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India Budget 2024: Impact on foreign investors and multinationals
July 2024
In brief
What happened?
The Indian Finance Minister presented the maiden Union Budget for 2024–25 (Budget 2024) on July 23 after the re-elected Modi Government came into power to serve its third term. With a growth forecast estimated at 6.5% to 7%, Budget 2024 seeks to present a detailed roadmap for India’s pursuit to become a developed nation — Viksit Bharat by 2047. The budget proposals focus on infrastructure, skill development, manufacturing energy security, urban development, innovation and R&D, and next-generation reforms around labor, land, and foreign direct investments, among others. On the tax front, the theme of the announcements continues to be stability and certainty with no surprises.
Why is it relevant?
Budget 2024’s tax proposals include measures intended to simplify and rationalize the existing law to enable the ease of doing business, reduce the compliance burden and tax disputes, and bring more certainty to the law. The proposals should be enacted in the next few weeks and be effective from the dates specified for the various proposals mentioned below. The Finance Minister also announced that a new tax code will be unveiled in six months. The government aims to make the new tax code concise, clear, and easy to read and understand.
Action to consider
Companies should evaluate the proposals and their impact. This analysis should be considered while planning and undertaking their business affairs in India.
In detail
Tax rate revised for foreign companies
The headline income tax rate for the income of foreign companies, other than specified income (e.g., royalty and fees for technical services), is reduced from 40% to 35%, effective for financial year 2024-25. There is no other change in the tax rates, including surcharge and health and education cess.
Equalization Levy abolished
The Equalization Levy of 2% currently applies to e-commerce supply or services by non-Indian entities. Budget 2024 proposes to abolish this tax effective August 1, 2024.
Anti-abuse provisions on issuing shares to shareholders abolished
Currently, the Indian tax laws contain an anti-abuse provision that seeks to tax the amounts private companies receive from shareholders when issuing shares in excess of their fair market value.
Budget 2024 proposes to abolish this provision effective April 1, 2024.
Reintroduction of the Tax Amnesty Scheme
Encouraged by the success of the previous Tax Amnesty Scheme in 2020 and to further the tax agenda of reducing tax litigation, Budget 2024 reintroduces the Tax Amnesty Scheme. Pending disputesas of July 22, 2024, are proposed to be covered by waiver of interest penalty and prosecution.
A similar amnesty scheme is introduced under the Goods and Services Tax (GST) law to resolve various interpretational issues that have arisen during the initial years of GST implementation in India.
Buyback of shares – change in taxation mechanism
Currently, an Indian company is subject to tax on the buyback of shares at the rate of 20% on the distributed income on such buyback.
Budget 2024 proposes to change the taxation mechanism of the buyback of shares effective October 1, 2024, similar to the current taxation mechanism for dividends in India. Buyback proceeds are now taxable in the hands of the shareholder as a deemed dividend (on a gross basis). Separately, acquisition cost is to be treated as capital loss that could offset any capital gains.
Gifts other than by individuals or Hindu Undivided Families not eligible for exemption
Currently, there is ongoing litigation regarding whether gifts by corporates are eligible for exemption from capital gains tax. Budget 2024 proposes to clarify that gifts by any person (other than individuals and Hindu Undivided Families) are not eligible for exemption from capital gains tax.
Rationalization and simplification of capital gains tax regime
The capital gains tax regime in India is complex with multiple asset classifications and rates. With evolving times, asset categories and new instruments were included, resulting in both complexity and confusion.
To address this, Budget 2024 proposes to simplify the capital gains tax regime with immediate effect. The comparative chart highlighting these changes is presented below.
| Proposed capital gains tax regime | |||||||
| Sl. No. | Particulars | Period of holding | Resident | Old | New | ||
| A. | Long-term capital gains |
Old |
New |
Old |
New |
Old |
New |
1. |
Shares (securities transaction tax [STT] not paid) |
24 months |
24 months |
20% |
12.5% |
10% |
12.5% |
2. |
Equity shares (STT paid) |
12 months |
12 months |
10% |
12.5% |
10% |
12.5% |
3. |
Listed bonds and debentures |
12 months |
12 months |
10% |
12.5% |
10% |
12.5% |
4. |
Units of real estate investment trusts and infrastructure investment trusts |
36 months |
12 months |
10% |
12.5% |
10% |
12.5% |
| B. | Short-term capital gains |
||||||
1. |
Equity shares (STT paid) |
12 months |
12 months |
15% |
20% |
15% |
20% |
2. |
Unlisted debentures |
36 months |
Deemed short term |
20% |
Applicable rates |
10% |
Applicable rates |
Interest limitation restriction to units in International Financial Services Centre (IFSC)
Currently, interest deductions to non-resident associates are limited to 30% of the earnings before interest, taxes, depreciation, and amortization. Budget 2024 would remove this restriction to units in the IFSC, subject to certain conditions effective financial year 2024-25.
New tax regime for non-residents operating cruise ships
Budget 2024 proposes to introduce a new tax regime for non-residents operating cruise ships. They are to be taxed under the presumptive income scheme, wherein 20% of the receipts are to be treated as income, with some relaxations of lease payment to group companies.
Penalty introduced for liaison office’s non-filing of prescribed statement
Budget 2024 proposes to levy penalty for an Indian liaison office’s non-filing of the prescribed statement under the tax law. The penalty is INR1,000 every day if the failure does not continue beyond three months, or INR100,000.
See also
- Watch a recorded version of our Budget 2024 analysis.
- See a comprehensive PwC analysis of –
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