Will the 2024 budget include significant reforms in key sectors?

With the first Union Budget after the Lok Sabha elections almost ready, high hopes are pinned on major political and fiscal reforms.

The reforms are expected to cover the following areas:

Production

Maintaining the momentum already built by the Make in India initiative, the government should continue to support the manufacturing sector. Production-Linked Incentive (PLI) schemes with ease of compliance and wider reach could be considered. A dedicated PLI scheme for SMEs would be the cherry on the cake!

The tax relief for new manufacturing companies ended on March 31, 2024. This deadline should be extended by at least two years. In addition, this benefit should be extended to limited liability partnerships engaged in manufacturing activities.

In the manufacturing sector, cars and auto components are among India’s biggest strengths and the automotive sector, especially the electric vehicle sector, is expecting some announcements. These expectations include:

A new subsidy programme similar to FAME II, but with a broader scope;

Improving R&D policies for battery technologies and grid integration to develop a ubiquitous and reliable charging infrastructure;

The focus will be on localizing semiconductor chip production and direct tax incentives to stimulate the electric vehicle sector.

Renewable energy sector

The government is all set to implement mega projects that are aimed at achieving the COP26 target of generating 500 GW of non-fossil fuel energy by 2030. India could achieve this target in record time by incentivising companies investing in renewable energy, electric vehicles and other renewable technologies with additional deductions and exemptions for the sector.

Electronics industry

The electronics industry is also looking to rationalise duties and incentives to compete with China and Vietnam, which currently have much lower duty rates and a simplified entry duty structure. Reducing duties on mobile phone components or sub-assemblies will help attract global value chains to India, which in turn will ensure competitiveness.

Pharmaceutical sector

The pharmaceutical sector expects a reduction in the BCD tax on imported raw materials for antibiotic production from 7.5% to 5% and greater tax incentives for companies investing in research.

Tax relief for individual taxpayers

Considering the rising inflation year on year, the existing deduction threshold and tax bracket limits should be increased, which will lead to an increase in the disposable income of individual taxpayers and ultimately to a higher level of consumption. Moreover, the new tax system should be rationalized, allowing at least Chapter VI-A deductions. Moreover, the capital gains tax system should be simplified and the overall tax rates should be reduced, considering the increasing number of such transactions among the masses.

Measures to facilitate business activities

Impersonal Assessments and Appeals: Impersonal Income Tax Assessments should be rationalized. Presently, large taxpayers face practical difficulties in cases where complex facts are involved/voluminous data is required to be produced. It is recommended that the FM reconsider the entire impersonal assessment scheme. Taxpayers above a certain income threshold should be given an option to opt for impersonal assessments or traditional assessments. Further, steps should be taken to expedite the disposal of long-pending impersonal Income Tax appeals.

GST Tribunals: The process of setting up nationwide GST Tribunals should also be expedited.

Rationalization of GST Rates: Currently, there are four tax rate bands under the GST regime, i.e. 5%, 12%, 18% and 28%. Multiple tax rate bands defeat the purpose of introducing GST. It is recommended to reduce the tax rates to three or two, which would also simplify compliance and reduce the tax burden on the masses.

Reconsideration and Recast of Newly Inserted Clause (h) in Section 43B of the Income Tax Act, 1961: In response to the problem of working capital created by the aforesaid new clause, quite a few large and medium enterprises (buyers) have started cancelling orders from registered SMEs and placing orders with unregistered SMEs or forcing SMEs to abandon their registration by using their financial clout. Thus, in the first year of its operation, the said clause has affected the ease of doing business to some extent for both SMEs and their buyers. The clause, therefore, needs to be reconsidered and recast urgently.

While India is on its way to becoming the world’s third-largest economy, it is a difficult journey and government support will be needed at every step.

(Rakesh Nangia is the non-executive chairman and Jogesh Kale is a director of Nangia Andersen LLP)