Budget 2025 Expectations| Govt can enhance India's position as global financial hub by incentivising firms setting up at GIFT city, says KPMG

Finance Minister Nirmala Sitharaman will present the 8th consecutive Union Budget on February 1, 2025. Reports suggest that the government is mulling over cutting income tax for those who are earning up to Rs 15 lakh a year in February's budget, in turn providing relief to the middle class.

The banking, insurance and other sectors have pinned high hopes on the Union Budget FY 2025-26 documents and are keeping their fingers crossed regarding their expectations from the government's most important financial document of the year.

Here are KPMG's Budget 2025 expectations:

1) Banking, Financial Services, Insurance:

Foreign bank tax rates: Previous budget reduced tax rates for foreign companies. However, foreign bank branches in India still face higher taxes than Indian banks. Further tax rate reduction needed for competitiveness

Securities Transaction Tax (STT): Originally introduced for tax exemptions on long-term capital gains and concessional rates for short-term gains. With competitive tax rates now in place, STT abolition is warranted

NBFCs growth and tax benefits: NBFCs expanding due to rising credit demand and digital transformation. Tax benefits for banks gradually extended to some NBFCs. Immediate notification needed for thin capitalisation interest disallowance exclusion.

Amendments expected for:

---Recognising interest conversion into debentures/bonds as payment

--Exempting TDS on interest payable to NBFCs

GIFT-IFSC Incentives: Enhancing India's position as a global financial hub. Proposed incentives:

--Extend tax holiday for insurance companies to 15-20 years

--Tax exemption for non-residents on ODIs issued by IFSCA registered non-bank entities

--Tax relief for green finance, including green bonds and weighted deductions

SWFs/pension funds tax relief: Extension of tax relief beyond 31 March 2025. Further relaxation in conditions could aid India;s development needs

TDS on listed debentures: Budget 2023 removed TDS exemption, complicating cash flow, and yield calculations. Reinstating exemption recommended for simplicity and compliance ease

Tax refunds and appeals: Mandate timely processing of appeal effects and tax refunds by Jurisdictional Assessing Officer/Centralised Processing Centre to build taxpayer confidence.

2) Transfer Pricing:

Re-evaluation of Safe Harbour Regulations (SHR) – Taxpayers expect CBDT to relook at the safe-harbour rates, remove the barrier of turnover threshold to expand the coverage, and to extend the safe harbour regime to other transactions/industries

Secondary Adjustment (SA) – Taxpayers expect CBDT to exclude non-resident taxpayers (branch/permanent establishment) from the ambit of SA provisions. Another ask of the taxpayers is to uplift the applicability threshold from INR 1 crore to at least INR 10 crore

Arm’s length range – Taxpayers expect CBDT to adopt the interquartile range (25th to 75th percentile) to align India’s transfer pricing regulations with international best practices

Filing of form no. 3CEB – Non-resident taxpayers expect CBDT to exempt them from filing of form 3CEB (where they are exempt from filing RoI). Further, taxpayers expect CBDT to enable filing of revised form no. 3CEB

Other expectations

Advance Pricing Agreement (APA) programme – Taxpayers expect CBDT to introduce a fast-track window for renewal applications (both Unilateral APA/Bilateral APA), as well as for applications involving simple/less complex transactions in UAPAs

Limitation on interest deductibility – Limitation of interest deduction with respect to overseas borrowings should be done away with, entirely or at least deferred for five to ten years.

3) Direct Tax:

-- Incentives for a higher investment in research and development and in the manufacturing sector

-- Measures to reduce tax litigation and to improve the efficacy of the existing tax dispute

mechanisms

-- Continuation of rationalisation of TDS/TCS provisions and of capital gain taxation regime

-- Reduction of transfer pricing compliance rigour (by extending safe harbour rules, introducing block

assessment etc.).

4) Indirect Tax:

-- The Union Budget 2025 is anticipated to further establish the groundwork and provide a strategic plan for attaining the vision of a Viksit Bharat. The NDA government which assumed office in June last year, will present its Union Budget with an expected focus on measures that benefit the common man, creation of infrastructure, support employment generation and value creation.

-- Since the implementation of GST, the Union Budget has largely been confined to amendments in the GST Act, with the crux of GST modifications and clarifications being addressed in GST Council meetings. The changes in the act flowing from the 54 th and 55 th GST Council meetings are expected to be included in the Union Budget.

5) Personal Tax:

This being the first full Budget for the new Government there will always be a slew of expectation from a personal tax perspective. However, one has to also bear in mind the current state of economic growth for India, global economic indicators and other factors that the Finance Minister will consider before presenting the personal tax proposals. Also, the Government has set-up a separate committee for a comprehensive review of the Income tax law from a simplification and ease of administration and compliance perspective.

In that backdrop, some of key expectations are outlined below:

A) Providing impetus to the housing sector: In line with the objective of the Government of Housing for all, it is widely expected that the Government may consider some tax SOPs for the housing and funding cost for the middle- and low-income earners. In the context of a self-occupied property, the new default tax regime disallows any deduction for interest on housing loans.

Conversely, the old tax regime permits a deduction of up to only Rs 2 lakhs. This distinction is crucial as buying a home and securing a loan for self-occupation are substantial financial commitments, often spanning long periods. With recent hikes in interest rates and regulatory reforms there is mounting pressure on the real estate sector.

To alleviate these challenges and foster home ownership, it is suggested that the Government may reconsider allowing deductions for interest on self-occupied housing loans even under the new default tax regime or enhancing the deduction in the old tax regime to atleast Rs 3 lakhs.

B) Hike in deduction towards health insurance under section 80D: With advancement in healthcare and spiraling medical costs, there is an expectation to increase the current deduction towards health insurance which ranges from Rs 25,000 to Rs 1 lakh (depending on the family member for whom the insurance is taken and his/ her age) to Rs 50,000 to Rs 1.5 lakh.

C) Potentially stable income slab and tax rates: Over the last 3-4 years the Government has made a conscious effort to make the income slabs and corresponding tax rates more lucrative for taxpayers opting for the new tax regime. Infact the new tax regime tax slabs have been altered in Budget 2023 as well as interim Budget of 2024.

This thrust has yielded results as per the statistic released by the Government itself. As per the said statistics for the Assessment Year 2024-25 (FY 23-24) 72 per cent of taxpayers opted for the New Tax Regime compared to 28 per cent who chose the Old Tax Regime.

Hence, while there is always expectation from the common man to get more net disposable income in their hands, on a realistic basis it is expected that there may be no changes to the income slabs and tax rates in the old tax regime and minimal changes (if any) in the new tax regime.

D) Other procedural amendments: Basis the larger agenda of the Finance Ministry to simplify compliance and procedures under the income tax laws one may expect a few of the following other changes:

--Currently, home buyers who purchase property from non-residents (NR) are required to compute the income of the seller and deduct appropriate tax on such income. This casts an onerous obligation on the individual home buyers.

Infact they are also required to obtain Tax Deduction Account (TAN) and file quarterly withholding tax returns. Contrast this with the situation where the seller is a resident – the buyer simply has to deduct 1 per cent TDS on sales proceeds and file a challan-cum return without obtaining a TAN. A similar system, probably with a higher rate of TDS say 2 or 5 per cent, may be introduced for buyers of residential property from a NR taxpayer.

--- Electric vehicles (EV) are the future. In line with the ESG agenda of organization, many employers are encouraging employees to consider an EV in their employer car lease arrangement. However, the current perquisite rules provide for valuation only basis cubic capacity of the car.

Hence, it may be prudent for the Government to specify a separate value for EVs as well.

--- For any financial year a revised/ belated return can be filed by 31 December following the end of the FY. In many cases (especially in case of individuals with cross border investment and income) the tax returns in the home/ host country are not finalized by then. As an example for a US citizen the deadline to file a tax return for calendar year 2024 is 15 April 2025. Whereas he/ she has to report his global income in India (if he/ she is an ordinary resident of India) for FY 2023-24 (partial period in calendar year 2024) by filing a revised/ belated return latest by 31 December 2024.

Hence, it may be advisable to provide more time in case of such individuals to file a revised/ belated return.

--- Currently many individuals are receiving summons notices from the investigation wing of the income tax department. While all the information documents are being provided there is no formal intimation of closure of such proceedings required to be communicated to the taxpayers. Hence, it is an expectation that such a requirement is brought about in the Income Tax law so that taxpayers who have given all information / documents get a satisfactory closure of the matter.

Union Budget 2025 | Nirmala Sitharaman, who continues to be Finance Minister, will present her record 8th Union Budget this time. While inflation has burnt a hole in the pockets of 'aam janata', reports suggest there might be a tax relief for those making up to Rs 15 lakh per year. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.