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RE Industry’s Views on Union Budget 2024-25

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24 July 2024

RE Industry’s Views on Union Budget 2024-25

Authored by Shyam Sharma - CFO, O2 Power

Budget Overview

 

Union Budget 2024-25 has set nine priorities in the form of productivity and resilience in agriculture; employment and skilling; inclusive human resource development and social justice, manufacturing and services; urban development; energy security; infrastructure; innovation, research and development and next generation reforms. The budget centered around promoting MSMEs, skilling, manufacturing, women empowerment and women entrepreneurship with the chief objective of greater job creation opportunities. In this context, the Credit Guarantee Scheme and Credit Support schemes for MSMEs during vulnerable periods are crucial.

 

The Budget addresses green finance, highlighting the importance of both adaptation and mitigation, and proposes drafting a green taxonomy that incorporates both these aspects. This is a commendable move, demonstrating that while the Indian economy acknowledges its global responsibilities, it remains attentive to the immediate developmental needs of adaptation financing for vulnerable regions and communities. The focus continuously remained on achieving the Sustainable Development Goals (SDGs) in line with last three years’ budgets with eye on reducing the fiscal deficit every year.

 

The major highlights of Budget 2024-25 were:

  • The enhanced capital expenditure on infrastructure development of 11.1 lakh crores (10% increase) - 3.4% of the FY25 GDP. It will give continued impetus on capital investment in major infrastructure projects leading to higher capital formation, additional jobs and ensuring steady growth of the GDP
  • Intent to simplify tax provisions, settle old tax litigations, abolition of angel tax and with reasonable tax growth estimates aligned to GDP growth. It will help attract FDI due to the certainty of law and help build confidence of existing businesses.
  • Increased income tax slab rates under the new tax regime only indicates Government’s intent to get rid of exemption sooner than later
  • The MSME sector, which is the highest employment generator, has been given a wide variety of sops and much higher allocation. This will help in reviving the sector which was languishing due to COVID and financing issues and will lead to creation of more jobs

 

Specific RE Sector Announcements

The government’s intent on bringing about a green economy is evident in the strong steps it has been taking towards that direction.

  • PM Surya Ghar Muft Bijli Yojana (announced during the interim budget) receives further impetus for the installation of rooftop solar plants (enable 1 crore households obtain free electricity up to 300 units/month)
  • Reduction in customs duty for certain additional capital goods for use in manufacturing of solar cells and modules from 7.5% to NIL to push demand for domestic solar cells and module
  • Pumped storage policy to be brought out to enhance electricity storage to support renewable energy-based power generation
  • Policy document on energy transition pathways to be introduced that balances employment, growth and environmental sustainability. Energy audit of traditional MSMES in 60 clusters. Financial support to be provided to shifting them to cleaner energy
  • Taxonomy for climate finance to be developed for enhancing the availability of capital for climate adaptation and mitigation
  • Transition to Indian Carbon Market mode for 'hard-to-abate’ industries to include the formulation of a roadmap for transitioning these industries from ‘energy efficiency’ targets to ‘emission targets’

 

Indirect Taxes

  • BCD exempted on import of specified capital goods or parts for manufacture of such goods, used in the manufacture of solar cells or modules, which will lead to some reduction in cost of domestic modules
  • Effective from 1st October 2024, BCD exemption withdrawn on the import of –
    • Solar tempered glass used in the manufacture of solar cells / modules (10% BCD would be applicable)
    • Tinned copper interconnect for manufacture of solar cells / modules (5% BCD would be applicable)
    • These changes will help domestic manufacturers of solar glass
  • Effective from 1st October 2024, BCD increased to 7.5% from 5% on import of –
    • Catalyst for the manufacture of cast components of Wind Operated Electricity Generator
    • Resin for the manufacture of cast components of Wind Operated Electricity Generator
    • It will impact the cost of wind turbines
  • Amendment has been proposed in provisions related to Administration of Rules of Origin under Trade Agreements to enable the acceptance of different types of proof of origin provided in trade agreements to align it with new trade agreements which provide for self-certification. It may have an impact on modules currently being imported from FTA countries

 

Direct Taxes

 

While there has been no change in the corporate tax rate, the major announcements are:

 

  • Higher capital gains on non-residents for sale of unlisted equity shares from 10% to 12.5% and sale of unlisted debentures from 10% to 38% will have major tax impact for foreign investors
  • Tax on foreign companies reduced to 35% from existing 40%
  • Introduction of Direct Tax Vivad se Vishwas Scheme, 2024 for providing a mechanism of settlement of disputed issues will help in reducing litigation for corporates
  • Interest limitation rules under section 94B not to apply to financial companies operating in IFSC
  • Share premium/ Angel Tax abolished from 1stApril 2024. It is a welcome step from the Government and will spur investments in start-ups which were facing many litigations due to the Angel Tax provision since 2012
  • The sum paid by a company for the buyback of its shares shall be treated as deemed dividend in the hands of shareholders and charged to income-tax at applicable rates. The entire cost of acquisition of the shares which have been bought back would generate a capital loss in the hands of the shareholder and will be available for set-off against other capital gains. It will impact corporates having large cash reserves planning buyback of securities
  • Scope of Transfer Pricing (TP) assessment of Specified Domestic Transactions (SDTs) expanded. It will have an impact on related party transactions in RE sector

 

HITS of Union Budget 2024

  • Higher overall capital outlay for infra, MSMEs, agriculture and green energy leading to higher job creation, multiplier effect in the economy and sustainable economic growth
  • Higher allocation to PM Surya Ghar Muft Bijli Yojana will help in wider installation of roof-top solar in residential areas reducing pressure on grids, boosting domestic solar manufacturing and production of more green energy
  • Intent to simplify tax laws and bringing tax settlement scheme to settle old litigation will lead to a stable tax regime and will improve business confidence

 

Misses of Union Budget 2024

  • Non- extension of time of commencement of manufacturing under section 115BAB (lower corporate tax of 15%) post 31st March 2024 was not addressed and remains one of the major misses for the RE and manufacturing sectors
  • Non-extension of 5% WHT under section 194LC and 194LD for ECB and NCDs under FPI route will lead to higher cost of borrowings for the sector
  • Non-rationalization of Section 94 B of Income Tax Act (limitation of 30% EBIDTA for claiming interest expenses under thin capitalization rules) for corporates is a big disappointment
  • Non rationalization of GST under composite scheme for solar and wind projects will lead to higher costs
  • No further budgetary allocation to green hydrogen, dedicated green energy transmission infrastructure, offshore wind, Battery Energy Storage Systems, additional equity outlay for NaBFID and IREDA are some of the major misses.

 

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