India market and business update: August 2024

1. Tax Changes:

The budget saw an increase in three prominent tax regimes which will affect investment strategies and tax planning for organisations and investors who hold assets in India:

• Long-term Capital Gains Tax: The budget increases the tax on long-term capital gains from 10% to 12.5%. This change impacts investors holding assets for over a year.
• Short-term Capital Gains Tax: The rise from 15% to 20% on short-term capital gains means short-term investment strategies will need tweaking.
• Securities Transaction Tax (STT): The increased STT on derivatives trading aims to curb speculative trading.

However, the budget also saw a reduced tax burden which aims to stimulate activity for start-ups and foreign companies looking to enter the Indian market:

• Abolition of Angel Tax: The removal of the angel tax on capital raised by private companies is a significant relief for start-ups.
• Reduction in Corporate Tax for Foreign Companies: The reduction from 40% to 35% aims to attract foreign investment.

2. Employment Initiatives:

• $24 Billion Employment Plan: This initiative includes direct cash transfers for first-time job entrants in the formal sector (jobs with fixed hours and income taxes paid to the government) and incentives for both employers and employees in the manufacturing sector.

3. Sustainable Growth Initiatives:

• Credit Guarantee Scheme for Micro, Small and Medium Enterprises ("MSME")s: The new scheme offers collateral-free loans to MSMEs, which is expected to boost this sector.
• Support for Employment and Skilling: The budget’s focus on employment and skilling initiatives requires businesses to comply with new regulations and benefit from available incentives.

4. Renewable Energy Investments:

• Infrastructure Projects for Energy Security: Substantial allocations for renewable energy infrastructure projects aim to enhance energy security.

5. Funding for Research and Development:

• The budget includes funding for R&D in renewable technologies. Those looking to access this funding will need to meet the eligibility criteria and establish systems and processes to ensure compliance with the regulations.

6. Regional Development:

• Financial Support for Andhra Pradesh and Bihar: Significant allocations for the development of Andhra Pradesh’s capital and infrastructure projects in Bihar reflect the government’s commitment to regional development.

The new government's ambitious plan to boost renewable energy, stimulate growth, and reform the tax system is a significant shift from previous policies, and will have far-reaching implications for the country's regulatory landscape. It will be important to monitor how this plan unfolds and affects the legal environment in the coming years.

DWF is a leading legal adviser to Indian and India-focussed companies, financial institutions and high net worth individuals and families. Our India Group, consisting of over 95 lawyers from 9 countries, 16 practice areas and 9 sector groups, is one of the largest India groups of any international law firm. With decades of extensive expertise in guiding Indian clients in respect of outbound legal work, our team of experts and specialists empower both India-focused and India-based clients to achieve their strategic objectives.

If you have queries on any of the issues covered in this article please contact one of our experts: Dhruv Chhatralia BEM, Tughan Thuraisingam, Liz Ramsaran, Ioannis Milionis, Kurun Bhandari and Asad Qureshi.