Taxation in 2024: major reforms and their impact on Indian businesses and outlook for 2025 – Industry News

– By Abhishek Mundada

As we bring down the curtain on 2024, India has seen several major tax reforms over the year with the aim of boosting economic growth, creating employment opportunities and improving ease of doing business . Even though these reforms have underlined the government’s aim of, among other things, simplifying the tax structure, reducing compliance burdens and resolving tax disputes, they have had a bitter sweet impact on Indian businesses.

Main tax reforms in 2024

Angel Tax – The angel tax was seen as one of the main barriers to raising funds at a high valuation, particularly affecting the start-up ecosystem and generating uncertainty within investment communities. With the abolition, Indian companies enjoyed greater flexibility in raising funds without worrying about justifying prices, which boosted the prospects of ease of doing business.

Capital gains tax – TCapital gains tax rates across different asset classes have been standardized, with STCG taxable at 20% and LTCG taxable at 12.5% ​​with no indexation benefit. This has led to a simplification of the calculation of capital gains compared to complex work on different asset classes. While taxpayers have in some cases felt the consequences of removal of indexation benefit, a huge relief has been provided to individuals/HUF by retaining indexation benefit on real estate acquired before July 23, 2024 , the impact of which would otherwise have been very significant.

Redemption – The Union Budget (wef October 1, 2024) removed the tax on share buyback (i.e. 20%) and brought it on par with the taxation of dividends (normal/slab rate). We saw record buyouts made before September 30, 2024, particularly by promoters of private companies. Although both are means of rewarding shareholders, the underlying objective of the buyback and dividend is different, which merits differentiated tax treatment to maintain the attractiveness of both. The tax treatment of repurchase in the form of dividends would make repurchase less lucrative in the future.

International taxation – The removal of the 2% equalization levy on e-commerce transactions with foreign players is a welcome move. The levy was introduced on a provisional basis until the introduction of the BEPS provisions (pillar 1 and pillar 2). However, ambiguity surrounding the applicability, compliance and enforcement of equalization outweighed the planned increase in tax collection, ultimately leading to its abolition.

As BEPS Pillar 2 measures are gradually being introduced across the world, amid continued uncertainty over their successful implementation, India is considering postponing its implementation (although it is determined to implement it) given the probably limited net gains that result from it.

Tax disputes – According to recent media reports, direct tax appeals pending in various forums (ITAT to SC) increased to 51,567 cases involving a disputed amount of Rs. 6.64 crore in FY 2021 -2022 at 64,311 involving a disputed amount of Rs 14.21 crore (i.e. more than double) during the financial year 2023-24. This is in addition to the 5.8 lakh cases pending before the Commissioner (Appeals)/Joint Commissioner (Appeals).

Although the government has increased the monetary limits for appeals that can be filed by tax authorities and has also introduced measures such as the Vivad Se Vishwas 2.0 scheme to reduce the number of people waiting in line, in view of the increase in the number of people waiting, there is still much to do. by the government to reduce tax disputes. The government may establish a committee to promptly identify and review outstanding issues and take a political decision to withdraw appeals/provide clarification on certain issues in order to reduce such a long wait, reduce the cost of litigation for taxpayers and the government and improve India’s reputation as a stable country and predictable investment destination.

Outlook 2025: a promising future

In line with the FM’s speech in the Union Budget 2024, the CBDT has formed an internal committee to oversee a comprehensive review of the Act, with the aim of making the Act concise, clear and easy to understand and has also invited the public to make suggestions regarding simplification of language. , litigation/reduced compliance and redundant/obsolete provisions.

In 2025, businesses are expected to benefit from continued investment through several tax reforms introduced in 2024. These reforms will particularly support start-ups and innovation-driven sectors. Relaxing tax laws and streamlining tax compliance will allow businesses to focus more on expansion and less on administrative burdens.

(Abhishek Mundada is a partner at Dhruva Advisors.)

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