Sunday, February 16, 2025
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Union Budget 2025 Expectations: Changes in new tax regime

As the country prepares for the much-awaited India’s Budget 2025, taxpayers, working professionals, and businesses alike are concerned and looking for a clearer insights on important issues that could influence the nation’s tax and fiscal environment. Thus, the Deloitte India’s pre-budget booklet delivers a comprehensive list of Union Budget 2025 expectations; this includes aspects related to transfer pricing, direct tax, indirect tax, personal tax, and mergers and acquisitions tax.

Union Budget 2025 Tax Expectation

The data from the first quarter indicates a significant rise in private consumption along with a slight enhancement in investment activity. These two factors are considered the core drivers of growth as global uncertainties affect net exports. After the Indian elections, an increase in government spending will support growth in the upcoming quarters of FY 2025.

Direct Tax: Key Reforms and Simplifications

One of the most closely examined areas of the yearly budget is always direct taxation, especially income tax. Improving the new tax system so that it becomes more attractive to taxpayers is one of the prime objectives for Budget 2025. Although it offers reduced tax rates, the new tax regime, which was introduced in earlier years, has few deductions. Deloitte India’s pre-budget brochure states that requests for further simplification of tax slabs and a possible rise in the exemption threshold would instantly benefit individuals with middle to upper-class income levels.

There is also an expectation for direct tax reforms aimed at enhancing compliance and reducing disputes. A comprehensive review of the Direct Tax Code (DTC) will be done in order to make sure that the taxation system is in line with current economic circumstances and international standards. Moreover, proposals to reform capital gains tax and foster tax incentives for areas such as startups and green technologies are also under consideration.

Personal Tax: A Focus on Relief for the Middle Class

Personal taxation is another area where changes are expected to help the typical taxpayer. Since inflation affects household budgets, the government may raise the basic income tax exemption level, which is currently set at INR 2.5 lakh, to reflect rising living expenses. By lowering their tax burden, this would help a greater portion of the populace.

Additionally, further alignment with the new tax regime is expected, where the government may allow for more exemptions or deductions, especially for long-term savings and retirement planning. Furthermore, another provision, potential tax rebates relating to healthcare, education, and housing expenditures is being considered, which may benefit persons in these industries.

Indirect Tax: Simplification and Streamlining

Indirect taxes, mainly represented by GST (Goods and Services Tax), have undergone several changes throughout the years. Nonetheless, the tax system continues to be intricate, especially for companies encountering difficulties with compliance. The Budget 2025 is anticipated to implement strategies to optimize indirect tax procedures, making filing processes easier and lessening compliance responsibilities.

There is also speculation about the introduction of sector-specific tax benefits under GST to boost areas like exports and manufacturing, and further rationalize the tax rates to bring more sectors under the tax net. The government may also focus on removing ambiguities in the GST laws to make it more transparent and predictable for businesses.

Mergers and Acquisitions Tax: A Strategic Push

The taxation structure that regulates mergers and acquisitions (M&A) within the country has certainly been a topic of significant debate for a prolonged duration. As foreign direct investment (FDI) and international business activities expand, it is essential for corporate entities to comprehend the tax implications associated with M&As.

In Budget 2025, M&A tax provisions could see important revisions to align with global standards. There could be provisions aimed at incentivizing restructuring activities, providing tax neutrality for cross-border transactions, and enhancing the ease of doing business in India. Additionally, the government might consider tax reliefs or exemptions for startups involved in mergers or acquisitions to foster innovation and consolidation in emerging sectors.

Transfer Pricing: Enhancing Transparency

Transfer pricing continues to be a significant issue for multinational companies operating in India. In order to conform to international standards and promote equitable taxation, it is anticipated that the government will implement changes to transfer pricing regulations in the Budget for 2025.

One of the key expectations is an update to the documentation requirements, aimed at improving transparency and reducing disputes with tax authorities. Advance Pricing Agreements (APAs) are also likely to be highlighted since they give firms peace of mind when interacting with linked organizations abroad. It is anticipated that further streamlining transfer pricing audits and processes would improve tax compliance while easing the financial burden on global companies.

Conclusion

As India’s Budget 2025 draws near, there is a great deal of hope that the government would make significant adjustments to both direct and indirect taxation. Clear rules pertaining to transfer pricing and mergers and acquisitions are much-anticipated by businesses. It is projected that the proposed changes to the tax structure will simplify the tax code and help middle-class taxpayers.

It is believed that the reform of indirect tax laws would improve the system’s efficiency and transparency. At the same time, the focus on personal taxes is probably going to benefit people. These policies are expected to provide a more advantageous business environment in India, encourage investment, and accelerate economic growth if they are put into effect.

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