Investment On Some Income Of IFSC Exempted, Tax Relaxation For Startups A Bold Move: Experts

Union Finance Minister Nirmala Sitharaman stated in her speech on vote of account that the central government is not going to make any changes in direct and indirect tax rates along with the import duties.

“As for tax proposals, in keeping with the convention, I do not propose to make any changes relating to taxation and propose to retain the same tax rates for direct taxes and indirect taxes including import duties,” said FM Sitharaman.

The government has extended the benefit of tax exemption like tax relaxation to start-ups and investments made by sovereign wealth or pension funds on certain income on the Indian Financial System Code (IFSC) till 31 March 2025.

“Certain tax benefits to start-ups and investments made by sovereign wealth or pension funds as also tax exemption on certain income of some Indian Financial System Code (IFSC) units are expiring on 31 March 2024. To provide continuity in taxation,  I propose to extend the date to 31 March 2025,” Sitharaman added.

In her vote on account speech, FM Sitharaman also highlighted the achievements of the government concerning the Goods and Services Tax (GST) collection where the GST collection has more than doubled to Rs 1.66 lakh crore this year. The increase in GST, which is an indirect tax signifies the robust infrastructure that has been created for hassle-free indirect tax collection. 

“Indirect tax rates, including import duties have been retained. In the last few days before the Budget, rate change notifications (e.g. parts of mobile phones) have been introduced under Customs law,” said Harsh Shah, Partner, Economic Laws Practice.

Though pre-budget, many experts had expected there would be a change in tax slabs of GST but FM has kept the slabs as it is.

“The announcements about income tax relaxation and rationalisation of indirect taxes were much expected but the same proved to be unfortunately a part of wishful thinking only. The FM is relying upon the strategy of maintaining continuity and consistency to prove its point in favour of a brighter future with a comprehensive set of reforms set out in due course,” said Jyoti Prakash Gadia, Managing Director, Resurgent India.

By unifying the highly fragmented indirect tax regime in India, GST has reduced the compliance burden on trade and industry, FM Sitharaman has stated. According to a recent survey conducted by a leading consulting firm, 94 per cent of industry leaders view the transition to GST as largely positive and according to 80 per cent of the respondents, it has led to supply chain optimisation, as elimination of tax arbitrage and octroi has resulted in disbanding of check posts at state and city boundaries, Finance Minister had added.

“No changes in the tax rates in GST and customs. A bold move, much against the expectations of rationalised slab rates and against the historic customs rate changes in every budget. Three freight corridors are planned for port connectivity and decongestion. And, the Logistics sector is poised for integrated infra push. Allocation for new dedicated projects has also increased,” said Sanjay Chhabria, Director, Indirect Tax, Nexdigm.

Though the extension of tenure for tax exemption has been declared by FM, it will only come into force once the President notifies it.

“Although the FM stated that there are no alterations in rates for customs or GST, modifications have indeed been introduced in GST laws. The amendment will be effective once the notification is issued after the finance bill receives assent from the President of India changes now mandate the acquisition of registration as an Input Service Distributor (ISD) for the distribution of credit related to input services. Consequently, the practice of cross-charging common expenses will be replaced by the ISD, necessitating companies with a nationwide presence in India to obtain ISD registration for the distribution of credit among branches. This amendment reflects a shift in the mechanism for handling credit distribution for input services within companies operating across the country,” said Ankur Gupta, Practice Leader, Indirect Tax, SW India.