The Union Budget 2021-22 introduced by the Hon’ble Finance Minister before the Lok Sabha today may prove to be a seminal one in many ways. While the key theme to the budget continued to be ‘Aatmanirbhar Bharat’, the budget allocations and changes proposed in key sectors are expected to be the harbinger of long-term growth and self-reliance to the country.
The increase in budget allocations towards healthcare met expectations of a sector that has proved to be the backbone of a Covid-19 reviving economy. The Modi Government has accepted one of the biggest demands of the industry to increase the FDI cap for the insurance sector from 49% to 74%. This move will also be a positive sign for boosting investment and has been widely welcomed by the industry. At the same time, the consistent commitment of the government in monetising the non-core assets and disinvestment of public companies / banks are steps towards completing unfulfilled goals and revive the economy. Going forward the government intends to focus and maintain interest in only strategic sectors namely, atomic energy, space and defense, transport and telecommunications; power, petroleum, coal and other minerals; and banking, insurance and financial services. The Union Budget 2021-22 also reflects firm commitment of the government to boost economic growth by investing in infrastructure development where they have committed to increase the capital expenditure by 34.5% over budgetary estimate for 2020-21.
On the tax front, the Finance Bill, 2021 did not bring changes to the existing tax rates and the laundry list of popular budget expectations of the ‘aam aadmi’ may be hurt to find no additional relief in the form of raising the basic exemption limit or increased limits for tax deductions. That said, even the lack of changes, may be taken positively by many stakeholders as a reminder of the consistency in policy and administration of taxes which is sure to bring overall certainty in the minds of foreign investors and may be seen as a positive move by the Indian government. In order to boost the demand in the real-estate sector and to enable the real-estate developers to liquidate their unsold inventory at a lower rate to home buyers, it is proposed to increase the safe harbour threshold from existing 10% to 20% from the stamp duty value.
For startups, the Finance Bill proposes to ease the outer limit for incorporation and investment from sale of residential property by one more year. Changes have also been proposed to further incentivise setting up of units in International Financial Services Centre (IFSC) including exemption of royalty income on account of lease of aircrafts paid by a unit set up in an IFSC.
A number of changes have been proposed in clarifying and rationalising the tax treatment for business re-organisations and restructurings. A significant change in this regard is the proposal to amend the definition of slump sale and extend to all form transfers including slump exchange to curb tax avoidance.
That said, the Finance Bill, 2021, consistent with the promise of moving to a completely faceless adjudication regime has proposed a scheme for dispute resolution before the income-tax appellate tribunal, which is the second appellate stage in tax matters, in a completely faceless manner. Other key changes include a dispute settlement committee to settle disputes of small and medium taxpayers earning upto ₹50 Lakhs, revising timelines for filing of belated and revised tax returns in line with the increase in efficiency of the department with advancement of technology. In the same breath, the period for re-opening of assessments is proposed to be reduced from upto 6 assessment years after the end of the relevant assessment year to 3 years. This may further boost confidence of the corporate sector and foreign investors.
Other facets of the Finance Bill include clarifying provisions of the Vivaad Se Vishwas Scheme which has been extended till February 28, 2021 which has been popular among taxpayers and has led to the settlement of disputes of over ₹85,000 crores.
As such, with the weight of an increasing fiscal deficit on the back of a Covid-19 battered economy, the government had already brought in a slew of changes such as reduced TDS rates and optional reduced tax slabs for the common man, and despite the wishlist of tax sops sought by the industry and common man alike, the Government seeks to introduce some changes to rationalise the existing provisions while moving towards a transparent and efficient taxation regime that it hopes will promote employment generation and bring investment.
The Union Budget 2021-22 is an all-encompassing budget that has touched upon every sector and aims to fulfil Modi government’s vision of making India a $5 trillion economy. The Union Budget 2021-22 has also given the much needed impetus towards ease of doing business in India by focusing on long term investments, development of skilled workforce, introduction of the environment friendly voluntary scrappage policy and rejuvenating the manufacturing sector. The Union Budget 2021-22 has shown fiscal prudence by allocating funds where they are needed the most, which will in turn create jobs and revive the economy from the aftermath of the pandemic. With this budget, India has taken a giant leap forward towards economic progress.
Views are personal. Shardul is Executive Chairman, Shardul Amarchand Mangaldas & Co. Singhania and Pandey are Partner, Shardul Amarchand Mangaldas & Co.