-clause (a). These amendments will be effective from April 1, 2025, and shall apply from financial year 2025-26 onwards.

Buyback of shares is now Dividend Distribution

Special tax provisions were introduced by the Finance Act, of 2013, requiring domestic companies to pay tax on the distributed income from the buyback of shares. This was in addition to the income tax chargeable on the company’s total income. However, with the removal of the Dividend Distribution Tax (DDT) by the Finance Act, 2020, the tax treatment of buy-back needs to be updated. Therefore, the sum paid by a domestic company for the buy-back of its shares will be treated as a dividend in the hands of shareholders. This income will be taxable at the applicable rates for the recipient. No deductions for expenses will be allowed against this dividend income. The buy-back will also result in a capital loss for the shareholder. The value of consideration received for the buy-back will be treated as nil to calculate this capital loss. This loss can be carried forward and set off against future capital gains. These amendments will take effect from October 1, 2024.

Increase in STT rates

The Securities Transaction Tax (STT) was introduced via the Finance Act, of 2004. This tax is levied on transactions in specified securities and is collected by recognized stock exchanges, mutual funds, insurance companies, or lead merchant bankers involved in initial public offerings. The STT rate on the sale of options in securities will now be increased from 0.0625% to 0.1% of the option premium. The STT rate on the sale of futures in securities will be increased from 0.0125% to 0.02% of the price at which such futures are traded. The revised STT rates will be effective from October 1, 2024.

Taxation of Offer for Sale

Section 55(2)(ac) introduced a mechanism to determine the cost of acquisition for assets acquired before February 1, 2018, under section 112A. The cost of acquisition is the higher of the actual cost or the lower of the Fair Market Value (FMV) as of January 31, 2018, and the full value of consideration received upon sale. Explanation 3(iii) of Section 55(2)(ac) provides a method to determine FMV for equity shares not listed on January 31, 2018, but listed later, by adjusting the cost of acquisition with the Cost Inflation Index (CII). Certain transactions, including Offer for Sale in Initial Public Offerings, were exempted from the requirement of STT payment at the time of acquisition. This led to a lacuna in determining the FMV for shares transferred through OFS since these shares are often unlisted on the date of transfer and listed only later. Some taxpayers have been claiming that capital gains on OFS shares are not taxable due to difficulties in determining FMV, given that the shares were unlisted at the time of transfer. Necessary amendments have been made to explicitly include shares transferred under an OFS route where STT is paid at the time of transfer. This includes shares not listed as of January 31, 2018, but listed subsequently. For such shares, FMV will be computed using the proportion of the Cost Inflation Index for the financial year 2017-18 relative to the CII for the first year the asset was held or for the year beginning April 1, 2001, whichever is later. The amendment will be deemed to have been inserted from April 1, 2018, and will apply retrospectively from the assessment year 2018-19 onwards.

WITHHOLDING TAXES

Changes in TDS Rates

To simplify the TDS framework by reducing rates and adjusting thresholds to improve ease of doing business and taxpayer compliance, TDS rates have been changed to reduce the number of different rates. Following is the summary of changes – Section 194D, 194DA, 194G, 194H, 194IB, 194M – Earlier 5%, now 2% and Section 194O – Earlier 1%, now 0.1%. TDS under section 194F has been discontinued. These amendments will take effect from October 1, 2024.

TDS on Remuneration to Partners

Currently, there is no requirement for partnership firms to deduct tax at source (TDS) on payments made to partners. This includes payments such as salary, remuneration, interest, bonus, or commission. To address the gap, a new section 194T will be introduced. This provision will mandate TDS on various payments made by a partnership firm to its partners. TDS will be applicable on aggregate amounts exceeding INR 20,000 in a financial year. The applicable rate for TDS will be 10%. These amendments will take effect from April 1, 2025.

TDS on Sale of Immovable Properties

Under section 194IA of the Income Tax Act, any person responsible for paying consideration for the transfer of immovable property other than agricultural land must deduct tax at source at the rate of 1% of the higher of the consideration paid, or the stamp duty value of the property. TDS is not required if both the consideration and stamp duty value of the property are below INR 50 lakh. Some taxpayers are interpreting the INR 50 lakh threshold as applying to each payment rather than the total consideration for the property. This interpretation means that if a buyer pays less than INR 50 lakh at one time, no TDS is deducted, even if the total consideration for the property is more than INR 50 lakh. It is proposed to amend section 194-IA to clarify that the term consideration refers to the aggregate amount paid or payable by all buyers (transferees) to the seller (transferor) for the immovable property. This amendment will be effective from October 1, 2024.

Interest on Late Deduction or Deposit of TCS

Section 206C of the Income Tax Act governs the collection of tax at source (TCS) on transactions such as trading in alcoholic liquor, forest produce, scrap, etc. Sub-section (7) of Section 206C provides for the imposition of interest at a rate of 1% per month or part thereof for late payment of TCS to the Central Government. This interest is calculated from the date the tax was collectable until the date it is paid. The current interest rate for late payment of TCS is 1%, which is lower compared to the 1.5% interest rate for late deduction or deposit of TDS. To align the interest rates for late payment of TCS with those applicable for late TDS deposits, it is proposed to increase the interest rate under sub-section (7) of Section 206C. The revised rate will be 1.5% per month or part thereof on the amount of tax collected from the date it was collectable until the date it is paid. These amendments will be effective from April 1, 2024, and shall apply from financial year 2024-25 onwards.

194C to exclude payments under 194J

Clause (iv) of the Explanation to Section 194C defines work for TDS under Section 194C but does not explicitly exclude payments covered under Section 194J. This has led to situations where some deductors incorrectly apply TDS under Section 194C instead of Section 194J. To resolve the confusion, it is proposed to explicitly state that any sum paid under Section 194J does not fall under the definition of work for Section 194C. This means that payments qualifying under Section 194J should not be subject to TDS under Section 194C.

Prosecution for Non-deposit of TDS

Section 276B of the Income Tax Act deals with the prosecution of a person who fails to deposit tax deducted at source (TDS) to the credit of the Central Government. The section specifies that such a person is subject to rigorous imprisonment for a term not less than three months, which can extend up to seven years, along with a fine. It is proposed to amend Section 276B to include an exemption from prosecution. If a person who has deducted tax fails to deposit it by the due date, they will not be prosecuted if the payment is made to the credit of the Central Government on or before the due date for filing the TDS statement for that quarter under Section 200(3) of the Act. The amendment will come into effect from October 1, 2024.

Time Limit for TDS Orders

Section 201 deals with consequences for failing to deduct or remit tax. Under section 201 (3), there is a seven-year time limit for issuing orders deeming a person as an assessee in default for failures involving residents. However, no specific time limit applies for failures involving non-residents, leading to potential uncertainty. Section 206C relates to tax collected at source (TCS) and the consequences of not collecting or paying the tax. Under section 206(6A) the consequences for failure to collect or pay TCS has been prescribed, but does not prescribe a clear time limit for making such orders. It is proposed to introduce a time limit for making orders deeming a person as an assessee in default for failing to deduct or remit tax. No order shall be made after the expiry of six years from the end of the financial year in which the payment was made or credit was given, or two years from the end of the financial year in which the correction statement was delivered, whichever is later. Similar to Section 201, a new sub-section will be added to Section 206C to provide a time limit for making orders deeming a person as an assessee in default for failing to collect or remit TCS. These amendments will come into effect from April 1, 2025.

Lower TDS / TCS Certificate

Section 194Q and 206C(1H) which relate to the deduction of TDS or collection of TCS in case of purchase or sale of goods exceeding INR 50 lakhs from one single person during a financial year are now covered under the ambit of section 197. Thereby, one can opt for a lower deduction or lower collection certificate against the expected deductions under these sections. These amendments are effective from October 1, 2024.

Exemption from TCS

Section 206C mandates the collection of tax at source (TCS) on various transactions such as the business of trading in alcoholic liquor, forest produce, scrap, etc. Certain entities whose income is exempt from taxation and are not required to file returns face difficulties due to the TCS provisions. It is proposed to grant the Central Government the power to notify specific persons, institutions, associations, or bodies that can be exempted from TCS or subject to a reduced TCS rate. The Central Government can now decide not to collect tax or to collect it at a lower rate for the specified transactions involving the notified persons or entities. These amendments are effective from October 1, 2024.

TCS on Luxury Items

Under the existing Section 206C(1F), a seller of a motor vehicle with a value exceeding INR 10 lakh must collect TCS at the rate of 1% from the buyer on the sale consideration. This provision aims to track high-value transactions in motor vehicles. The scope of TCS under section 206C(1F) is now expanded to include other luxury goods, not just motor vehicles. The amendment will enable the Central Government to notify additional goods, valued above INR 10 lakh, that will also be subject to TCS. These amendments will take effect from January 1, 2025.

TCS credit on behalf of Minors

Section 206C of the Income Tax Act mandates the collection of tax at source (TCS) on various transactions such as trading in alcoholic liquor, forest produce, scrap, etc. However, the Act does not currently allow the credit of TCS to be claimed by anyone other than the actual collectee. Funds remitted under the Liberalized Remittance Scheme (LRS) of the Reserve Bank of India may be in the name of a minor. Consequently, TCS is collected under sub-section (1G) of section 206C. Currently, there is no provision allowing the minor’s parent to claim this TCS credit in their tax return. It is proposed to introduce a provision in Section 206C to allow the Board to notify rules that permit credit for TCS to be claimed by persons other than the collectee. This provision will specifically allow credit of TCS collected on behalf of a minor to be claimed by the minor’s parent. These amendments will take effect from January 1, 2025.

Time Limit for Revised TDS / TCS Returns

A deductor can file a correction statement to rectify any mistakes or update information. Currently, there is no specified time limit for filing these correction statements, which could lead to indefinite revisions. Like TDS statements, there is no time limit for corrections in TCS statements as well. To address these issues, it is proposed that no correction statement can be delivered after the expiry of six years from the end of the financial year in which the original TDS or TCS statement was delivered. These amendments are effective from April 1, 2025.

Penalty for Failure to Furnish TDS/TCS Statements

According to section 271H(3), no penalty shall be levied if the person proves that after paying the TDS/TCS along with any applicable fees and interest to the credit of the Central Government, the TDS/TCS statement has been filed before the expiry of one year from the time prescribed for furnishing the statement. Under the proposed amendment, no penalty shall be levied if the person proves that after paying the TDS/TCS along with fees and interest to the credit of the Central Government, the TDS/TCS statement has been filed before the expiry of one month from the time prescribed for furnishing the statement. These amendments are effective from April 1, 2025.

TAX ASSESSMENTS

New Block Assessment Provisions

New block assessment provisions for cases of search under Section 132 and requisition under Section 132A aim to streamline the assessment process and address several issues associated with the existing scheme. These changes are applicable from September 1, 2024, for searches under Section 132 or requisitions under Section 132A.

1. Block Period will consist of six assessment years preceding the assessment year in which the search was initiated or requisition was made. The period includes the entire financial year of the search/requisition and ends on the date of the last authorization for search or requisition.
2. Regular assessments for the block period will abate, and a single consolidated assessment will be conducted. No further assessments or reassessments for the block period will occur until the block assessment is complete.
3. Tax at 60% of the total income for the block period, with no additional surcharge currently proposed. A 50% penalty on the tax payable for undisclosed income will be levied unless the income is voluntarily disclosed and taxed. 
4. Block assessment will be completed within twelve months from the end of the month in which the last authorization was executed or requisition made. For other persons, twelve months from the date of notice under Section 158BC.
5. Evidence related to international or specified domestic transactions will not be included in the block assessment but will be considered under other provisions of the Act.
6. Notices and orders for block assessment will require prior approval from the Additional Commissioner/Director or Joint Commissioner/Director.
7. Provisions of section 144C do not apply to block assessment proceedings.

Assessment and Reassessment Provisions

Before initiating assessment, reassessment, or recomputation under Section 147, the Assessing Officer (AO) must issue a notice to the assessee. This notice will be accompanied by an order under Section 148A(3) determining it to be a fit case for assessment, and the assessee will be required to furnish a return of income within three months from the end of the month in which the notice is issued. The specified authority for Sections 148 and 148A will be the Additional Commissioner, Additional Director, Joint Commissioner, or Joint Director.

Notices under Section 148 can only be issued if the AO has information suggesting that income chargeable to tax has escaped assessment. Information from surveys conducted under Section 133A (excluding sub-section 2A) on or after September 1, 2024, will be included in this definition of information. If the AO has received information under Section 135A, notice under Section 148 will require prior approval from the specified authority.

The AO must provide an opportunity for the assessee to be heard by serving a notice to show cause why a notice under Section 148 should not be issued. This notice will be accompanied by the information suggesting that income chargeable to tax has escaped assessment. The AO will then pass an order with the prior approval of the specified authority, determining whether it is a fit case to issue a notice under Section 148. However, these provisions will not apply if the AO has received information under Section 135A

These amendments will take effect from September 1, 2024.

Time Limit for Issuing Assessment Notice

Under new provisions, no notice under Section 148A can be issued if three years have elapsed from the end of the relevant assessment year. However, if the escaping income amounts to or is likely to amount to INR 50 lakh or more, notice under Section 148A can be issued beyond three years but not beyond five years from the end of the relevant assessment year

Similarly, no notice under Section 148 can be issued if three years and three months have elapsed from the end of the relevant assessment year. However, if the AO possesses evidence related to assets, expenditures, or transactions amounting to INR 50 lakhs or more, notice under Section 148 can be issued beyond three years and three months but not beyond five years and three months from the end of the relevant assessment year.

These amendments will take effect from September 1, 2024.

Period of Limitation for Imposing Penalties  

Section 275(1) specifies that a penalty order cannot be made after the expiry of the financial year in which the proceedings for imposing the penalty were completed, or six months from the end of the month in which the order from the Joint Commissioner (Appeals), Commissioner (Appeals) or Appellate Tribunal (ITAT) is received, whichever is later. The reference to the date of receipt of the order in the office of the Principal Chief Commissioner or Chief Commissioner creates ambiguity and complicates the calculation of the limitation period for imposing penalties. Therefore, the same has been omitted from Section 275. These amendments will take effect from October 1, 2024.

Withholding Refunds against Outstanding Demands

The Assessing Officer can adjust a refund against any outstanding tax demand from the taxpayer under section 245. If a refund is due but assessment or reassessment proceedings are pending, the AO can withhold the refund with the approval of the Principal Commissioner or Commissioner of Income Tax. The period during which a refund can be withheld has been extended and now refund can be withheld up to the date of assessment or reassessment, instead of up to sixty days. These amendments will take effect from October 1, 2024.

New Vivaad Se Vishwas Scheme

A new Direct Tax Vivaad Se Vishwas Scheme, 2024 will be launched for the settlement of pending litigations, as the previous scheme received encouraging responses from the taxpayers.

INDUSTRY-SPECIFIC

No Equalisation Levy on E-commerce Operators

Equalisation Levy was introduced to tax online transactions where non-residents earn income from e-commerce activities in India. 2% on the amount of consideration received or receivable by e-commerce operators. From August 1, 2024, the 2% equalisation levy will no longer apply to consideration received or receivable for e-commerce supplies or services. For e-commerce supply or services made or provided or facilitated between April 1, 2020, and July 31, 2024, the income will continue to fall under clause (50) of section 10 of the Income Tax Act, which provides certain exemptions.

Tax Incentives to IFSC

Section 10(c) of the Income Tax Act, 1961, deals with the exemptions available for specified funds operating in the International Financial Services Centre (IFSC) in India. The existing tax exemptions under section 10(c) are available for specified funds, primarily those in the form of a trust, company, LLP, or body corporate, that are regulated by the International Financial Services Centres Authority (IFSCA). The definition of specified funds has been expanded to include retail funds and Exchange Traded Funds (ETFs) established in IFSC. These funds must be regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, and satisfy prescribed conditions to qualify for tax exemptions. Income of Core Settlement Guarantee Funds set up by recognized clearing corporations in IFSC will now be allowed for tax exemptions on the specified income of these funds.

Section 68 requires an explanation of the source of credited sums, but if the creditor is a Venture Capital Fund (VCF) or Venture Capital Company (VCC) registered with SEBI, this requirement does not apply. The relaxation for VCFs registered with SEBI will be extended to VCFs regulated by the IFSCA. The definition of VCF in Section 10(23FB) has been updated to include VCFs located in IFSC.

Section 94B limits interest deductions for Indian companies or foreign companies’ permanent establishments in India on debt issued by non-residents, with specific exemptions for banking, insurance, and certain non-banking financial companies. The exemption from these restrictions will now be extended to finance companies located in IFSC, as defined by the IFSCA (Finance Company) Regulations, 2021. This means that finance companies in IFSC will be able to deduct interest expenses without being subject to the thin capitalization rules of Section 94B.

These amendments will be effective from April 1, 2024, and shall apply from financial year 2024-25 onwards.

New Tax Regime for Cruise Shipping

Section 44BBC has been introduced to create a presumptive taxation regime specifically for non-resident entities engaged in cruise ship operations. Under this new section, 20% of the aggregate amount received or receivable by, or paid or payable to, a non-resident cruise ship operator for carrying passengers will be deemed as profits and gains from this business. This section will be subject to prescribed conditions to be detailed by the authorities. The provisions of Section 44B will no longer apply to cruise ship operations. By providing a favourable tax regime and exemptions, India aims to attract international cruise operators and increase global cruise tourism. These amendments will be effective from April 1, 2024, and shall apply from financial year 2024-25 onwards.

Under the existing regime, lease rentals received from foreign companies are taxable. Lease rentals paid by a company opting for the presumptive taxation regime under Section 44BBC will be exempt from tax in the hands of the recipient company if the recipient company is a foreign company and both the first company and the recipient company are subsidiaries of the same holding company under section 10(15B). This exemption will be available up to the financial year 2029-30.

Merger of Tax Regimes for Trusts

Sub-clauses (iv), (v), (vi), and (via) of section 10(23C) provide exemptions for various types of trusts, funds, or institutions. Meanwhile, sections 11 to 13 provide exemptions under different conditions and include a different procedure for approval/registration. Now, the first regime i.e. under sub-clauses (iv), (v), (vi), (via) of section 10(23C) is being phased out and applications for approval or provisional approval under this regime filed on or after October 1, 2024, will no longer be considered. These amendments will take effect from October 1, 2024.

Timeline for 80G and 12AB Registrations

Section 80G and 12AB provide approval for certain funds or institutions to receive donations that qualify for tax deductions in the hands of donors and include specific timelines and procedures for applying for and maintaining this approval. Where funds or institutions miss the application deadlines, there is an unintended permanent loss of approval, affecting their ability to receive deductible donations. Addressing the issue of unintended permanent exit from the approvals due to missed deadlines, a more practical timeframe for funds or institutions to apply for or renew their approval is being provided to ensure continuous eligibility to receive deductible donations. These amendments will take effect from October 1, 2024.