Union Budget 2024

VOTE ON ACCOUNT BUDGET

February 1, 2024
 Table of Contents

INTRODUCTION 03
DIRECT TAX 04
│ Boost for IFSC 05
│ Sovereign Wealth Fund and Pension Fund 06
│ Startups 07
│ Faceless Schemes 08
│ Dispute resolution – petty demands 09
INDIRECT TAX 10
│ Goods & Services Tax 11
│ Customs 13

© 2024 | IndusLaw | Union Budget 2024-25

 Introduction

Finance Minister Nirmala Sitharaman presented the Vote on Account Budget on February 1,
2024, as the General Elections are scheduled this year. The Finance Minister had confirmed
earlier that there would not be any “spectacular announcement” in the Interim Budget. To this
extent, the Interim Budget 2024 kept direct tax and indirect tax rates unchanged.

One major expectation from the Budget was extension of the time limit to avail concessional tax
rate by new manufacturing companies. However, no such extension has been announced. This
shifts the entire focus of the stakeholders on full Budget likely to be announced in July 2024.

Some of the minor amendments, from a direct tax and indirect tax perspective, are summarized
in this slide deck for information of the readers.

© 2024 | IndusLaw | Union Budget 2024-25 3

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DIRECT TAX
 Boost for International Financial Services Centre (IFSC)

| Investment division of an offshore banking unit set-up in IFSC will be eligible for tax exemption on
specified incomes, if it commences its business operations and obtains registration as a Category I
foreign portfolio investor (FPI) on or before March 31, 2024.

| Income from lease of an aircraft or a ship by a non-resident to an eligible unit in IFSC can be claimed
as tax exemption, provided such unit commences its business operations on or before March 31, 2024.

| Income from transfer of an aircraft or a ship which was leased to an eligible IFSC unit can be claimed
as tax deduction, provided such unit commences its business operations on or before March 31, 2024.

| The Interim Budget has proposed to extend the above deadlines to March 31, 2025.

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 Sovereign Wealth Fund and Pension Fund

| Under the existing law, certain forms of income, such as dividends, interest and long-term capital gains,
were exempt from tax for certain entities such as wholly owned subsidiary of Abu Dhabi Investment
Authority, Sovereign Wealth Fund, and Pension Fund satisfying prescribed conditions. The exemption
was accorded in relation to investments made by these entities until March 31, 2024.

| The Interim Budget proposes to extend this benefit to investments made until March 31, 2025.

| This is indeed a welcome move that is expected to foster a substantial increase in foreign investment in
India especially in the infrastructure sector.

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 Startups

| Under the existing law, an eligible start-up is entitled for a tax holiday for 3 consecutive years out of 10
years, provided it is incorporated on or after April 1, 2016, but before April 1, 2024.

| To further encourage the development of start-ups in India, it is proposed to extend the period of
incorporation for eligible start-ups by one year, i.e., before April 1, 2025.

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 Faceless Schemes

| Under the existing law, the Government was obligated to introduce faceless schemes for the following
proceedings on or before March 31, 2024:
| Transfer pricing assessment proceedings
| Proceedings before Dispute Resolution Panel (DRP)
| Appeal before Income-tax Appellate Tribunal (ITAT)

| The Interim Budget proposes to extend this deadline to March 31, 2025.

© 2024 | IndusLaw | Union Budget 2024-25 8

 Dispute resolution – petty demands

| Dispute resolution

| The Interim Budget proposes to withdraw the outstanding petty, non-verified, non-reconciled or
disputed direct tax demand up to INR 25,000 for period up to FY 2009-10 and up to INR 10,000 for
FY 2010-11 to FY 2014-15.

| FM indicated that this is likely to benefit about 10 million taxpayers.

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INDIRECT TAX
 Distribution of input tax through Input Service Distributor

| Provisions relating to distribution of input tax credit (ITC) across various registrations of a corporate
group in India have been expanded, to provide for:

| Mandatory distribution of ITC through Input Service Distributor (ISD) mechanism

| Specific inclusion of input services taxable on reverse charge basis

| Last year, CBIC had clarified that distribution of input tax credit could be done either through ISD
mechanism or through cross-charge.

| Post the recent proposals, it shall become mandatory to obtain ISD registrations, for the purposes of
distributing ITC.

| These proposals shall come into effect from a date yet to be notified, post the Finance Bill is enacted.
Relevant rules for its effective implementation is also yet to be notified.

© 2024 | IndusLaw | Union Budget 2024-25 11

 Penalty for non-registration of packing machines for specified
businesses

| Recently, in January 2023, CBIC had notified a mechanism to obtain registration of packing machines
used by assessees dealing in pan-masala, tobacco and other allied products.

| To ensure strict implementation of the said notification, the Financial Bill has also proposed to
introduce specific penalty with respect to non-compliance of the above registration. Current proposals
include:

| Penalty of INR 1 Lakh for every unregistered packing machine

| Seizure and confiscation of unregistered packing machines. It is provided that the confiscation shall not be
enforced upon payment of penalty and undertaking registration within 3 days of receipt of penalty order.

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 Extension of certain exemptions up to 30th September 2024

| Last week, CBIC had issued notifications to extend the deadline of certain exemptions up to 30th
September 2024, which were set to expire on 31st March 2024. Some of the items covered by the said
notifications include:

| Certain goods relating to manufacture of solar photovoltaic cells, panels or modules

| Ferrous waste and scrap

| Certain goods used in manufacture of cold rolled grain-oriented steel (CRGO)

| Parts and raw materials for manufacture of goods to be supplied in connection with off- shore oil
exploration or exploitation

| Lithium ion cell for use in the manufacture of battery or battery pack of cellular mobile phone, electrically
operated vehicle or hybrid motor vehicle

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 Specific exemption for items relating to manufacture of mobiles

| In order to provide boost to manufacturing activities relating to mobile phones in India, in line with the
Make in India scheme of the Government, CBIC has provided specific exemptions with respect to
import of parts for the manufacture of mobile phones and goods for the manufacture of such parts in
India. Some of these items include:

| Microphone rubber case and other items for its manufacture

| Covers, lenses, antenna, SIM sockets, screws, mechanical items of plastic and metal

| LCD foam, BT foam, Sticker-battery slot

| Side key

| None of the parts required for the manufacture of mobile phones would attract customs duty higher
than 10%.

© 2024 | IndusLaw | Union Budget 2024-25 14

 Contact Us

Lokesh Shah
Shashi Mathews
Partner
Partner
lokesh.shah@induslaw.com
shashi.mathews@induslaw.com

15
© 2024 | IndusLaw | Union Budget 2024-25
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Unless engaged by you, no reliance can be placed on the contents of this material. This material is intended to outline the key tax & regulatory aspects of the matter under discussions. This slide deck is intended to facilitate conversations and should not
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