Key Proposals In Budget To Strengthen India's Economic Agenda: PwC

The Union Budget for 2024-25, unveiled by the Finance Minister, outlines a series of strategic proposals designed to fortify India's financial services sector. PwC India also highlights in their report that these measures align with the government's vision of a 'New India', aiming to promote welfare, innovation, and competitiveness while maintaining fiscal prudence and transparency. The budget emphasises simplifying regulations, enhancing the ease of doing business, and attracting substantial private investments to stimulate economic growth.

One of the most significant policy proposals is the creation of a Venture Capital Fund (VCF) worth Rs 10 billion, dedicated to supporting the space economy. This initiative is coupled with plans to simplify rules for Foreign Direct Investment (FDI) and Overseas Investment, thereby encouraging the use of the Indian Rupee (INR) in international markets. The Insolvency and Bankruptcy Code (IBC) will undergo critical reforms, including the strengthening of tribunals and the establishment of additional appellate tribunals to expedite insolvency resolutions and debt recoveries.

The budget proposes substantial changes to the capital gains tax regime, including the introduction of a uniform tax rate of 12.5 per cent  for long-term capital gains on all assets. Additionally, the abolition of the 'Angel Tax' and the simplification of the capital gains tax regime are expected to enhance the investment climate. The introduction of a variable capital company structure aims to facilitate the pooling of funds for private equity, further supporting the growth of the financial services sector.

The budget also focuses on the development of digital public infrastructure applications across various sectors, including e-commerce, education, health, law, justice, logistics, MSMEs, service delivery, and urban governance. This development is intended to support private investments in infrastructure, driving economic growth and enhancing operational efficiency.

Policy Proposals
Among the significant policy proposals, the Budget announces the creation of a Venture Capital Fund (VCF) worth Rs 10 billion aimed at strengthening the space economy. To facilitate this investment, the rules for Foreign Direct Investment (FDI) and Overseas Investment are proposed to be simplified, promoting the use of the Indian Rupee (INR) for overseas investments.

The Insolvency and Bankruptcy Code (IBC) will see notable reforms, including the strengthening of tribunals and the establishment of additional appellate tribunals to expedite insolvency resolutions and debt recoveries. Additionally, the development of 'plug and play' industrial parks in 100 cities, in collaboration with the private sector, is on the agenda, sanctioned under the National Corridor Development Programme, which will approve twelve industrial parks.

Private Equity And Venture Capital
The budget proposes significant changes in the capital gains tax regime. From 23 July 2024, the holding periods for short-term and long-term capital assets were simplified, introducing a uniform tax rate of 12.5 per cent for long-term capital gains on all assets. The abolition of the 'Angel Tax' and the streamlining of the capital gains tax regime are seen as pivotal moves.

The budget also introduces a variable capital company structure to facilitate the pooling of funds for private equity. The development of digital public infrastructure applications in various sectors such as e-commerce, education, health, law, justice, logistics, MSMEs, service delivery, and urban governance is planned to support private investments in infrastructure.

Real Estate And Infrastructure
In the real estate sector, the government encourages states to rationalise stamp duty rates, particularly for properties purchased by women. The digitisation of land records in urban areas with geographic information system mapping and the establishment of a technology-based system for property record administration is proposed to enhance the financial position of urban local bodies.

A significant highlight is the development of efficient and flexible financing modes for leasing aircraft and ships, and pooled funds of private equity through a variable capital company structure. Furthermore, a comprehensive review of the Information Technology Act within a six-month timeframe is proposed.

Direct Tax Proposals

The Budget introduces several direct tax reforms. After the budget, only two holding periods will determine short-term (24 months) and long-term capital assets (12 months), with a uniform 12.5 per cent tax rate for long-term capital gains (LTCG) on all assets. The tax on share buybacks will be treated as 'deemed dividend' and taxed in the shareholder's hands from 1 October 2024. The abolition of the angel tax from 1 April 2024, to attract foreign investors' budget proposes to reduce the tax rate for foreign companies from 40 per cent to 35 per cent, are major highlights.

The Budget also proposes to increase the Securities Transaction Tax (STT) on the sale of options and futures in securities. Furthermore, to promote International Financial Services Centres (IFSC), retail funds and ETFs will qualify as 'Specified Funds' on par with Category III Alternative Investment Funds (AIF) with non-resident investors.

The Vivad se Vishwas scheme 2024 will cover disputes pending before all appellate fora as of 22 July 2024. The scheme offers a waiver of interest, penalty, and prosecution, with an early bird incentive for settling disputed amounts by 31 December 2024.

Indirect Tax Proposals
In indirect taxes, the Budget proposes significant changes to the Goods and Services Tax (GST). Co-insurance premiums received by a co-insurer will be considered as no supply, provided tax is paid by the Lead Insurer. Reinsurance ceding commissions received by a reinsurer will be treated similarly. An amnesty scheme is proposed for the waiver of interest and penalty for non-fraud cases for the fiscal years 2017 to 2018 to 2019 to 2020, subject to 100 per cent tax payment as demanded under the show cause notice or demand order.

Enhancements In Financial Infrastructure
The Budget proposes enhancements in financial infrastructure to support the sector’s growth. These include strengthening digital public infrastructure in various sectors, improving financial inclusion, and promoting sustainable finance. A focus on developing infrastructure such as 'plug and play' industrial parks and digital public infrastructure will help streamline operations and attract investments.

Promoting Inclusive Growth
The Budget also emphasises inclusive growth, proposing measures to support the development of tier 2 and tier 3 cities as innovation hubs. By capitalising on local talent and cost advantages, these cities are expected to contribute significantly to the country's economic development.