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Thursday, June 19, 2025 4:50 AM

Budget 2024

Tax Reforms in Budget 2024 to Boost Capital Flows and M&A Transactions in India

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New India is clearly the fastest-growing economy in the world. To maintain this status, two elements are critical: robust capital flows from domestic corporates, multinationals, and financial sponsors, and a push for mergers and acquisitions (M&A) and other value creation activities. This Budget, the first one in the third term of the government, thus carries great expectations from investors and India Inc. Here are seven predictions on what one could potentially see in the current Budget from an M&A standpoint. Valuation Rules for Listed Company Transactions: Listed company transactions in India today face a peculiar and unique problem. Valuation rules enshrined in the anti-abuse provision contained in section 56 of the Income Tax Act can be misinterpreted, leading to unintended consequences. Even bona fide trades between unrelated parties at prices discovered transparently and commercially negotiated could still be subject to artificial pricing norms, exposing the transaction to ordinary income taxes in the hands of the buyer. In the current markets, one would expect a host of listed company transactions, and the government would likely want to resolve this issue. Rationalization of Capital Gains Tax Rates: There has been discussion around the various different tax rates applicable to capital gains in different situations. In the context of the current active transactions market, taxability of capital gains has assumed greater relevance. One may expect some rationalization of the rates and holding periods for transactions that give rise to capital gains taxes. Deferral of Taxes on Share Swaps: Deferral of taxes on share swaps has been a long-standing point of conversation. The logic is simple – a share swap in certain situations largely achieves the same result as a merger. If a merger is accorded tax deferral, then it stands to reason that, subject to prescribed anti-abuse conditions, which could include non-monetization covenants, the same treatment be accorded to swap transactions. This would also make our law consistent with the tax provisions applicable in other markets such as the US. Financing of M&A Activity: Financing of M&A activity in India is more difficult owing to legal restrictions. This places Indian acquirers at a competitive disadvantage relative to their foreign peers while bidding for assets. While this is not an issue to be centrally addressed by the Budget, a directional policy indication on this count would be useful in bolstering the confidence of the markets and leveling the playing field for domestic acquirers. Reconsidering Tax Distinctions Between Industrial and Non-Industrial Companies: In today’s value creation cycle, the historical distinction that the tax law makes between an industrial and a non-industrial company merits reconsideration. There are benefits, for example, consolidation of losses in a merger scenario, available to companies carrying on manufacturing or industrial activities but not typically to most classes of services or non-industrial companies. At a time when significant value in the economy is being generated from non-industrial companies, the time to reconsider this distinction is perhaps with the current Budget. Taxation Regime for Deal Structures: M&A transactions in India, particularly at the current valuation levels, have started employing tools used globally to bridge valuation gaps. These include earn-outs, deferred considerations, and contingent payments. Aligning tax laws to these deal realities by providing a clear taxation regime is something the government can achieve without losing tax revenue – this will go a long way in clearing the path for such transactions to occur seamlessly. Clean-ups in the Tax Law: Provisions involving overseas mergers of companies that hold Indian assets are already accorded tax neutrality. These provisions need certain “clean-up” clarifications to make them workable. Likewise, Indian holding companies of overseas subsidiaries will benefit from some clarificatory amendments for restructuring of such overseas subsidiaries. This government has shown responsiveness to valid asks around the theme of clarifications and clean-ups, and one would expect these to be carried in the current Budget.  

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Budget 2024: Healthcare Sector Urges Government to Boost Public Health Spending

The healthcare sector in India is advocating for increased public health spending in the upcoming Budget 2024, urging the government to raise public health expenditure above 2.5 percent of the GDP. The industry is also calling for an Ayushman Bharat-like scheme specifically for the middle class to address healthcare needs more comprehensively. Key Recommendations: Increase Public Health Expenditure: The Healthcare Federation of India (NATHEALTH) has emphasized the need for the government to boost healthcare spending to over 2.5 percent of GDP. This increase is seen as crucial for enhancing infrastructure, addressing demand and supply challenges, and improving overall social insurance. Expand Healthcare Facilities: Abhay Soi, president of NATHEALTH and chairman of Max Healthcare Institute, highlighted the necessity for two billion square feet of advanced healthcare facilities. Expanding healthcare infrastructure in smaller cities and advancing digital healthcare services are also top priorities. Comparison with Other Countries: According to the Economic Survey 2022-23, healthcare expenditure by the Centre and state governments reached 2.1 percent of GDP in FY23. In comparison, OECD data shows that the US had the highest health expenditure to GDP ratio at 16.6 percent in 2022, while India’s was at 2.9 percent. Middle-Class Healthcare Scheme: Industry leaders, including PD Hinduja Hospital CEO Gautam Khanna, suggested implementing a healthcare scheme similar to PM-JAY for the middle class. This would require allocating 2.5-3.5 percent of GDP to healthcare to ensure broader coverage and affordability. Policy Reforms and Innovations: Suneeta Reddy, Managing Director of Apollo Hospitals, emphasized the need for the government to prioritize the healthcare sector to spur growth and productivity. The industry is also advocating for easing compliance burdens, promoting medtech innovation, rationalizing the goods and services tax (GST), and reviewing the health cess on medtech products. As the first Budget of Modi 3.0 approaches, the healthcare sector’s recommendations highlight the critical need for increased investment and policy support to enhance India’s healthcare infrastructure, improve access to quality healthcare, and ensure affordability for all citizens. Boosting public health spending is seen as a vital

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India Considering Lowering Personal Tax Rates to Boost Consumption

The Indian government is contemplating lowering personal tax rates for certain categories of individuals in the upcoming Budget 2024, potentially boosting consumption in Asia’s third-largest economy. This plan might be announced in July when Prime Minister Narendra Modi’s government presents its first federal budget after the Bharatiya Janata Party (BJP) failed to secure a majority on its own. A post-poll survey revealed voter concerns about inflation, unemployment, and declining incomes. Despite the Indian economy growing at an impressive 8.2% in 2023-24, consumption only grew at half that rate. Prime Minister Modi, while claiming to form the National Democratic Alliance government, emphasized focusing on raising middle-class savings and improving their quality of life. A reduction in personal tax could enhance consumption and increase middle-class savings, according to sources, who spoke anonymously due to the confidentiality of budget discussions. The finance ministry did not immediately respond to requests for comment. The tax relief may target individuals earning over Rs 15 lakh annually, with specifics yet to be determined. The changes might affect a tax scheme introduced in 2020, where income up to Rs 15 lakh is taxed at 5%-20%, and earnings over Rs 15 lakh are taxed at 30%. The government may also consider lowering rates for annual incomes of Rs 10 lakh and discussing a new threshold for the highest tax rate of 30%. Any loss of tax revenue from these cuts could be partially offset by increased consumption among higher income earners. The federal government aims for a fiscal deficit of 5.1% of GDP by March 2025. Strong tax collections and a substantial dividend from the central bank will provide the government flexibility in planning the new budget.

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Pharma Industry’s Wishlist for Budget 2024: R&D Incentives and Policy Boost

In anticipation of Budget 2024, the Indian pharmaceutical industry is making a strong plea for fiscal incentives to foster research and development (R&D). With aspirations to reach a market size of USD 400-450 billion by 2047, the sector emphasizes the need for continuous investments in R&D, citing high risk, a long gestation period, and low success rates. Sudarshan Jain, the Secretary General of the Indian Pharmaceutical Alliance, urged for the upcoming budget to outline conducive policies, offering benefits in terms of both direct and indirect taxes while facilitating ease of doing business for pharmaceutical companies. The industry, set to achieve USD 120-130 billion by 2030, seeks accelerated innovation and R&D to realize its ambitious growth targets. The Promotion of Research & Innovation Program (PRIP) Scheme, introduced in 2023, was acknowledged as a positive step towards spurring innovation in the sector. Healthcare industry body NATHEALTH is advocating for increased healthcare spending to 2.5% of GDP and the rationalization of the GST framework. They aim to enhance the medical value travel segment, address MAT credit issues, and strengthen the healthcare value chain. Budget 2024 should prioritize building local capabilities for healthcare services, even in remote regions, and localize the healthcare value chain. Expectations include a roadmap for long-term infrastructure financing, an increase in medical and nursing colleges, and fiscal reforms in the health insurance sector, according to Narayana Health Executive Vice Chairman Viren Shetty. Metropolis Healthcare MD Ameera Shah seeks a zero per cent GST on diagnostic services and refunds for GST paid on inputs. With 60% of India’s diagnostics reliant on imports, Roche Diagnostics India MD Rishabh Gupta emphasizes the need for rationalizing import tariffs on healthcare products. The overarching goal is to prioritize affordable and accurate diagnostics, transforming India’s healthcare system for the better. Reference is taken from Economic times

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Budget 2024: Pharma Industry Urges More Tax Breaks for R&D, Innovation, and Increased Healthcare Spending

Amidst the anticipation surrounding the upcoming Union Budget on February 1, the healthcare and pharmaceutical industry has outlined a comprehensive wishlist for Budget 2024, aiming for policies that foster innovation, research and development (R&D), and increased healthcare spending. Sudarshan Jain, Secretary General of the Indian Pharmaceutical Alliance, emphasized the need for conducive policies that offer direct and indirect tax benefits to pharmaceutical companies. The focus should be on critical areas such as innovation, R&D, and upgrading healthcare infrastructure. Jain highlighted the significance of continuous investments, especially in a sector with high risks and long gestation periods. Dr. Ashutosh Raghuvanshi, MD and CEO of Fortis Healthcare & President of NATHEALTH, called for a significant hike in healthcare spending to 2.5% of GDP. The proposals presented by NATHEALTH emphasize transformative changes to bridge regional healthcare disparities and strengthen the healthcare value chain. The aim is to enhance medical value travel, address MAT credit issues, and build local capabilities for healthcare services. Ameera Shah, Promoter and Managing Director of Metropolis Healthcare, underscored the importance of the upcoming budget in strengthening India’s healthcare ecosystem. Shah advocated for investments in critical areas like innovation, research, development, technology, and upgrading healthcare infrastructure. Additionally, she called for a 0% GST on diagnostic services, GST refunds on inputs, and rationalizing import tariffs on healthcare products to enhance accessibility and affordability. These recommendations collectively aim to position India as a reliable supplier of medicines and a custodian of global healthcare. The healthcare sector looks forward to policy stability, continuity, and transformative measures in the upcoming budget, recognizing the role it plays in combating present and future healthcare challenges. Source: CNBC-TV18

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