Budget 2021 – Highlights
Honourable Finance Minister, Smt Nirmala Sitaraman, has presented the first digital Annual Budget for the Financial Year 2021 – 2022 in the Parliament today ie 1st February, 2021.
This budget followed a contraction to the Economy resulting from the COVID-19 pandemic. The Central government attempted to sustain the economy in 2020 through three mini budgets issued on the past year and provided COVID relief through the:
- Pradhan Mantri Gareeb Kalyan Yojana which provided relief measures valued at Rs 2.76 lakh crores which aided 800 million people, and
- 13% of GDP was allocated to the three atmanirbar packages.
The government presents the budget 2021 anticipating a drastic change in the political, economic, and strategic relations in the post COVID world. The finance minister announced that the Government is fully prepared to support and facilitate an economic reset.
The Economic Survey already released on 30 January 2020 revealed that India’s real GDP is likely to record a 11.0% growth in FY 2021-22 and nominal GDP to grow by 15.4%. The budget announcement by the finance Minister is a boost in this direction to foster anticipated growth and provides every opportunity for the economy to capture the pace it needs for sustainable growth.
Vision of the Budget 2021:
The budget envisages the vision of “Nation First, doubling farmers’ income, strong infra, women’s empowerment, healthy India, good governance, education for all and inclusive development”.
The First part of the Budget has six pillars:
- Health and well-being
- Physical and financial capital and infrastructure
- Inclusive development for an aspirational India
- Reinvigorating human capital
- Innovation and R&D
- Minimum government and maximum governance
Here is the Highlights of measures from legal compliance and regulatory perspective:
Reforms in the nursing profession proposed through the National Nursing and Midwifery Commission Bill which will be introduced by the government to bring about transparency, efficiency and good governance.
2.Clean Air and Vehicle Scrapping
A voluntary vehicle scrapping policy, to phase out old and unfit vehicles will be introduced. As per the policy, vehicles would undergo fitness tests in automated fitness centres after 20 years in case of personal vehicles, and after 15 years in case of commercial vehicles.
To ease access to Finance to InVITS and REITS, debt Financing of InVITs and REITs by Foreign Portfolio Investors will be enabled by making suitable amendments in the relevant legislations.
The Implementation of 4 labour codes will be concluded this year and the benefits arising from them will be:
- Social security benefits will be given to GIG workers and platform workers
- Wage labourers to come under ESI purview
- Minimum wages will apply to all categories of workers
- Women will be allowed to work in all categories and in night shifts with adequate protection.
- Compliance burden on employers will be reduced within single registration, licensing and online returns.
Further, A portal will be launched to collect information on gig, building, construction and other workers.
The Government also proposes to amend the Apprenticeship Act with a view to further enhancing apprenticeship opportunities for our youth. In addition, the existing scheme of National Apprenticeship Training Scheme (NATS) will be amended to provide for post-education apprenticeship, training of graduates and diploma holders in Engineering.
5.Securities Markets Code and investor interest
The Finance Minister has stated the plan of consolidating:
- SEBI Act, 1992,
- Depositories Act, 1996,
- Securities Contracts (Regulation) Act, 1956 and
- Government Securities Act, 2007
Into a rationalized single Securities Markets Code.
Further, in order to instill confidence amongst the participants in the Corporate Bond Market during times of stress and to generally enhance secondary market liquidity, a permanent institutional framework will also be created
Additionally, to facilitate investor protection an investor charter will be introduced as a right of all financial investors towards financial products
A system of regulated gold exchanges will be developed in the country and for this purpose, SEBI has been notified as the regulator.
The Warehousing Development and Regulatory Authority will be strengthened to set up a commodity market ecosystem arrangement including vaulting, assaying, logistics etc in addition to warehousing.
7.Increasing FDI in Insurance Sector
It has been proposed that the Insurance Act, 1938 be amended so as to increase permissible FDI from 49% to 74% to allow foreign ownership and control with safeguards.
It is proposed that the majority of directors and Key Management Persons (KMP) are to be resident Indians and at least 50% of directors shall be Independent Directors and a specified percentage of profits are to be retained in India as general reserves.
8.New Structure for Stressed Asset Resolution
Asset Reconstruction Companies and Asset Management Companies will be set up to consolidate and take over existing stressed debt and dispose the assets to Alternate Investment Funds (AIFs) and other investors for value realisation.
Increase in deposit insurance covers from Rs 1 lakh to Rs 5 Lakh was introduced in 2020. Now it is proposed that, if a bank is temporarily unable to fulfil its obligations, the depositors of such a bank can get easy and time-bound access to their deposits to the extent of the deposit insurance cover.
This is effected through an amendment made to the Deposit Insurance and Credit Guarantee Corporation Act, 1961.
10.NBFC – Eligibility for debt recovery
For NBFCs with minimum asset size of Rs 100 crores the minimum loan size eligible for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is proposed to be reduced from the existing level of Rs 50 lakhs to Rs 20 lakhs.
11.Multi-state co-operative society
In order to support multi-state co-operatives, measures for ease of doing business for them will be adopted and a separate Administrative Structure will be set up for them.
12.Company Law reforms:
- Decriminalization of LLP Act, 2008 is proposed to be taken up.
- The definition of ‘Small companies’ in the Companies Act, 2013 to be revised. It proposes to define a small company as one having a paid up capital up to Rs. 2 crores (enhanced from the previous norm of 50 lakh) and a turnover of upto Rs. 20 crores (enhanced from the previous nrm of Rs. 2 crore)
- One Person Companies (OPCs) will now be permitted to grow without any restriction towards their paid-up capital (PUC) and Turnover.
- These OPCs will be allowed to be converted into any other company at any time. Additionally, the restriction on the period of residency for ‘residents’ has been decreased from 182 days to 120 days. Furthermore, NRIs will now be permitted to operate OPCs in India
- The NCLT framework will be strengthened, e-courts and alternate methods of debt resolution and special framework for MSMEs will be introduced for faster resolution of cases.
13.Direct tax proposals
- Faceless assessment and Faceless appeal was introduced. The Income Tax Appellate Tribunal is now proposed to be faceless and a National Faceless Income Tax Appellate Tribunal Centre will now be established wherein all communication will be electronic and personal hearing, if needed, will be conducted through video conferencing.
- Relief to Senior citizens [75 yrs and above]:
- Reduction in compliance burdens
- If income is derived solely from pension and interest, senior citizens are exempted from filing ITRs
- Relief to NRIs
New rules to be introduced to for removal of double taxation of NRIs retirement income. The issues are currently faced by NRIs in respect of income accrued in their foreign retirement accounts, usually due to accounting year differences and in getting credit for Indian taxes in foreign jurisdictions are sought to be mitigated through these rules.
- Re-opening of Assessmenta
Presently, tax assessment can be reopened upto 6 years and for serious tax fraud cases upto 10 years.
Reopening of tax assessment has now been reduced to:
- 3 years and
- In serious tax evasion cases up to 10 years, that too only where there is evidence of concealment of income of Rs 50 lakhs or more in a year after approval of principal chief commissioner.
- Dispute Resolution Committee
This committee will help reduce litigation for small taxpayers. Any person with taxable income upto Rs 50 lakhs and disputed income upto Rs 10 lakh will be eligible to approach the Committee.
It may be recalled that the Vivad se vishwas scheme was announced previously and over 1.10 lakh taxpayers opted for this scheme.
- Tax Audits
Presently, if a tax payers turnover exceeds Rs 1 crore an audit of the accounts is required this has not been revised to Rs 5 crore. In the 2020 budget, the tax audit threshold was increased to Rs 5 crores, for those taxpayers who carry out 95% of their transactions digitally. This threshold now stands increased to Rs 10 crores.
- Relief for dividend.
Dividend Distribution Tax (DDT) has been removed and dividends shall only be taxed in the hands of the recipients at their applicable rates.
- Now, Dividend payment made to REITS and InVITS are exempt from TDS. Further, Advance tax liability on dividend income shall arise only after declaration on payment of dividend.
- Also, for Foreign Portfolio Investors, TDS may be deducted on dividend income at lower treaty rate.
- Affordable housing and rent free housing
Rs. 1.5 lakh deduction on payment of interest on loans taken for affordable housing is now extended till 31st March, 2022.
Similarly, developers of affordable housing projects can avail tax holiday on profits earned therefrom, till 31 March 2022. Furthermore, the government has reiterated its commitment to the supply of affordable rental housing. Tax exemptions will be provided for notified affordable housing for migrant workers.
- Tax Incentives to IFSC
Tax exemption will also be provided to aircraft lease leasing companies, tax exemption to aircraft lease rentals paid to foreign lessors, tax incentives for relocating foreign funds to the IFSC.
- Prefilling of returns
In order to ease the compliance for the taxpayer, details of salary income, TDS etc already come pre-filled in income tax returns. Additionally details of capital gains from Listed securities, dividend income and interest from Banks and Post offices will also come prefilled.
- Relief to Small Trusts
Compliance burden of small charitable trust running hospitals and educational institutions has been enhanced. The blanket exemption has been extended to such entities whose annual receipt is upto Rs 5 crores from the previous limit of Rs. 1 crore.
- Deduction for Employer contribution to PF
It has been reiterated that late deposit of employee’s contribution to PF, superannuation funds and other social security funds will not be allowed as deduction to the employer. It was observed that a delay in depositing these contributions means a loss of interest and income to the employees.
- Incentives to start-ups.
Eligibility for start-ups to claim tax holiday has been extended to 31 March 2022. Further exemptions on capital gains on investments in start-ups is also extended for another year.
14.Indirect tax proposals
The Finance Minister in her speech has pointed out that GST is now four years old and several measures have been implemented to simplify it. What is noteworthy is that the capacity of the GSTN system has also been enhanced and deep analytics and Artificial Intelligence has been deployed to identify tax evaders and fake billers and launched special drives against them.
Other Major indirect tax proposals were as under:
- Customs Duty Overhaul
In the previous budget overhauling of the Customs Duty structure was announced and 80 outdated exemptions were eliminated. In the present budget it is proposed to review 400 old exemptions.
Any new customs duty exemption going forward will have validity up to the 31st March of the following two years from the date of its issue.
- Change in Customs Duty
Electronic and Mobile Phone Industry:
- Some exemptions on parts of chargers and sub-parts of mobiles withdrawn
- Duty on some parts of mobiles revised to 2.5% from ‘nil’ rate
Iron and Steel:
- Customs duty reduced uniformly to 7.5% on semis, flat, and long products of non-alloy, alloy, and stainless steels
- Duty on steel scrap exempted up to 31st March, 2022
- Anti-Dumping Duty (ADD) and Counter-Veiling Duty (CVD) revoked on certain steel products
- Duty on copper scrap reduced from 5% to 2.5%
Basic Customs Duty (BCD) on caprolactam, nylon chips and nylon fiber & yarn reduced to 5%
- Calibrated customs duty rates on chemicals to encourage domestic value addition and to remove inversions
- Duty on Naptha reduced to 2.5%
Gold and Silver:
Custom duty on gold and silver to be rationalized
- Phased manufacturing plan for solar cells and solar panels to be notified
- Duty on solar invertors raised from 5% to 20%, and on solar lanterns from 5% to 15% to encourage domestic production
- Tunnel boring machine to now attract a customs duty of 7.5%; and its parts a duty of 2.5%
- Duty on certain auto parts increased to general rate of 15%
- Duty on steel screws and plastic builder wares increased to 15%
- Prawn feed to attract customs duty of 15% from earlier rate of 5%
- Exemption on import of duty-free items rationalized to incentivize exporters of garments, leather, and handicraft items
- Exemption on imports of certain kind of leathers withdrawn
- Customs duty on finished synthetic gemstones raised to encourage domestic processing
- Customs duty on cotton increased from nil to 10% and on raw silk and silk yarn from 10% to 15%.
- Withdrawal of end-use based concession on denatured ethyl alcohol
- Agriculture Infrastructure and Development Cess (AIDC) on a small number of items
Rationalization of Procedures and Easing of Compliance:
- Turant Customs initiative, a Faceless, Paperless, and Contactless Customs measures
- New procedure for administration of Rules of Origin