While inclusive development is prioritized and the Budget emerges as a boon in the form of women-centric schemes, employment, and skilling for the youth, a reduction in the corporate tax rate, a reduction in customs duties on precious metals, etc., may stand incongruous with the significant changes in taxes in other areas.

The significant changes include reducing the long-term capital gains tax on property and gold from 20% to 12.5%, increasing the short-term capital gains on equity-related investments from 15% to 20%, and increasing the tax rate on long-term capital gains from 10% to 12.50%.

Additionally, the government has removed the indexation benefit for immovable property, reduced the holding period for bonds, debentures, and gold from 36 months to 24 months, and abolished the angel tax. The proposed measures aim to streamline India’s tax structure and ensure increased compliance; however, effective and robust tax administration is a must to bring an impact to these glaring tax adjustments.

The proposed tax simplification measures include the Vivad Se Vishwas Scheme 2024 for settling direct tax disputes. The proposed measures also include the decriminalization of late payment of tax deducted at source and the depenalisation of non-reporting of small foreign assets, defined as foreign assets or foreign assets other than immovable property, where the aggregate value does not exceed INR 20 lakh.

Alternatively, the proposed measures have reinforced and rigidified provisions pertaining to tax clearance certificates, which are required to be obtained at the time of one’s departure from India.

According to data published by the Ministry of External Affairs, as of June 2023, a total of 87,026 Indians have renounced their Indian citizenship. To mitigate potential revenue loss from these individuals leaving India without paying taxes, the Income-tax Act, 1961 (“I-T Act”), includes specific provisions. These measures ensure there is no loss to the revenue, thereby maintaining financial integrity and compliance with tax laws.

Currently, as per the first proviso to Sub-section (1A) of Section 230 of the I-T Act, a person domiciled in India at the time of his departure from India will not be permitted to leave the country without obtaining a Tax Clearance Certificate from the income tax authorities, if, in the authority’s opinion, it is necessary in light of existing circumstances. This Certificate would state that he has no liabilities under the I-T Act, or the Wealth-tax Act, 1957, or the Gift-tax Act, 1958, or the Expenditure-tax Act, 1987, or satisfactory arrangements have been made by him to pay such dues.

Under the second proviso, it is made clear that the authority would be required to a) record reasons and b) obtain prior approval of the Principal Chief Commissioner or Chief Commissioner of Income Tax.

The circumstances in which the Tax Clearance Certificate may be required to be obtained, as delineated by the Central Board of Direct Taxes (CBDT) vide Instruction No.1/2004 dated February 5, 2024, are as follows:

• Person is involved in serious financial irregularities, his presence is necessary for an investigation under the I-T Act or the Wealth-tax Act, 1957, and a tax demand will likely be raised against him; or
• Direct tax arrears exceeding INR 10 lakh are outstanding against him which have not been stayed by any authority.

The Finance Bill, 2024, proposes an amendment to the first proviso to Sub-section (1A) of Section 230 of the I-T Act to bridge the lacuna by inserting and including liabilities arising under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, within its ambit, for the purposes of obtaining a Tax Clearance Certificate, beginning on October 1, 2024.

The New India vision which advocates a corruption-free economy recognises the urgent need to address the issue of undisclosed foreign income and assets accumulation outside India.

The implementation of this measure will ensure and enhance adherence to tax compliance, reinforcing the government’s efforts to effectively address tax evasion and the concealment of foreign assets. Consequently, this amendment aims to curb the placement of black money outside India. Domiciled Indians planning to leave the country must exercise caution and be vigilant about the new compliance requirements. It is imperative that they adhere to these regulations by thoroughly disclosing all foreign assets. Failure to comply with these requirements could result in significant penalties. Therefore, ensuring full compliance will not only help them avoid legal repercussions but also maintain their good standing with tax authorities.

The proposed amendment will not only help boost the quantum of collection of revenue by the government, but it will also increase the tax base of the government.

While the proposed budget enhances revenue collection by the government and strengthens compliance measures, its impact on investments and savings is yet to be determined. The effectiveness of these changes and measures will fundamentally rely on a robust tax administration, simplified filing and reporting norms, and their proper implementation. Additionally, it is crucial to balance these efforts with the need to sustain economic growth and mitigate any unintended negative consequences.