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Union Budget Proposals, 2021

When Hon’ble Finance Minister rose to present the Union Budget for the fiscal year 2021-22 (“Budget”), she had a humungous task at hand. An economy which was already crippled by a global slowdown, got further pushed into an unprecedented crisis due to COVID-19 and the lockdowns.

The Budget rests on six pillars, namely, health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D and minimum government and maximum governance. Tax proposals contained in the Budget are in line with these objectives and give fillip to domestic manufacturing to meet the vision of ‘Aaatmnirbhar Bharat’ and ‘Make in India’.  

For a snapshot of the key tax proposals under the Budget, please click here.

This Budget Update has been prepared by the JSA Tax Team (Direct and Indirect Tax). For further details, please contact [email protected]

JSA Viewpoint – Customs duties proposals contained in the Union Budget

Keeping in line with the concept of ‘Aatmnirbhar Bharat’ and ‘Make in India’, the proposals on customs duties in the Union Budget aim at boosting domestic manufacture in various sectors such as renewable energy, electronics, mobile phones, textiles and Agri products.

To this extent, the exemptions currently available under multiple notifications have been rationalised and a revised customs duty structure is proposed to be put in place with effect from 1 October, 2021. While the withdrawal of exemptions may result in increase in the cost of manufacturing in the short-run, the same may be benefit once capacities are created in the domestic market, leading to import-substitutions.

To cater to the need for improving the agricultural infrastructure and funding the same, it is proposed to introduce Agriculture Infrastructure and Development Cess (“AIDC’) on import of select goods. Suitable amendments in the rates of Customs duties have been made to ensure that AIDC does not result in increase in prices for the consumers.

JSA Viewpoint by Manish Mishra.

JSA Viewpoint – GST Changes, Budget 2021

In the backdrop of improving GST collections, the GST proposals contained in the Union Budget presented today, largely focus on easing the compliance burden for the assesses and strengthening the penal provisions in case of defaults.

Doing away with the requirements of submission of Audited financial and reconciliation statements should avoid delays in discharge of annual compliances and bring simplicity. However, this would increase the onus on the assesses to ensure proper disclosures in the Annual Returns, which now need to be filed on self-certification basis.

Among other changes, giving retrospective effect to the provisions for charging of interest on net cash liability provides much-needed clarity and will avoid litigation.

Proposal to limit the option of effecting zero-rated supplies with payment of tax, only to specified class of goods and services or taxpayers could be restrictive and need to be analysed in greater detail, once appropriate notifications are issued in this regard.

JSA Viewpoint by Manish Mishra.

Decriminalisation of offences under the LLP Act – Budget 2021

The proposal for the decriminalisation of offences under the LLP Act as contemplated for the Companies Act, 2013 is an important step, to protect stakeholders from unnecessary litigation, and will provide level playing field to the form of entity, given the broader benefits otherwise available to LLPs. One person company will now be permitted with relaxed conditions, and this will also motivate entrepreneurs to have a corporate structure with limited liability, and will also help start-ups and early-stage ventures.

JSA Viewpoint – Raj Ramachandran.

Transformational infrastructure for healthcare – Budget 2021

The government has announced an amount of INR 35,000 crores for the vaccination programme in wake of Covid-19. However, the negotiations between Indian vaccine manufacturers had hinted at a ballpark figure of Rs 60,000-70,000 crores for only the procurement of vaccines during the first phase. Thus, the budgetary outlays falls short of the initial estimates. It is important to note that this estimate also excludes the costs for transformational infrastructure and storage at low temperatures, which have been estimated around $30-80 million.

Quote by Sidharrth Shankar.

JSA Viewpoint Healthcare – Budget, 2021

For FY 21 GoI had budgeted Rs. 69,000 crore for healthcare, which was 1.6% of GDP. The budgeted amount for FY 22 shows a significant increase. If this growth were to be extrapolated, the GoI should achieve the target of healthcare spend of 2.5 – 3% of GDP (as envisaged in the National Health Policy 2017) well before its target date. This is quite promising and clearly illustrates the importance that the GoI is placing on the sector spurred by the Covid pandemic. What is also very commendable is that the GoI has allocated Rs. 35,000 crore for the Covid vaccine as a separate line item. This shows that the GoI has avoided the pitfall of focussing all its resources on tackling communicable diseases at the cost of building healthcare systems generally because of the Covid pandemic, which notwithstanding its materially adverse impact on the health and economy, is an extraordinary event. The GoI has thus avoided the saliency bias which the Economic Survey had warned against.

Quote by Rohitashwa Prasad published in IIFL Securities, Pharmabiz and Global News Network of India.

National Infrastructure Pipeline – Infrastructure Development, Budget 2021

The budget speech expectedly has given a strong signal for infrastructure development focusing on actualizing the ambitious national infrastructure pipeline targeting an investment of Rs.111 lakh crores over 5 years. The signal comes from the announced budgetary allocations and decisions (a) central allocation of Rs5.54 lakh crores, (b) state allocations of Rs.2 lakh crores, (c) announcement to tap into budgetary resources of PSUs and wide-ranging InvITs monetising assets in highways, power transmission, gas pipelines, dedicated freight corridors, airport.

The above announcements are strengthened by announcement of establishing Bad Bank in nature of AMC; a development financial institution with a seed investment of Rs.20,000 crores and a target to be build a lending portfolio of Rs. 5 lakh crores in 3 years; an extensive disinvestment program with target of Rs.1.75 lakh crores; zero coupon bonds that will help arrange the infra financing.

The devil lies in the details and the success in reviving the economy would depend on effective structural reforms in infrastructure sectors removing barriers to growth + how the government goes about monetising the land bank and assets held by PSUs.

Quote by Amit Kapur published in Business World, Deccan Herald, Firstpost, News Free Ads World and Mumbai Live.

Reducing compliances and uncertainty while providing some boost for investments

A step towards easing compliance and reducing uncertainty is that the time limit for reopening income tax assessments will be restricted to 3 years from the six years currently applicable. Only serious offences beyond a non-compliance threshold of 50 lakhs in a year will be subject to a 10-year window for reopening of assessment. Payment of advance tax to meet tax liability for dividend income can be after the declaration of dividend. Dividends to InVITs and REITs will be exempted from TDS. As an incentive for startups, tax holiday and capital gains exemption has been extended by one more year up to 31 March 2022. 

Quote by Raj Ramachandran.

Securities market code to include SEBI Act – Government securities act and depositories act, Budget 2021

The consolidation of securities laws, existing decriminalisation of offences under the Companies Act and the proposed decriminalisation under the LLP Act marks an important move towards making Indian corporate legal framework, simpler, business friendly and ultimately (hopefully) reducing compliance costs.  The securities market code is in line with previous discussions on the NFRA. It marks a step towards streamlining the multiple laws, ordinances, guidelines and regulations. If drafted and executed in a proper manner, it will be helpful to market participants and remove any possible conflicts in the regulatory framework and will provide clarity in policy making to investors and stakeholders.

Quote by Arka Mookerjee, published in CNBC, Moneycontrol, Indian Express, Fortune India, IIFL Group, Yahoo.com, Firstpost.

JSA Viewpoint – Infrastructure – Economic Survey

The Economic Survey 2021 strikes the right cords with respect to Indian Infrastructure by highlighting

  • Significance of robust infrastructure for overall economic growth emphasizing that in the absence of adequate infrastructure, the economy operates at a suboptimal level.
  • Ambitious targets of infrastructure investments of Rs.111 lakh crores (US$ 1.5 trillion) during FY 2020 to FY 2025 under the National Infrastructure Pipeline with a projected 79% investment (Rs.87.7 lakh crores) coming from Central and State Governments with 21% (Rs. 23.3 lakh crores) from private sector – 54% being shared by energy and transport (roads and railways).
  • In the past most of the private investment has come through public private partnerships.
  • Recent policy initiatives in terms of the Atma Nirbhar Bharat and cabinet approval of the PSU policy of opening up all sectors of the economy (even sensitive ones) to private sector with an emphasis on disinvestment.
  • ES-2021 acknowledges that gross capital formation has slid from 34% of GDP (in FY-2015) to lowest in past 2 decades at 26.7% of GDP (in FY-2021), identifying this as the single largest contributor to the contraction in GDP in FY-2021.

There are some generic feel-good statements regarding expansion of public investment which is expected to crowd private investors, and deregulation and liberalisation which is expected to unlock entrepreneurial energies and improve private investor’s risk appetite. However, perhaps advisedly it leaves a very important element of how will this infrastructure development get financed unaddressed.

Let us watch this space in the Budget speech for some concrete investment commitments as also reform proposal to address the 4 laggards in Indian regime that is shackling the entrepreneurial spirits – Enforcing Contracts, Registering Property, Starting a Business and Paying Taxes.

Viewpoint by Amit Kapur.