Synopsis: The upcoming Union Budget 2025 is anticipated to introduce significant reforms in India's direct tax framework. Building upon previous initiatives aimed at simplifying the tax regime for charities, TDS rate structures, reassessment provisions, and capital gains taxation, the government is expected to focus on enhancing tax clarity, reducing litigation, and fostering economic growth.
In the previous budget, Finance Minister Nirmala Sitharaman announced a comprehensive review of the Income Tax Act, 1961, with the goal of making it more concise, clear, and user-friendly.
This initiative aims to reduce litigation, provide tax certainty, and decrease the volume of tax disputes.
As the nation approaches the Union Budget 2025, there is heightened anticipation for further reforms in the direct tax arena.
Individual Tax Rates and Personal Taxation
To boost disposable income, especially among middle-income earners, there is a strong expectation for an increase in the exemption limit and a reduction in tax rates across various income slabs under the new tax regime.
Such measures would not only provide relief to taxpayers but also stimulate economic activity by enhancing consumer spending.
Support for Startups and the MSME Sector
Startups and MSMEs are pivotal to India's economic development.
Currently, eligible startups benefit from a tax holiday under Section 80-IAC of the Income Tax Act, applicable to those incorporated up to March 31, 2025.
There is a strong expectation for an extension of this benefit in the upcoming budget.
Additionally, rationalizing the presumptive taxation scheme under Section 44AD is anticipated, potentially increasing the threshold limit to align with the Micro, Small, and Medium Enterprises Development Act, 2006.
Corporate Tax Incentives
The government has consistently prioritized ease of doing business.
Key expectations include extending the concessional tax regime for new manufacturing companies commencing operations before March 31, 2024, by at least five years from April 1, 2024.
Additionally, there is hope for a reduction in tax rates for non-corporate entities, such as limited liability partnerships and associations of persons, to 25%, aligning them with the rates offered to private limited companies.
Dispute Resolution Mechanisms
The previous budget introduced the 'Vivad se Vishwas' scheme to simplify dispute resolution.
Despite these efforts, a significant backlog of cases persists.
As of January 2024, over 5.4 lakh petitions awaited resolution within the income tax department, with additional cases pending at various appellate levels.
To address this, the government increased monetary limits for filing appeals related to direct taxes.
The upcoming budget is expected to introduce further initiatives to expedite the resolution of pending tax cases.
Conclusion
The Union Budget 2025 is poised to lay the groundwork for a simplified and efficient tax regime that not only enhances compliance but also stimulates economic growth.
By focusing on individual taxpayers, supporting startups and MSMEs, providing corporate tax incentives, and streamlining dispute resolution, the government aims to create a more predictable and investor-friendly tax environment.
