Budget 2024 | Government to withdraw certain long-pending, un-reconciled direct tax demands

While retaining the status quo with respect to direct and indirect taxation rates, the Finance Minister proposed to withdraw small, non-reconciled and disputed tax demands.

Union Finance Minister Nirmala Sitharaman holding a folder-case containing the Interim Budget 2024. Ministers of State Bhagwat Kishanrao Karad and Pankaj Chaudhary are also seen. | Photo Credit: Shiv Kumar Pushpakar

Whilst maintaining the status quo with respect to direct and indirect taxes, Finance Minister Nirmala Sitharaman in her maiden interim budget presentation proposed to withdraw small, non-reconciled and disputed direct tax demands. This implies tax demands of up to ₹25,000 pertaining to the period up to FY 2009-10, and up to ₹10,000 for FY 2011 to 2015 — would be withdrawn. Ms Sitharaman held that that the moves were part of the treasury’s intent to improve ‘ease of living and doing business’.  

This turned out to be the major policy announcement on February 1 as Ms. Sitharaman maintained the status quo for direct and indirect taxes, including import duties.  

‘Improving ease of living and doing business’ 

Elaborating the rationale for the withdrawal, she told the House that there existed a “large number of petty, non-verified, non-reconciled or disputed direct demands”. Many of which went as far back as 1962., she said, as they continue to remain on the books, they were “causing anxiety to honest taxpayers and hindering refunds of subsequent years.” 

The Finance Minister said the move would benefit “about a crore taxpayers”. 

Gouri Puri, Partner at law firm Shardul Amarchand Mangaldas & Co. told The Hindu that the issue (about direct tax demands) has been pertinent to smaller taxpayers. Further, this would help address “legacy demands” that have been existing in the system but might be lacking merit. “There are clients that have non reconciled demands that have not been resolved for five, six or may be ten years,” she said. “The concerned officer will now have an administrative basis to resolve such tax demands,” Ms. Puri added. Terming it as a “welcome move”, Ms. Puri said, “It may not be worthwhile for the government or taxpayers’ time or effort to keep such demands pending or disputed.”  

Before announcing the tax proposals, Ms. Sitharaman had highlighted the government’s prerogative to improve taxpayer services. She pointed to how the “age-old jurisdiction-based assessment system” was transitioned to “faceless assessment and appeal”. This, according to her, imparted greater efficiency, transparency and accountability. The finance minister also said the introduction of updated income tax returns, a new form 26AS and prefilling of tax returns have made filing “simpler and easier”. Further, the average processing time for returns stands reduced from 93 days, as observed in 2013-14, to 10 days at present, she stated.  

No change to direct and indirect tax rates 

Stating that she would be “keeping with the convention”, Ms. Sitharaman proposed to retain the same tax rates for direct and indirect taxes, including import duties. This is in contrast to the last Interim Budget (2019-20), which proposed amending Section 87A of the Income Tax Act to increase the income base for tax rebates from ₹3.5 lakh to ₹5 lakh, breaking from the convention of announcing populist measures before the country heads into a general election.  

Tax holiday extended 

However, tax holidays for start-ups and (tax) benefits on investments made by sovereign wealth or pension funds alongside exemptions on certain income of some IFSC units were extended to March 2025. It was set to expire by March-end this year.  

Rohinton Sidhwa, Partner at Deloitte India explained that the benefits would be relevant in three arenas. Firstly, for start-ups: with the date of incorporation for an eligible start-up extended by one year. Secondly, sovereign wealth funds, who benefit from the extension in making investments that qualify for exemption. And finally, the IFSC units whose date of commencement of operations would now be March 2025. “This extension applies only to specific income — specifically leasing of aircraft and ships and transfer of capital assets on the IFSC exchange,” he explained.  

A surprise on the front sprung up with the sunset clause not being extended for new manufacturing units. “This seems contrary to the policy of the Government to promote manufacturing in India under the PLI scheme. I do hope that this is an error of omission, and we will see a notification to extend this benefit soon,” stated Sanjiv Malhotra, Senior Advisor at Shardul Amarchand Mangaldas & Co.