Budget 2025: Lower tax litigation, TDS simplification on the cards? KPMG lists BFSI sector's key expectations
Budget 2025: Finanace Minister Nirmala Sitharaman will present her eighth consecutive budget on Saturday, February 1.
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With just a few days left for the Union Budget 2025 presentation, sectors such as banking, insurance, and others are holding high hopes for the Union Budget FY 2025-26. Stakeholders are eagerly awaiting budget documents, keeping their fingers crossed regarding their expectations from the government's fiscal plans.
Finanace Minister Nirmala Sitharaman will present her eighth consecutive budget on Saturday, February 1.
The government is likely to build on the tax reforms introduced in the previous budget, which included various amendments to rationalise provisions related to capital gains tax and Tax Deducted at Source (TDS). This year's budget is anticipated to continue the trend of rationalisation, aiming for greater simplification and clarity in tax laws, as per insights from KPMG, a global advisory firm.
Yezdi Nagporewalla, Chief Executive Officer of KPMG, providing an insight commented, "Every Budget is a very fine balance and the machinery is already working on what to focus on. You have seen the government focusing on public spending. If private spending is not there, the government steps in and looks at aspects of infrastructure. It’s got to be growth-oriented. It will impact the fiscal deficit. We’ve seen fiscal deficit come down, but I don’t know how much (further) down they will push it."
KPMG's key expectations from Union Budget 2025-26
The Union Budget 2025-26 is expected to address critical areas to boost economic growth, simplify tax regimes, and enhance India's global competitiveness. Below are the key expectations across various sectors:
Direct Taxes
1. Reduction in tax litigation: Tax disputes have been a major concern for both individuals and businesses, leading to delays and increased compliance costs. The government is expected to introduce measures to reduce tax litigation by streamlining dispute resolution mechanisms.
2. Incentives for R&D and manufacturing: To boost innovation and self-reliance, the government is likely to announce higher investment incentives for research and development (R&D) and the manufacturing sector.
3. Rationalisation of TDS/TCS provisions: Centre is expected to continue its efforts to simplify Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions.
4. Transfer pricing reforms: To reduce compliance burdens for multinational companies, the government may extend safe harbour rules, which provide predefined margins for certain transactions, reducing the need for detailed documentation.
Banking, financial services and insurance
1. Foreign bank tax rates: The 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 is needed for competitiveness.
2. 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.
3. NBFCs growth and tax benefits: NBFCs are expanding due to rising credit demand and digital transformation. Tax benefits for banks have gradually been extended to some NBFCs. Immediate notification is needed for thin capitalisation interest disallowance exclusion. Amendments are expected for:
- Recognising interest conversion into debentures/bonds as payment
- Exempting TDS on interest payable to NBFCs
4. 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
5. SWFs/pension funds tax relief: Extension of tax relief beyond 31 March 2025. Further relaxation in conditions could aid India's development needs.
6.TDS on listed debentures: Budget 2023 removed the TDS exemption, complicating cash flow and yield calculations. Reinstating the exemption is recommended for simplicity and compliance ease.
7. Tax refunds and appeals: Mandate timely processing of appeal effects and tax refunds by the Jurisdictional Assessing Officer/Centralised Processing Centre to build taxpayer confidence.
Indirect taxes
1. Vision of a Viksit Bharat: 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, create infrastructure, support employment generation, and foster value creation.
2. Implementation of GST: 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 54th and 55th GST Council meetings are expected to be included in the Union Budget.
Transfer pricing
1. Re-evaluation of Safe Harbour Regulations (SHR): Taxpayers expect CBDT to relook at safe-harbour rates, remove the barrier of turnover threshold to expand coverage, and extend the safe harbour regime to other transactions and industries.
2. Secondary Adjustment (SA): Taxpayers expect CBDT to exclude non-resident taxpayers (branch/permanent establishment) from the ambit of SA provisions. Another key expectation is to uplift the applicability threshold from Rs 1 crore to at least Rs 10 crore.
3. 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.
4. Filing of Form No. 3CEB: Non-resident taxpayers expect CBDT to exempt them from filing Form 3CEB (where they are exempt from filing RoI). Further, taxpayers expect CBDT to enable the filing of a revised Form No. 3CEB.
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