Key amendments proposed under direct and indirect taxes in the Finance Bill, 2024-25

Finance Bill, 2024 has been introduced in the Lok Sabha on 23rd July, 2024 and has proposed various amendments under Direct and Indirect Taxes.

Key changes proposed vide Finance Bill, 2024 under the Income Tax Act, 1961 –

Changes under Capital Gains

1. Holding period of capital assets is proposed to be amended to provide that capital gain on transfer of all listed financial assets (including units of listed business trust) held for more than a year and all unlisted financial and non-financial assets held for more than 2 years to be classified as long-term.
2. Tax rate for short-term capital gain (STCG) on STT paid equity shares, units of equity oriented mutual fund and unit of a business trust is proposed to be increased to 20% from the present rate of 15%.
3. The rate of long-term capital gain (LTCG) is proposed to be 12.5% in respect of all categories of assets. Earlier this rate was 10% for STT paid listed equity shares, units of equity-oriented fund and business trust and for other assets it was 20% with indexation.
4. Indexation benefit available for long-term capital assets is proposed to be removed for the calculation of long-term capital gains.
5. Section 50AA is proposed to be amended to provide capital gain arising on transfer of Unlisted bonds, debentures and a unit of a Specified Mutual Fund or a Market Linked Debenture will always be considered as STCG irrespective of the holding period and will be charged to applicable tax rates.

The above changes will come into effect from 23rd July, 2024.

Tax on buy back of shares

• Section 115QA is proposed to be amended to provide that buy back of shares will no longer be taxable in hands of company.
• Section 194 is proposed to be amended to provide that consideration received by shareholders on buy of back of shares will be charged in hands of the shareholders as deemed dividend and will be charged to applicable tax rate.
• Tax will be deducted at the rate of 10% by the company on the consideration for buy back of shares.
• Section 57 is proposed to be amended to provide that no deduction of expenses shall be allowed against such dividend income while determining the Income from other sources.
• Section 46A is proposed to be amended to provide that consideration for buy back of shares will be considered as NIL in the hands of the shareholders resulting in a capital loss in the hands of the shareholders. Such capital gain can be set off against the capital gain arising from sale of shares or otherwise.

The above changes will come into effect from 1st October, 2024.

Changes in Profit and Gain of business or profession

Section 36 of the Act is proposed to be amended to provide, deductions allowed to employers while computing the income under the head ‘Profits and gains of business or profession’ for contribution made towards New Pension Scheme (NPS) u/s 80 CCD, shall be increased from the extent of 10% to the extent of 14% of the salary of the employee in the previous year. This will come into effect from the 1st April, 2025.

Tax deducted at source (TDS) / Tax collected at source (TCS)

• Below are the new proposed TDS rates to be applicable from 1st October, 2024-

Provisions Reference under Act

Section 194DA -Payment in respect of life insurance policy

New TDS rates - 2%

Existing TDS rates - 5%

Section 194H -Payment of commission or brokerage

New TDS rates - 2%

Existing TDS rates - 5%

Section 194-O -Payment of certain sums by e-commerce operator to e-commerce Participant

New TDS rates - 0.1%

Existing TDS rates - 1%

• Section 192(2B) which provides that employer should take into consideration income under any other head on which tax has been deducted for the purposes of making the deduction under of tax at source on salary income. Amendment has been proposed to the said section to include any tax deducted or collected, to be taken into account for the purposes of making such deduction on salary income. This will come into effect from 1st October, 2024.
• Interest for non-payment of tax collected at source u/s 206C (7) to Government account, is to be increased from 1% to 1.5% for every month or part thereof on the amount of such tax from the date on which such tax was collected to the date on which such tax is actually paid. This will come into effect from 1st April, 2025.
• Section 194C (Payment to contractors) is proposed to be amended to insert that any sum referred to in subsection (1) of Section194J (fees for professional or technical services) does not constitute "work" for the purposes of TDS u/s 194C. This clarification intends to ensure that payments for professional or technical services are correctly subjected to TDS u/s194J and not u/s194C. This will come into effect from 1st October, 2024.
• Section 200(3) states that a deductor shall prepare statements detailing the TDS deducted and furnish it every quarter. However, there is no time limit for correction of such statement submitted. Accordingly, the said section is proposed to be amended to provide that no correction statement shall be delivered after the expiry of six years from the end of the financial year in which the original statement is required to be delivered. This will come into effect from 1st April, 2025.
• Section 206C(3B) states that a collector shall prepare statements detailing the TCS collected and furnish it every quarter. However, there is no time limit for correction of such statement submitted. Accordingly, the said section is proposed to be amended to provide that no correction statement shall be delivered after the expiry of six years from the end of the financial year in which the original statement is required to be delivered. This will come into effect from 1st April, 2025.
• Section 271H related to penalty for failure to furnish TDS/TCS statements is proposed to be amended to include that no penalty shall be levied if after paying TDS/TCS along with fees and interest to the credit of the Central Government, TDS/TCS statements are filed before the expiry of period of one month from the time prescribed for furnishing such statement. This will come into effect from 1st April, 2025.

Rationalisation of provisions relating to assessment and reassessment

• Section 148 requires assessee to furnish a return of his income within 3 months from the end of the month in which such notice has been issued or such extended time as allowed by AO. It is proposed to substitute Section 148 to provide that return of his income shall be required to be furnished by the assessee within such period as may be specified in the notice which shall not exceed 3 months from the end of the month in which the notice has been issued.
• Notice u/s 148 is issued only on the basis of the ‘information’ with the AO which suggests that the income chargeable to tax has escaped assessment. It is proposed to widen the scope ‘information’ by including information emanating from survey conducted u/s 133A on or after 01-09- 2024.
• Show Cause Notice u/s 148A along with the information which suggests that income chargeable to tax has escaped assessment shall be issued within 3 years from the end of the relevant AY or within 5 years from the end of the relevant AY where the AO has information that the income chargeable to tax has escaped assessment amounts to or likely to amount INR 50 lacs or more.
• Notice u/s 148 shall have to be issued within a period of 3 years and 3 months from the end of the relevant AY in general cases. For specific cases, where the income escaping assessment represented in the form of assets or expenditure or transaction or entries amounts to or likely to amount INR 50 lacs or more, Notice u/s 148 has to be issued within 5 years and 3 months from the end of relevant AY.

Miscellaneous

• Section 47 (iii) is proposed to be amended to provide that the benefit of exemption on transfer of capital assets by company as a gift will no longer be available, such transaction will be taxable. This will come into effect from 1st April, 2025.
• Penalty u/s 271FAA is levied when persons liable to furnish Statement of Financial Transaction (SFT) in terms of Section 285BA provides inaccurate information in the statement. The said section is proposed to be amended to provide that penalty under the said section shall be attracted in any of the following circumstances- (i) furnishing of inaccurate information or fails to furnish correct information within prescribed time limit and (ii) failure to comply with prescribed due diligence requirement. Further, provisions of Section 273B which provides that no penalty shall be imposed if the assessee proves that there was a reasonable cause, proposed to be extended to penalty u/s 271FAA as well.
• Section 56(2)(viib) applies when a company in which the public are not substantially interested (i.e., a private company or an unlisted public company) issues shares at a premium and receives consideration that is more than the fair market value (“FMV”) of the shares. The excess amount received is deemed as income from other sources in the hands of the company. The current provision under said section is proposed to be done away with. This will come into effect from 1st April, 2025.
• Section 92CA(2A) and 92CA(2B) shall be amended to empower the Transfer Pricing Officer to deal with the specified domestic transactions which have not been referred to him by the Assessing officer and/or in whose respect Form 3CEB has not been filed. This will come into effect from 1st April, 2025.
• Equalisation levy of 2% which was imposed by Finance Act, 2020 on the amount of consideration received/ receivable by non-resident e-commerce operators for various activities including online sale of goods, online provision of services, and facilitation of such activities has been done away with. This amendment will take effect from 1st August, 2024.
• In case of company, which is not a domestic company, tax rate reduced from 40% to 35%(subject to applicable surcharge and education cess).
• A non-resident having a liaison office in India, is required to prepare and deliver a statement in respect of its activities in a financial year to the Assessing Officer within 60 days from the end of such financial year u/s 285 of the Act. It is proposed that the period within which such statement is to be filed, be henceforth prescribed under the Rules. Further, Section 271 GC is inserted to propose that failure to furnish statement may attract a penalty of one thousand rupees for every day for which the failure continues, if the period of failure does not exceed three months; and one lakh rupees in any other case. This will come into effect from the 1st April, 2025.

Direct Tax Vivad se Vishwas Scheme, 2024

• The above scheme can be opted by Appellant where appeal filed before commission appeals/ITAT/ HC/SC, objection before DRP, completion of assessment pursuant to directions of DRP u/s 144C(13) and application for revision u/s 264 are pending as on 22nd July, 2024.
• For pending cases arising after 31-01-2020, the scheme can be opted on payment of disputed tax on or before 31-12-2024 and entire interest and penalty shall be waived. Payment can be made after 31-12-2024 but before last date @ 110% of disputed tax. The last date is yet to be notified.
• For cases pending on or before 31-01-2020 at the same appellate forum, the scheme can be opted on payment of 110% disputed tax on or before 31-12-2024 and entire interest and penalty shall be waived. For such cases also, payment can be made after 31-12-2024 but before last date @ 120% of disputed tax.
• The scheme can also be opted for cases involving interest, penalty and fees levied under the Act by paying prescribed percentage of disputed amount.
• The scheme shall not apply for tax arrears in respect to AY where assessment has been made pursuant to Search u/s 132 or 132A or prosecution has been initiated or in relation to undisclosed income or asset outside India or assessment is made based on information received under DTAA.

Key changes proposed vide Finance Bill, 2024 under the Indirect Taxes -

Central Goods and Service Tax Act (CGST), 2017

Non levying of tax on un-denatured extra neutral alcohol or rectified spirit

No CGST shall be levied on intra-state supplies of un-denatured extra neutral or rectified spirit used for manufacture of alcoholic liquor, for human consumption u/s 9(1) of the Act. Similar provisions have been brought under IGST and UTGST Act, 2017.

Clarification on time of supply on reverse charge

In respect of Reverse charge, separate time of supply have been provided for supplies received from registered and unregistered suppliers.

In case of supplies received from registered suppliers, the time of supply would be earlier of-

• Date of payment as per books of recipient or debit in bank whichever is earlier;
• Date immediately following 60 days of the date of issue of invoice by the supplier in all cases where supplier is required to issue invoices.

In case of supplies received from unregistered suppliers, the time of supply would be earlier of-

• Date of payment as per books of recipient or debit in bank whichever is earlier;
• Date of issue of invoice where invoice is to be issued by recipient.

Insertion of new provision under Eligibility and conditions for taking Input Tax Credit (ITC)

• Section 16(4) a new provision has been inserted to state that the registered person shall be entitled to take input tax credit in respect of an invoice or debit note in a return filed u/s 39 upto the 30th day of November, 2021 for the financial years 2017-18, 2018-19, 2019-20 and 2020-21.
• Section 16(6) has been inserted to provide that if the registration was cancelled for a registered person and the said cancellation is revoked thereafter, the ITC would be available to the recipient subject to the following conditions:

• ITC was not restricted u/s 16(4) on the date of order of cancellation.
• ITC was availed within later of the following time limit-

• 30th November following the financial year to which the invoice / debit note pertains whichever is earlier
• 30 days from the date of revocation of cancellation for the return period from the date of cancellation of registration till the date of order of revocation

The amendments will be effective from 1st July, 2017.

Blockage of ITC

Section 17(5) has been amended, to restrict the non-availability of input tax credit in respect of tax paid under section 74 of the said Act only for demands upto Financial Year 2023-24. From 2024-25, there would be no blockage of ITC for taxes paid by the supplier through demand and recovery provisions. However, this would continue to be subject to the time limit for ITC availment u/s 16(4).

Furnishing of return by registered person required to deduct Tax at Source

Every registered person required to deduct tax at source shall furnish, in such form and manner as may be prescribed, a return, electronically for every calendar month whether or not any deductions have been made during the said month.

No refund of unutilised input tax credit on account of zero-rated supply of goods:

New sub-section inserted u/s 54 specifying that no refund of unutilised input tax credit on account of zero-rated supply of goods or of integrated tax paid on account of zero rated supply of goods shall be allowed where such zero rated supply of goods is subjected to export duty.

Transitional credit for ISD for invoices before appointed date

Section 140(7) is amended to enable availment of the transitional credit of eligible CENVAT credit on account of input services received by an Input Services Distributor prior to the appointed day, for which invoices were also received prior to the appointed date.

Penalty only for e-commerce operators required to collect TCS

Section 122(1B) prescribes penalty to be imposed for electronic commerce operators making contraventions of law. It has been provided that this would be applicable for electronic commerce operators who are required to collect TCS only.

Services by the Insurer to the re-insurer, for which the ceding commission is deducted shall be treated as neither supply of goods nor supply of services

New paragraphs have been inserted under Schedule III to consider the below mentioned activities as neither supply of goods nor supply of services accordingly.

• Activity of apportionment of co-insurance premium by the lead insurer to the co-insurer for the insurance services jointly supplied by the lead insurer and the co-insurer to the insured in coinsurance agreements, subject to the condition that the lead insurer pays the central tax, the State tax, the Union territory tax and the integrated tax on the entire amount of premium paid by the insured.
• Services by insurer to the reinsurer for which ceding commission or the reinsurance commission is deducted from reinsurance premium paid by the insurer to the reinsurer, subject to the condition that the central tax, the State tax, the Union territory tax and the integrated tax is paid by the reinsurer on the gross reinsurance premium payable by the insurer to the reinsurer, inclusive of the said ceding commission or the reinsurance commission.

Other Key Changes:

• Section 17(5) has been amended to restrict the non-availability of input tax credit in respect of tax paid on the demand raised by the proper officer for the financial years upto 2023-24.
• Section 107 has been amended to provide maximum amount of pre-deposit for filing appeal before the Appellate Authority has been reduced from INR 25 crores to INR 20 crores in central tax. Further the amount of pre-deposit for filing appeals before the Appellate Tribunal has been reduced from existing 20% to 10% of the tax in dispute.

Customs Act, 1962 / Custom Tariff Act, 1962

• Section 28DA(10) which lays down the requirement of verifying the ‘Certificate of origin’ is being substituted by ‘Proof of origin’ which is a certificate or declaration issued in accordance with a trade agreement certifying or declaring, that the goods fulfil the country-of-origin criteria and other requirements specified in the said agreement.
• Section 65 a new subsection (1) has been inserted to empowers the Central Government to specify certain manufacturing processes and other operations in relation to a class of goods that shall not be permitted in a warehouse.

Custom Duty Rate Changes:

Increase in tariff rate w.e.f 24.07.2024

1. Rate on Poly vinyl chloride (PVC) flex films stand increased from 10% to 25%.
2. Rate on Laboratory chemicals increased from 10% to 150%.

Changes in Basic Custom Duty w.e.f 24.07.2024

Critical Minerals:

1. BCD on Natural Graphite, Quartz has been reduced from 5% to 2.5%
2. BCD on other critical minerals such as Natural sand, Copper, Cobalt, Silicon, Oxides and other minerals have been removed.
3. BCD on silicon dioxide has been reduced to 2.5% from 7.5%.

Steel Sector:

BCD on Ferro Nickel has been removed further BCD on Ferrous Scrap specified raw materials for manufacture of CRGO steel shall not be applicable till 31.03.2026.

Chemicals and Plastics:

BCD on Ammonium Nitrate has been increased to 10%.

Cancer Drugs:

BCD on three cancer drugs namely Trastuzumab Deruxtecan, Osimertinib, Durvalumab have been removed.

Medical Equipment:

• BCD on Polyethylene for use in manufacture of orthopaedic implants and Special grade stainless steel,Titanium alloys, Cobalt-chrome alloys, and All types of polyethylene for use in manufacture of other artificial parts of the body shall be removed.
• BCD on X-ray tubes for use in manufacture of X-ray machines for medical, surgical, dental or veterinary use will be as mentioned below: 5% till 31.03.2025. 7.5% from 01.04.2025 to 31.03.2026. 10% w.e.f 01.04.2026.
• BCD on Flat panel detectors will be as mentioned below: 5% till 31.03.2025. 7.5% from 01.04.2025 to 31.03.2026.. 10% w.e.f 01.04.2026.

Renewable Energy Sector:

• BCD on Specified capital goods for use in manufacture of solar cells or solar modules, and parts for manufacture of such capital goods shall be NIL.
• BCD on Solar glass for manufacture of solar cells or solar modules will be 10% w.e.f. 01.10.2024.
• BCD on Tinned copper interconnect for manufacture of solar cells or solar modules w.e.f. 01.10.2024.

Source: Ministry of Finance