Navigating the Tax Landscape of 2024: Key Trends, Challenges, and Opportunities for Indian Businesses and HNIs
Q1- As 2024 draws to a close, what have been the most significant tax trends or regulatory changes impacting Indian businesses this year?
Ans:- The year 2024 will be remembered as a year of transformative tax and regulatory reforms, underscoring the government’s focus on simplification, compliance, and global competitiveness. These changes have streamlined processes and strengthened India’s position as a global investment hub. With the expansion of the Liberalised Remittance Scheme (LRS) to International Financial Services Centres (IFSCs), the government has further reshaped India’s business landscape, unlocked new opportunities for global investors, and enhanced cross-border financial activities. Moreover, direct listing of Indian companies on international exchanges in IFSCs has also improved Indian companies’ access to global capital, while mandatory dematerialization of private company shares has increased market transparency.
Moreover, the introduction of Small and Medium Real Estate Investment Trusts (SM REITs) by SEBI, the capital market regulator, has created a unique opportunity for global retail investors to invest in India’s flourishing real estate sector. These reforms underscore India’s dedication to fostering innovation and cultivating a business-friendly environment, laying a robust foundation for sustainable growth and global integration in the years to come.
On the tax front, direct tax collections increased by 16.12%, reaching ₹9.96 lakh crore by September 2024. Furthermore, 7.28 crore Income Tax Returns (ITRs) were filed, reflecting a 7.5% year-on-year growth. The government’s decision to abolish the angel tax significantly bolstered start-up funding in the country. Meanwhile, the launch of the ‘Vivad Se Vishwas Scheme 2024’ may facilitate in resolution of tax disputes, effectively reducing litigation burdens.
Ans:– The digitization of India’s tax administration has transformed the way Indian businesses handle compliance, making the process more efficient and fostering greater transparency within the system. The country has made remarkable progress in promoting the digitalization of all tax-related processes, and now almost everything related to PAN applications, income tax returns, TDS submissions, tax audits, and assessments is entirely paperless. Even appeals and hearings in Tax Tribunals, High Courts, and the Supreme Court are now conducted virtually or in hybrid formats. Moreover, the introduction of faceless assessments and appeals has simplified compliance processes, enhanced accountability, and allowed businesses to adapt smoothly to changing tax regulations while reducing potential risks.
Q3. What are the key tax-related challenges businesses should anticipate in the coming year?
Ans – Going forward, the implementation of Direct Tax Code (DTC) 2025, announced in the July 2024 Budget by Finance Minister Nirmala Sitharaman, is going to be a significant development as it aims to replace the existing Income Tax Act of 1961 with a more streamlined and simplified framework.
DTC 2025 was slated for presentation to Parliament alongside the Budget 2025 on February 1, 2025, but its timeline has been pushed back as the Central Board of Direct Taxes’ internal panel reviews inputs from 22 subcommittees and public feedback. This process may require an additional four to five months to finalize recommendations. Nonetheless, the government might introduce certain simplification measures in the upcoming budget.
Several significant tax issues are also pending before the Hon’ble Supreme Court including (i) Validity of orders/notices without DIN (ii) Jurisdiction of JAO vs FAO for reassessments etc which will issue verdicts on these matters, and the outcome of these issues will guide taxpayers in determining their next steps in ongoing litigation. Businesses must stay vigilant and proactive in addressing these evolving tax challenges to ensure compliance and optimize their tax strategies in the coming year.
Q4. How should family offices and HNIs prepare for upcoming tax regulations and compliance requirements in 2025?
Ans:- Overall, the regulatory environment in India has become more stringent with the notable rise in the number of family offices, fuelled by the growing wealth of high-net-worth individuals (HNIs) and ultra-high-net-worth individuals (UHNIs), which are used for wealth management, business planning for the next generation, investment supervision, and philanthropic support.
As the Income Tax Department has heightened its scrutiny of high-value transactions through tools like the Statement of Financial Transactions (SFT) and third-party reporting, it has become even more important for family offices of these HNIs and UHNIs to do timely and accurate reporting.
Tax officials are now collecting data from financial institutions, stock exchanges, and other sources to detect discrepancies between reported income and actual financial activities more efficiently, and non-compliance or underreporting can lead to severe penalties, reputational risks, and disruptions in operations.
To adapt to the forthcoming tax regulations in 2025, family offices and HNIs should prioritize essential compliance requirements such as filing annual income tax returns, conducting tax audits, making advance tax payments, and submitting TDS filings, and it is crucial not to overlook specialized obligations like Form 3CEB for transfer pricing.
By maintaining compliance and adopting a proactive approach, family offices and HNIs can reduce risks, ensure seamless operations, and foster lasting trust in a dynamic tax environment.
Ans:- India’s ambition to establish an international financial services center akin to those in Singapore and Dubai through Gujarat International Finance Tec-City has been significantly bolstered by the setting of the International Financial Services Centre (IFSC), which provides substantial tax benefits to businesses and high-net-worth individuals (HNIs), making it an attractive destination for financial and investment activities.
Indian residents can now open foreign currency (USD-denominated) bank accounts through bank branches located in GIFT City. HNIs and Ultra-High Net Worth Individuals (UHNIs) seeking to build dollar-denominated assets can invest in GIFT City funds, benefiting from simplified regulatory frameworks. Similarly, NRIs and international investors have the option to invest in inbound funds established in GIFT City, which focuses on Indian securities.
Corporates owned by HNIs can avail themselves of a 100% corporate tax exemption for up to 10 years out of their first 15 years of operation, which is applicable to specified financial services like banking, asset management, and offshore funds. Additionally, an attractive Minimum Alternate Tax (MAT) rate of 9% further adds to its fiscal appeal.
Businesses trading on GIFT City exchanges also enjoy exemptions from Securities Transaction Tax (STT), Commodities Transaction Tax (CTT), and Stamp Duty, leading to a substantial reduction in operational expenses.
