In the wake of a bold & modern India, the FM announced the six significant areas of growth in the Union Budget for FY 2021-22 namely – Health and wellbeing, infrastructure, inclusive growth, human capital, R&D and minimum government and maximum governance.
Some of the key take-aways from Budget 2021:
- The Government has effectively used the backdrop of the pandemic to push through a growth oriented budget. In a nutshell, from pursuing conservative fiscal objective since the past 6-7 years, the Government has finally shifted its stance to accepting substantially larger deficits – while this may clearly cause some pressure on bond yields in the interim, given elevated levels of global liquidity and the relentless hunt for yield, this is as good a time as any for the government to push the pedal and fund large growth-oriented investment projects which will ensure enduring benefits for years to come.
- There were no major surprises in either direct or indirect taxation. The government is clearly batting for a stable taxation regime which will give greater comfort to businesses & overseas investors to invest in India.
- What is encouraging is that the government is not looking to increase tax revenues through imposition of any fresh or higher taxes but believes that underlying growth in the economy and bringing more people into the tax net through further tightening of the tax machinery will boost revenues.
- Through continued implementation & higher reliance on big data analytics & digitization, the government is clearly pushing for further formalization of the economy over the coming years, which will have deep implications for businesses of listed companies.
- Through implementation of the Rs. 197,000 Crores PLI scheme, the Government wants to reinvigorate the manufacturing-based export sector in order to drive investments and create more jobs in the formal economy. Key sectors at the centre of focus include Automobiles, Auto Components, Pharmaceuticals & Chemicals among several other sectors.
- The Government has clearly displayed a reformist bent of mind as it continues its divestment push and has given a clear road map to exit non-core sectors and this time has included even a few PSU banks as a part of its divestment list. Further the goal to push through monetization of valuable assets such as excess land holdings in prime urban areas by government bodies and corporations is refreshing indeed.
Some of the main highlights of the Budget are as follows:
Health & Sanitisation:
For FY 2021-22 the overall capital expenditure is Rs.5.54 lakh crore. Keeping the healthcare sector’s improvement a priority, the FM proposed a new centrally sponsored scheme, PM Aatmanirbhar Swasth Bharat Yojana, with an outlay of about Rs.64,180 crore over the next six years to develop primary, secondary & tertiary healthcare.
Strengthening of urban Swachh Bharat Mission with Jal Jeevan Mission Urban for better water supply nationwide.
Direct and Indirect tax:
Certain direct tax proposals were introduced, providing relaxation to individual taxpayers and startups to some extent. The individual and corporate tax rates for FY 2021-22 (AY 2022-23) was left unchanged. In a major move, the limit for tax audits under section 44AB has been increased from Rs. 5 crore to Rs. 10 crore (only where 95% of payments are digitised), providing relief to many corporate houses. The following are other proposed amendments:
- Income Tax relaxation for senior citizens of 75 years and above who get pension & earn interest from deposits.
- Reduction in time for Income Tax Proceedings from six years to three years except in cases of serious tax evasion.
- Provision for Faceless Income Tax Appellate Tribunal Centre (ITAT) to ensure efficient administration & reduced cost of compliance.
- Tax Audit Limit: Proposal of tax audit increased from 5 Cr. to 10 cr. (Only for 95% digitized payments business).
- Propose to include tax holidays for Aircraft leasing companies.
- Tax incentives for startups extended to 31st March 2022.
- Proposal to remove double taxation on NRIs – rules to be notified.
- Pre-filling of returns to be forefront for salary, tax payments, TDS, etc.
- Advance Tax on dividend income only after its declaration.
- Disallowance of PF contribution if deducted but not deposited by the employer, it will not be allowed as a deduction for the employer.
- Agriculture Infrastructure And Development Cess (AIDC) has been newly imposed on petrol and diesel at Rs2.5 and Rs.4 per litre respectively.
- Compliance limit Small increased from 1 crore to 5 crores for Charitable Trusts.
- Custom duty increased on cottons, silks, alcohol etc. with regards to agricultural products.
- Exemption of Social Welfare Surcharge on the value of AIDC imposed on gold and silver. Therefore, these items would attract surcharge at the normal rate, only on value plus basic customs duty.
- The exemption on import of leather will be withdrawn as they are domestically produced.
- A new initiative called ‘Turant Customs’ will be introduced for faceless, paperless, and contactless customs measures.
- Customs duty on cotton raised from 0 to 10%.
Economy & Finance:
- Fiscal deficit stands at 9.5% of the GDP; estimated to be 6.8% in 2021-22.
- Proposal to increase FDI limit from 49% to 74%
- Asset Reconstruction Company Ltd. to be set up to consolidate and take over existing stressed debts and manage and dispose of assets for eventual value realization.
- The government plans to divest two PSUs as well as one insurance company.
- IPO of LIC to debut this year.
- Strategic sale of BPCL, IDBI Bank, Air India to be completed.
- Government to introduce an Investor Charter.
- To rationalise all securities market laws under one Securities Market Code.
- E- NAM market place to integrate 1000 more mandis.
- Agri Infra fund to be made available for APMCs to augment their infrastructure.
- 5 major fishing hubs to be developed including Chennai, Kochi & Paradip.
- Multi-purpose seaweed park to be established by government in Tamil Nadu.
- First digital Budget in the history of India.
- Vehicle Scrapping Policy. Vehicle Fitness Test after 20 years in case of Personal vehicle and 15 years in case of commercial vehicles.
- 7 Mega Textile Investment parks will be launched in 3 years.
- 1.18 lakh crore for Ministry of Roads.
- 1.10 lakh crore allocated to Railways.
- Deposit Insurance cover (DICGC Act 1961 to be amended). Easy and time bound access of deposits to help depositors of stress banks.
- Proposal to revive definition of ‘Small Companies’ under Companies Act 2013. Capital less than 2 Cr. and Turnover Less than 20 Cr.
- Disinvestment: Announced Disinvestment of Companies will be completed in FY 2021-22.
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