Budget 2024 Updates

FM hikes exemption limit for long-term capital gain to Rs 1.25 lakh + hikes tax rate to 12.5% on specified financial assetsCGST - Finance Bill proposes to amend Sec 9 to take ENA out of purview of GST + inserts Sec 11A to regularise non-levy of tax on general practice in tradeCGST - Sub-sections to be inserted in Act to relax time-limit to avail ITC u/s 16(4) + New Sec 74A proposed to provide for common time limit for demand notices in fraud casesCGST - Proviso to be inserted in Sec 30(2) to provide for enabling conditions for revocation of registration + Amendment in Sec 39 to mandate return filing by TDS deductors even if there is no deduction in a particular monthIGST - Amendment proposed to prohibit refund of unutilised ITC on zero-rated supplyCustoms - Finance Bill proposes to amend Sec 28DA for acceptance of different types of proof of origin under FTAsFM hikes standard deduction to Rs 75K for new ITR regime + revises tax rates for all income slabs + Rs 7000 Cr revenue foregoneBudget withdraws 2% equalisation levyFM reduces corporate tax rate for foreign companies to 35%FM proposes vivad se vishwas scheme + hikes monetary limits for filing appealsFM proposes 20% capital gains tax on short-term assets + listed financial assets held for more than one year to be classified as long-termGovt scraps TDS on Mutual Funds + decriminalises delay in depositing TDS + rationalisation of compounding of offences + revamps reassessment periodBudget proposes comprehensive review of I-T Act, 1961 + simplifies provisions for charities and TDSFM reduces customs duty on gold and silver to 6% + Nil BCD on nickel cathodeBudget proposes to reduce BCD on mobile phone and chargers to 15% + exempts 25 minerals from customs dutyFM exempts cancer medicines from Customs duty + amends BCD for various machinesFM proposes Rs 48 lakh expenditure outlay; 4.9% fiscal deficitFM announces Rs 1 lakh crore fund for developing space economyPromotion of Tourism - Vishnupad temple and Bodh Gaya temple corridors to be supportedFM announces over Rs 11 lakh crore capital expenditure in current fiscalGovt to invest in small Nuclear energy plants in partnership with private playersCentre to ask States to lower stamp duty for women purchasers of housesIBC - More Benches of NCLT to be set up to speed up recoveryFM spikes limit of Mudra loan to Rs 20 lakhsBudget offers financial aid to labour-intensive MSMEs in manufacturing sectorGovt announces 3 crore additional houses under PM SchemeGovt to secure Rs 15K loan for AP from multilateral agenciesGovt to frame new policy for all-round development of Bihar, Jharkhand and OdishaGovt to give one-month salary to all new recruits in formal sector through EPFOGovt to promote vegetable clusters closer to urban settlementsGovt to focus on productivity of agriculture with climate-resilient seedsFM allocates Rs 2 lakh outlay for PM's five schemes for job creation and farmersFM Nirmala Sitharaman presents 7th Union Budget in ParliamentBudget 2024: FM arrives at Parliament; Speech to begin at 11AMEconomic Survey 2023-24 - from GST PerspectiveUkrainian FM goes on tour to ChinaI-T- Additions framed u/s 69A are untenable where affidavits submitted by assessee's parents to explain source of cash deposits, were discarded by AO without consideration : ITATSurvey acknowledges productivity loss due to mental health disordersI-T- Short term capital gains returned by the assessee in terms of provisions of section 50 of the Act on assets held for a period of more than 36 months be treated as long term capital gains: ITATExpenditure on social services up from 6.7% to 7.8% of GDP: SurveyI-T-Additions framed u/s 68 are upheld where assessee is unable to prove genuineness of transaction involving purchase and sale of penny stock: ITATTrade deficit contracts to USD 78 bn from USD 126 bn in 2023I-T-Re-assessment is invalidated when there is no failure on part of assessee to make full and true disclosure of facts necessary for assessment: ITATCorporate profitability has peaked to 15-yr-old high between 2020-2023: SurveyI-T- When cash generated out of sales has been credited in the books of accounts, the provisions of Sec.69A could not be invoked: ITATBudget 2024: More relief for senior citizens & individual taxpayers on card; tweaking of capital gains tax likely; steady capital expenditure to stayI-T- If any amount invested is purely a strategic investment & for purpose of commercial expediency, then AO cannot hold such investments to be for non-business purpose: ITATGoogle backpedals on plan to scrap cookies from ChromeCus - For a HNWI individual, an expensive watch of 'Rolex' make would be his personal effect but same may not be the case if the person is of mere means - Pendant studded with diamonds not liable for confiscation: HCGovt amends Recruitment Rules for Debts Recovery TribunalGST - Even if no date, time or place of hearing is indicated in the notice issued, it was the duty of assessee to file his reply to SCN, which was admittedly received - Plea regarding violation of principles of natural justice cannot be countenanced: HCAbhinav Bindra conferred with Olympic OrderGST - Mismatch between value of e-way bills generated on portal and returns filed in Form GSTR-3B - Petitioner did not provide a comprehensive explanation - To remit sum of Rs.3.50 crores within six weeks - Matter remanded: HCHackers mercilessly hack Bangladesh PM’s website along with police portalsGST - Rule 30 of Rules, 2017 - Assessing officer ought to have issued summons and obtained clarification rather than estimating the outward supply value at 110% of purchase value - Order set aside and matter remanded subject to remit of 10% disputed tax demand: HCUS law-makers call for resignation of Secret Service chief in Trump assassination caseGST - Net ITC shown incorrectly - An inadvertent error was committed and such error was rectified, albeit irregularly, however, sum recovered from petitioner's bank account - Order set aside and matter remanded: HCKarnataka IT Industries piling pressure on govt to extend working hoursGST - Since notification is declared unconstitutional, Amount of IGST paid pursuant to Entry No. 10 of Notification No. 10 of 2017 is to be refunded along with statutory interest: HCStudy says earth’s water depleting fastFDI inflows slide to USD 26.5 bn in 2024 from USD 42 bn in 2023: Economic Survey
 
Time to overhaul Tax Relief: Economic Performance Binary needed

 

THE POLICY LAB (TPL) - 46
JUNE 03, 2024

By J B Mohapatra

MORE targeted tax incentives through the fiscal route and not as much financial incentives through subsidies or grants is a feature of developing economies including India's. But to say that tax incentives are primarily responsible for sustaining the investment in a business sector or a typical business activity across all sectors or the targeted part of geography to the exclusion of any other factor; or that the overhaul of any institutional arrangement established on the back of tax incentives will lead to a slow collapse of the sector or retardation of a business activity is reading too much too soon.

Just as political and social stability, enforcement of rules of corporate governance, relative efficiency in redressal mechanism for resolving contract and commercial disputes, certainty in the trade policy, market size, quality of labour market and availability of physical infrastructure are strong factors in a corporate's investment decisions as much as tax considerations, so also personal investment preferences depend as much on sociological factors, age, gender, income level, education, investment experience as on the tax incentives on offer. For corporates and for individuals, tax is a consideration, but not the only consideration. Two examples below, one in case of individuals and the other for the companies in recent tax history are apposite for the context under reference.

A: Life insurance and Taxation for Individuals under section 115BAC of the Income Tax Act (ITA):

Introduced through Finance Act, 2020 with effect from AY 21-22, the provision allowed individuals and HUF an option to shift to a lower 5- tier tax rate structure provided they forego claims of certain deductions and exemptions, as also claim of set off of past losses and unabsorbed depreciation. Finance Act 2023 attempted to make the trade-off more attractive by pruning the basket of non-claimable deductions and exemptions. However one deduction which was not available to the taxpayers opting for the new tax regime both in Finance Act 2021 and 2023 was any claim under section 80C of the ITA. Section 80C offers deduction up to a maximum of Rs 1.5 lakhs on payment of premium on life insurance policy, deferred annuity plans, equity-linked insurance plan, contributions to provident fund, superannuation fund, investment in government saving certificates, units of mutual funds etc.

Removing the deduction under section 80C from the available claims under section 115BAC in order that the taxpayer is statutorily permitted to avail of a concessional tax catalysed an apprehension that the legislative move would disincentivise taxpayers from investing in life insurance products. That the motivation to save through tax deductions would dissipate. That people would rather spend than save.

Published data on new business performance from year to year since FY 16-17 put out by Life Insurance Council, a forum representing 26 life insurers including the LIC of India are as below:

Individual Single Premium (Private Insurers):

Year
Premium (in Cr)
% Growth (YoY)
No Policies and Schemes
2016-17
3,766
21.58
4,21,429
2017-18
5,218
38.5
2,77,315
2018-19
7,274
39.39
2,59,949
2019-20
9,170
26.08
2.06,190
2020-21
13,584
48.13
2,20,323
2021-22
17,066
25.63
2,94,429
2022-23
19,443
13.93
2,80,544
2023-24
20,426
5.05
3,11,922

Individual Non- Single Premium (Private Insurers):

Year
Premium (in Cr)
% Growth (YoY)
No Policies and Schemes
2016-17
28,322
26.46
58,96,583
2017-18
35,146
24.09
65,76,137
2018-19
39,397
12.09
69,87,362
2019-20
41,114
4.36
67,47,302
2020-21
43,833
6.61
69,32,547
2021-22
53,370
21.76
71,01,332
2022-23
66,434
24.48
77,65,353
2023-24
71,828
8.12
84,71,982

Individual Single Premium (LIC of India):

Year
Premium (in Cr)
% Growth (YoY)
No Policies and Schemes
2016-17
23,413
84.22
11,76,490
2017-18
26,602
13.59
12,13,172
2018-19
24,394
(-) 8.3
11,27,538
2019-20
21,967
(-) 9.95
8,51,489
2020-21
28,822
31.21
9,85,566
2021-22
24,806
(-) 13.94
9,94,754
2022-23
25,623
3.3
10,04,285
2023-24
24,992
(-) 2.46
9,46,902

Individual Non-Single Premium (LIC of India):

Year
Premium (in Cr)
% Growth (YoY)
No Policies and Schemes
2016-17
22,178
10.18
1,89,26,752
2017-18
25,142
13.12
2,00,97,526
2018-19
26,619
5.87
2,02,76,367
2019-20
29,260
9.92
2,10,44,731
2020-21
27,584
(-) 5.73
1,99,89,873
2021-22
30,016
8.82
2,07,23,941
2022-23
33,015
9.99
1,94,24,652
2023-24
32,605
(-) 1.24
1,94,46,071

Consolidated for Private Insurers and LIC of India of both individual Single Premium and Individual Non-Single Premium:

Year
Premium (In Cr)
No of Schemes and Policies
2016-17
77,679
2,64,21,254
2017-18
92,108
2,81,64,150
2018-19
97,684
2,86,51,286
2019-20
1,01,511
2,88,49,712
2020-21
1,13,823
2,81,28,409
2021-22
1,25,258
2,90,14,456
2022-23
1,44,515
2,94,74,834
2023-24
1,49,841
2,91,76,877

Barring a slight dip in individual single premium for LIC of India qua its numbers for 2020-21, there have been actual and substantial increases in gross premiums for both private and LIC of India on a consolidated basis as much as by 31% in FY 23-24 over FY 20-21.

Data above in some way indicates that while tax relief was one of the motivators for people buying life insurance policies, it was never the driving reason. Other factors such as (a) assurance of security and (b) life-experiences including pandemic induced increased awareness of life insurance would have been relevant. Accumulating savings through money-back/endowment plans or through whole-life insurance policies whose returns are not linked to the markets and thus relatively free from market volatility have always been considered safe investment options. HNI buying of high value money back or endowment policies in any case was devoid of a tax saving motivation. Sales innovation adopted by insurers such as popularising pure life risk covers among the younger generation also helped stem the impact of taxation measures and in some significant degree expand the insurance sector. More taxpayers opting for the new tax regime and voluntarily relinquishing claim of deduction under section 80C even while the absolute number of policies and schemes of the insurers and premia for purchase of life insurance products kept increasing does demonstrate that life insurance investment has not been tax rebate dependent to the extent that it was assumed by some analysts at the time the provision under section 115BAC was introduced in 2021.

B: Weighted Deduction to R&D under section 35 of the ITA:

Another example would be the gradual phasing out of accelerated allowance under research and development (R&D) for the purposes of one's business under section 35 of the ITA and whether the withdrawal of weighted deduction impacted investment.

In addition to normal revenue expenditure under section 35(1)(i) and capital expenditure under section 35(1)(iv), 4 separate provisions within section 35 of ITA existed to incentivise research and development through a system of weighted deduction.

a) under Section 35(1)(ii) : payments to a research association which has the object of undertaking scientific research, a college, a university, or other institution which are both approved in accordance with guidelines and notified in the official gazette : Allowance was 175% of payments for a period up to 31-3-18 , 150% for a period from 1-4-18 to 31-3-20 , and 100% from 1-4-20 onwards ;

b) under Section 35(1)(iia): payments to a company to be used by the company for scientific research - conditions being a company registered in India which has as its main object the object of scientific research and development; approved by the prescribed authority in the prescribed manner and fulfilling the prescribed conditions : Allowance was 125% of payments up to 31-3-18 and 100% from 1-4-18 onwards

c) under Section 35(2AA) : sum paid to a national laboratory or university or IIIT or a specified person with a specific direction that such sum be used for scientific research undertaken under a program approved by the prescribed authority - Allowance was 200% of sum paid up to 31-3-18 , 150% of sum paid from 1-4-18 to 31-3-20 and 100% from 1-4-20 onwards ;

d) under Section 35(2AB): cost of in-house research and development expenditure as approved by the prescribed authority in case of bio technology based companies and companies in business of manufacturing and production of article and thing not being referred at eleventh schedule - Allowance was 200% of costs up to 31-3-18 , 150% for costs from 1-4-18 to 31-3-20 and 100% from 1-4-20 onwards.

Among the possible impacts that the phased withdrawal of weighted deduction would have caused and reported upon extensively at the relevant points of time - (i) impact on GDP (ii) retarding new product generation in India (iii) slow-down in indigenisation- there was also an apprehension of lower private sector investment in R&D.

The table below of sectoral investment in R&D comprising the central, state, higher education and private sector from DST- NSTIMS (S&T Indicators - R&D Statistics 2022-23) for the period before and after the phased withdrawal of weighted deduction appears as below:

Year
Central Sector (in Cr)
State Sector (in Cr)
Private Sector (in Cr)
Higher Education (in Cr)
Total (in Cr)
2016-17 50,219 6,867 39,215 6,888 1,03,099
2017-18 56,290 7,265 41,856 7,784 1,13,825
2018-19 65,424 8,029 42,490 8,797 1,24,740
2019-20 69,317 8,555 44,754 9,942 1,32,567
2020-21 61,821 8,476 46,388 11,235 1,27,381

On a macro level, data on impact of tax changes on private sector's R&D investment does not indicate either any extraordinary momentum in ramping up R&D intensity when the weighted deduction remained in the statute books nor any retardation in R&D investment when the weighted deductions were withdrawn. It would be hard not to infer from the data that companies would spend on R&D as an inevitable requirement of their business, whether or not there are special tax reliefs attached to those expenditure.

C: To conclude from the 2 examples above that tax deduction either under section 80C (read with section 115BAC) or under section 35 did not have any causal connection to the object of augmenting economic performance of the sectors they subserved or the entities they benefited - insurance sector or the private sector R&D - at the time they were brought on the statute books will be unfair. However, the importance of constant review of the effect of the tax deductions to potential and actual outcomes on a periodic basis and thereafter determine the continuance or possible redundancy of the provisions always remains relevant.


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