Introduction: Union Finance Minister Nirmala Sitharaman’s presentation of the Interim Budget 2024, her sixth consecutive budget, holds significant importance against the backdrop of impending Lok Sabha elections. This budget stands out for its fiscal prudence, maintaining tax rates and prioritizing long-term economic stability over short-term populist measures.
Against the backdrop of the imminent Lok Sabha elections, Union Finance Minister Nirmala Sitharaman presented the Interim Budget 2024, marking a significant milestone as her sixth consecutive budget presentation. In a departure from conventional pre-election practices, Minister Sitharaman exercised fiscal prudence by abstaining from introducing populist measures. A notable aspect of this budget is the decision to maintain the status quo on tax rates for both direct and indirect taxes.
This deliberate approach indicates a commitment to financial stability and responsible economic management, setting the tone for a budget that prioritizes long-term economic health over short-term electoral gains. As the nation scrutinizes the intricacies of the Interim Budget, the Finance Minister’s measured strategy prompts a closer examination of the government’s economic vision in the face of electoral dynamics.
Embarking on a path of fiscal responsibility, the Interim Budget 2024 unfolds a series of targeted changes and reforms aimed at fostering economic stability and sustainable development. A few of the key highlights are presented here:
PART A – SOCIO ECONOMIC REFORMS
1. PM Awas Yojna (Grameen): Two crore more houses will be taken up in the next five years to meet the requirement arising from increase in the number of families.
2. Rooftop solarization and muft Bijli: Upto 300 units electricity free every month. Over and above to be sold to DISCOMS
3. Ayushman Bharat: benefits now extended to all ASHA workers, Anganwadi Workers and Helpers
4. Matsya Sampada: Implementation of Pradhan Mantri Matsya Sampada Yojana (PMMSY) will be stepped up to:
(1) enhance aquaculture productivity from existing 3 to 5 tons per hectare,
(2) double exports to Rs. 1 lakh crore and
(3) generate 55 lakh employment opportunities in near future.
(4) Five integrated aquaparks will be setup
5. Lakhpati Didi: Scheme is aimed at training women in self-help groups (SHGs) so that they can earn a sustainable income of at least Rs 1 lakh per annum. In the current budget, target has been enhanced from 2 Crores to 3 crores
6. Research and Innovation: A corpus of rupees one lakh crore will be established with fifty-year interest free loan. The corpus will provide long-term financing or refinancing with long tenors and low or nil interest rates.
7. The capital expenditure outlay for the next year is being increased by 11.1 per cent to Rs 11,11,111 crore, which would be 3.4 per cent of the GDP.
8. Railways: As a part of PM Gatishakti, 3 major economic railway corridors will be implemented:
a) energy, mineral and cement corridors,
b) port connectivity corridors, and
c) high traffic density corridors
9. Forty thousand normal rail bogies will be converted to the Vande Bharat standards to enhance safety, convenience and comfort of passengers.
10. Green Energy: commitment for net-zero‟ by 2070
a) Viability gap funding for harnessing offshore wind energy potential for initial capacity of one giga-watt.
b) Coal gasification and liquefaction capacity of 100 MT will be set up by 2030.
c) Phased mandatory blending of compressed biogas (CBG) in compressed natural gas (CNG) for transport and piped natural gas (PNG) for domestic purposes will be mandated.
d) Financial assistance will be provided for procurement of biomass aggregation machinery to support collection.
11. Viksit Bharat: the scheme of fifty-year interest free loan for capital expenditure to states will be continued this year with total outlay of Rs1.3 lakh crore. A further provision of seventy-five thousand crore rupees as fifty-year interest free loan is proposed this year to support the milestone-linked reforms of Viksit Bharat by the State Governments
PART B: TAXATION
12. The due date of incorporation of new eligible start-ups to claim tax holiday under section 80-IAC of the Income-tax Act, 1961 to be extended by one year, i.e. from 1 April 2024 to 1 April 2025.
13. Due date for investing in eligible infrastructure entities by notified Sovereign Wealth Fund and provident funds is proposed to be extended by one year to 31 March 2025. All other conditions remain unchanged.
14. The due date of incorporation for new manufacturing company and cooperative societies to claim concessional tax rate has not been extended.
15. The due date is proposed to be extended from 31 March 2024 to 31 March 2025 for various businesses to commence their operations in GIFT IFSC:
16. Investment division of an IFSC Banking Unit as a specified fund.
17. Exemption for income on royalty or interest for a nonresident paid by an aircraft or ship leasing unit in IFSC, if such unit commences operations by 31 March 2025.
18. Deduction for income from the transfer of aircraft or ship leased by an IFSC unit if such unit commences operations by 31 March 2025.
19. Exemptions from certain safe harbour conditions applicable to eligible managers in GIFT IFSC where operations commenced prior to 31 March 2024 is not proposed to be extended.
20. The tax collected at source provisions on the Liberalised Remittance Scheme and overseas tour packages through Press Information Bureau Press Release dated 28 June 2023 and Circular No. 10 of 2023 dated 30 June 2023 has now been proposed to be enacted.
21. Timeline to introduce Faceless Scheme in electronic mode is proposed to be extended till 31 March 2025 (from current deadline of 31 March 2024) due to –
a) Reference to transfer pricing officer for determination of arm’s length.
b) Issuance of directions by Dispute Resolution Panel.
c) Filing of appeal by Revenue and Income-tax Appellate Tribunal proceedings.
22. Huge Benefit: waiver of petty, non-verified, disputed direct tax demands for taxpayers as under.
a) Up to FY 2009–2010, outstanding direct tax demands up to INR25,000 will be withdrawn.
b) For FYs 2010–2011 to 2014–2015, outstanding direct tax demands up to INR10,000 will be withdrawn.
23. ISD provisions under GST revamped
a) Definition of ISD (section 2) and substantive provisions (section 20) were amended to make the ISD mechanism mandatory. The new provisions make it clear that common input services liable to reverse charge would also be subject to ISD mechanism.
b) Revised Definition of ISD: 2 (61). “Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20.
24. Section 20 deals with Manner of distribution of credit by Input Service Distributor has also been replaced:
a) 20 (1) – Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, shall be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices.
b) 20 (2). The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under sub-section (3) or sub-section (4) of section 9 paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed.
c) 20 (3). The credit of central tax shall be distributed as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit, in such manner as may be prescribed.
MY ANALYSIS
i. Registration as an Input Service Distributor (ISD) and the mandatory distribution of Input Tax Credit (ITC) have undergone crucial changes. Individuals receiving invoices on behalf of separate branches with distinct GSTINs are now obligated to register as ISD and distribute ITC accordingly.
ii. It is now incumbent upon us to inform clients about the necessity of ISD registration.
iii. Additionally, ITC related to reverse charge mechanisms must be uniformly distributed as common credit, specifically for reverse charge paid by another distinct person or branch registered in the same state as the ISD.
iv. The forthcoming rules will define the methodology for this distribution, replacing the current practice based on the sole attribution or turnover of expenses to specific branches.
v. Notably, ISD invoices containing relevant particulars will serve as the instrument for ITC distribution among branches, offering flexibility in allocating CGST and IGST based on the nature of the credit.
25. Insertion of new Sec: 122A – Penalty for failure to register certain machines used in manufacture of goods as per special procedure
a) (1) Notwithstanding anything contained in this Act, where any person, who is engaged in the manufacture of goods in respect of which any special procedure relating to registration of machines has been notified under section 148, acts in contravention of the said special procedure, he shall, in addition to any penalty that is paid or is payable by him under Chapter XV or any other provisions of this Chapter, be liable to pay a penalty equal to an amount of one lakh rupees for every machine not so registered.
b) (2) In addition to the penalty under sub-section (1), every machine not so registered shall be liable for seizure and confiscation: Provided that such machine shall not be confiscated where––
(a) the penalty so imposed is paid, and
(b) the registration of such machine is made in accordance with the special procedure within three days of the receipt of communication of the order of penalty.
MY ANALYSIS
i. To monitor the production of specific commodities like Pan Masala, Tobacco, Hookah, Gutkha, Khaini, Zarda, a specialized protocol has been established for manufacturers of such goods.
ii. Manufacturers are now required to submit details of packing machines utilized in filling and packaging these products. The comprehensive process for submission, along with the regular monthly statement, has been outlined in Notification no. 4/2024-CT dated 5th January, 2024.
iii. A penalty of Rs. 1 lakh per machine is stipulated for non-registration, and machines may face seizure and confiscation.
iv. However, timely registration within three days of the penalty order, accompanied by the payment of the fine, will exempt the machine from confiscation.
v. This stringent framework aims to ensure strict adherence to regulations in the production and packaging of the specified goods.
Conclusion: The Interim Budget 2024 unveils targeted reforms aimed at fostering socio-economic development and fiscal responsibility. Notable changes include enhancements in PM Awas Yojna, Ayushman Bharat, and Viksit Bharat, alongside taxation amendments extending deadlines and imposing penalties for non-compliance. The revamped ISD provisions in GST signify a shift towards mandatory compliance, underscoring the government’s commitment to streamline tax administration and ensure transparency.
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