RESOURCE PAPER 50

Union Budget 2024

byGrant Thornton Bharat

Dear Readers,Grant Thornton Bharat and Indo-Japan Chamber of Commerce andIndustry conducted a Webinar on ‘India Budget 2024’ in Japanese languageon 31st July for the benefit of Japanese business community. We are happy
to present the content in English language to be used as a reference material.
Hope our readers find it informative.
Grant Thornton Bharat aims to shape a vibrant Indian economy byproviding robust advisory and growth solutions to dynamic Indian andglobal companies. The firm is committed to delivering high-quality services
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Happy reading !

August 2024

Suguna Ramamoorthy
Secretary General, IJCCIUnion Budget 2024
Proposed Key Amendments to Income Tax Act, 1961,
Goods & Service Act, 2017, Customs Act, 1962 andCustoms Tariff Act, 1975 – Union Budget 2024
The Union Budget has focused on increasing domestic manufacturing andexport competitiveness of India leading to new employmentopportunities. On the Direct tax and Indirect Tax front, amendments arein lines with promoting ease of doing business, increasing the flow ofinvestments, streamlining compliance & proceedings.
Background• The Union Budget is set out in line with the interim budget which
presented a detailed road map to the pursuit of ‘Viksit Bharat.’• The budget proposals have focused on key areas including
Manufacturing, Innovation, research & development.
• Amendments have been made in Income-tax Act, GST Act, Customs Actand Customs Tariff Act in line with the intention to enhance investmentsin India, ease of doing business, domestic manufacturing, deepen local
value additions, promote export competitiveness, streamline
proceedings and simplify taxation.
Amendments to Income-tax Act, 1961
• Change in taxation of buyback - Under the existing provisions,buyback is subject to tax in the hands of the company buying back theshares at a rate of 20% (plus surcharge and cess) on the amount of
distributed income. Further, the shareholders were exempt from tax inrespect of the buyback proceeds received. However, with effect from 1
October 2024, distribution on buyback of shares is proposed to betaxed as dividend income in the hands of the shareholders. Therewould be no implications in the hands of the Company. The Company
would be required to deduct tax at the rate of 10%. As per the IndiaJapan DTAA also, it is likely that the distribution under buyback islikely to be considered as dividend considering the wider definition ofdividend.
• Abolition of Angel tax - Under the existing provisions, consideration
received in excess of FMV on issue of shares by closely held companies
is subject to tax in the hands of issuer company. It is proposed to abolishthese provisions. This will facilitate fund raising by corporates, startups
and reduce litigation.
• Removal of Equalisation levy 2.0 - Under the existing provisions,e-commerce supply of goods or services is subject to Equalisation levy at
the rate of 2%. Finance Act 2024 has proposed to remove this levy.
Correspondingly, the exemption provided under Income-tax Act has also
been removed, however, the e-commerce supply of goods or services
would not be subject to tax in India unless non-resident has a PE orbusiness connection in India, or such e-commerce supply of goods orservices constitute royalty/ FTS.
• Reduction in tax rate of foreign companies - The tax rate applicable toforeign companies is proposed to be reduced to 35% from 40%.
• Increase in capital gains tax rate for foreign companies - Under theexisting provisions, capital gains tax rate stands at 10% (without first andsecond proviso). Now, it has been proposed to increase this rate to 12.5%.
Further, the tax rate for short-term capital gain under provisions ofsection 111A of the Act (on STT paid equity shares, units of equity
oriented mutual fund and unit of a business trust) is proposed to be
increased to 20% from the present rate of 15%.
• Rationalization of TDS rates - The withholding tax rates under section
194H for payment of commission or brokerage is proposed to be reduced

from 5% to 2% and the rate under section 194-O for payment of certain
sums by e-commerce operator to e-commerce participant is proposed tobe reduced from 1% to 0.1%.
• Reassessment - The time limit for issue of notice for reassessment
proceedings reduced from 10 years to five years three months. The
proposed amendment will apply from 1 September 2024.
• Resurrection of Vivad se Vishwas Scheme (VsV Scheme) - It is
proposed to launch a new VsV Scheme, 2024 with a view to reduce themounting pendency of appeals. Depending on the aging of the disputeand date of payment of the disputed taxes, the VsV Scheme, 2024
provides for waiver of interest and penalty related to such disputes. The
scheme would not apply to cases of search, prosecution, foreign
undisclosed income etc. The start and end dates of the scheme areproposed to be notified in due course. Various procedural amendments
are proposed to give effect to the scheme.
Amendments to Transfer Pricing regulations under the Income Tax
Act, 1961• Proposed expansion of safe harbour provisions - To reduce transfer
pricing (‘TP’) disputes and bring certainty in international taxation,
there is a proposal in the budget speech to expand the scope of safe
harbour rules. Hon’ble Finance Minister (FM) has clearly indicatedthat the SH would not only be expanded, but also made more
attractive, with a specific SH for foreign mining companies sellingraw diamonds in the country. At this stage no details about theproposed changes have been released yet. However, it would beinteresting to see if the government would add few highly litigatedinternational transactions for Japanese companies in India, likeroyalty, interest paid, availing of guarantee, inbound intra-groupservices, etc. as part of SH provisions.

• Extended powers of the Transfer Pricing Officers (TPOs) in respect ofspecified domestic transactions (SDTs) identified during audit proceedings- Presently, during the course of TP assessment proceedings, where the TPO
identifies a new international transaction (whether or not furnished in theaccountant’s report in Form 3CEB), the TPO can proceed to determine thearm’s length price (ALP) of such identified international transactions.
However, similar power was not available to the TPO in respect of SDTs. This
provision has now been extended to encompass SDTs as well, i.e., the TPO
can determine the ALP of newly identified SDTs during the course of TP
assessment/audit proceedings. This change may impact Japanese companies
engaging in domestic related party transactions in India, which are consideredas SDTs under Indian TP regulations.
Amendments to GST Act, 2017
• Widening Demand & Recovery - The existing provisions for demand
and recovery under Sections 73 and 74 will apply to tax notices anddemands until FY 2023-24. From FY 2024-25, a new Section 74A will
govern demand and recovery, setting a common time limit for issuing
notices and orders. The proposed time limit for issuing Show Cause
Notices is 42 months from the due date of filing the Annual return for therelevant FY. Orders must be issued within 12 months with a possible 6month extension, and the penalty benefit window is extended to 60 days.
• Waiver of Interest & Penalty - A new Section 128A is proposed to waiveinterest and penalty for non-fraud cases in FYs 2017-18 to 2019-20 uponfull tax payment. This waiver also applies if a notice under fraud cases(Section 74) is reclassified as non-fraud (Section 73) due to lack offraudulent intent. Exceptions include cases of erroneous refunds,
pending appeals, and paid interest and penalties already.
• Time limit for availing ITC - The proposed retrospective amendment
under Section 16 extends the time limit for claiming ITC for FYs 201718 to 2020-21 to 30 November 2021. Additionally, ITC can be claimed

from the date of cancellation of registration to the date of revocation,with conditions to be met.
• Refund Restrictions for Goods subject to Export Duty - Proposed
Amendment in Sections 54 to restrict refunds for goods subject to export
duty, even if exported with or without payment of taxes, including toSEZ developers or units for authorized operations.
• Regularizing Non-levy / Short-levy of GST - Proposed Section 11A
allows the government to regularize non-levy or short-levy of GST due
to common trade practices, granting exemptions to such supplies fromwhole or excess GST payable.
• Reduction in Pre-deposits - Proposed amendments in Sections 107 and112 reduce pre-deposit amounts for appeals as per the below:▪ First appellate authority lowered maximum deposit to INR 20 croresfrom INR 25 crores for both CGST & SGST,▪ GSTAT deposit reduced to 10% from 20% with a cap of INR 20 croresfor both CGST and SGST.
• Anti-profiteering Amendments -Amendment in Section 171 centralizes
anti-profiteering cases at Principal Bench of Appellate Tribunal; sets asunset clause to notify last date for the application date in relation to antiprofiteering cases.
Other Proposals• Penalty under section 122(1B) limited to E-Commerce Operators (ECO)
who are required to collect tax at source.
• Input Service Distributor (ISD) transitional credit permitted for input
services received even pre-appointment date.
• Extra-Neutral Alcohol used in alcoholic liquor production exemptedfrom GST.

• Amendment in Section 112 to allow three-month period before GSTAT
appeals to start date to be notified.
• Schedule III expands to cover co-insurance, ceding & reinsurance
commissions as not a supply.
• ITC blockage under Section 17(5) towards tax demands under fraudcases (Section 74) up to FY 2023-24.
• Amendments in Section 13 clarify the time of supply for RCM services.
• Amendment in Section 70 allows authorized representatives to appear
for summoned persons.
Amendments to Customs Act, 1962
• Proof of Origin - The requirement of Certificate of Origin to claim
preferential rate of duty has been amended as “Proof of Origin”. Hence,even a declaration (self-certification) issued in accordance with the trade
agreement requirements would suffice. This amendment has beenbrought in order to align with the new trade agreements that have beenentered in to.
• Power to prescribe activities not permitted under MOOWR - Powers
have been provided to the Central Government to restrict class of goods
from operations under MOOWR Scheme.
• In order to simplify and facilitate trade, the board will now have powers
to take such measures or prescribe any procedure or documentation toany person. Earlier such measures were only directed to importers orexporters.
Amendments to Customs Tariff Act, 1975
• Omission of protective duties - As the Tariff Commission was wound up
by resolution dated 01 June 2022, the Central Government’s power tolevy protective duties upon recommendation made by the Tariff

Commission in certain cases for the protection of the interests of any
industries in India has been omitted in the Act.
• Retrospective CC exemption for SEZ units - GST compensation cess(CC) payable on imports by SEZ units or developers for authorised
operations is exempt with effect from 01 July, 2017.
• Review of Rate Structure - Comprehensive review of the rate structure
has been proposed over the next six months to rationalise and simplify
the structure for ease of trade, removal of duty inversion and reduction ofdisputes.
• Also sector specific amendments have been brought in through thisbudget, as below :▪ Medicine and medical equipment - Relief to cancer patients isprovided by fully exempting additional three medicines from custom
duties. Further, changes have been proposed in BCD on x-ray tubes &flat panel detectors used in medical x-ray machines under the Phased
Manufacturing Programme, to synchronise them with domestic
capacity addition.
▪ Mobile Phone and Related Parts - To make the products competitive,
it is proposed to reduce the BCD on mobile phone, mobile PCBA andmobile charger from 20 % to 15 %.
▪ Solar energy - To support energy transition in India, it is proposed toexpand the list of exempted capital goods for use in the manufactureof solar cells and panels. Further, due to sufficient domestic
manufacturing capacity of solar glass and tinned copper interconnect,
it was proposed not to extend the exemption of customs duties
provided to them.
▪ Precious Metals - To enhance domestic value addition in gold andprecious metaljewellery in the country, it is proposed to reducecustoms duties on gold andsilver to 6 % (earlier 15%) and that on
platinum to 6.4% (earlier 15.4%). The India-UAE CEPA Tariff
notification is being amended to give effect to these rate changes.
▪ Electronics - To increase value addition in the domestic electronics
industry,it is proposed to remove BCD, subject to conditions, on
oxygen free copperfor manufacture of resistors. Further, it is also
proposed to exempt certain parts formanufacture of connectors.
▪ Chemicals and Petrochemicals - To support existing and newcapacities in the pipeline, it is proposed to increase the BCD on
ammonium nitrate from 7.5 to 10%.
▪ Telecommunication Equipment: To incentivise domestic
manufacturing, it is proposed to increase the BCDfrom 10 to 15% on
PCBA of specified telecom equipment.
• Amendment in Rules - The Customs Tariff (Identification, Assessmentand Collection of Countervailing Duty on Subsidized Articles and for
Determination of Injury) Rules, 1995 have been amended to insert aprovision for New Shipper Review effective from 24.07.2024.
• Following changes have been introduced with effect from 24 July 2024
to facilitate trade :▪ Articles of foreign origin to be imported into India for repairs subject
to their re-exportation within six months extendable to 1 year. Further,
the duration for export in the case of aircraft and vessels imported formaintenance, repair and overhauling has been increased from 6months to 1 year, further extendable by 1 year.
▪ The time-period of duty free re-import of goods (other than thoseunder export promotion schemes) exported from India underwarranty has been increased from 3 years to 5 years, further
extendable by 2 years.

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