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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 – Aviation sector, Budget 2021

Finance Minister  Nirmala Sitharaman while presenting the Union Budget for 2021-22 as part of the tax incentives to International Financial Services Centre (IFSC) in GIFT City has proposed  tax holiday for capital gains for aircraft leasing companies and tax exemption for aircraft lease rentals paid to foreign lessors.

This move can be considered to be a first step towards creating a domestic aircraft leasing hub in India, since till now, the Indian aviation industry has been dominated by lessors from Ireland, Dubai and Hong Kong due to their attractive tax policies. This move is likely to incentivise leasing companies to set up operations here in the GIFT city and making it a global hub. However, as seen from the past experience from around the world the results may be not be as immediate as expected, Ireland took almost 40 years to be the world’s top aircraft leasing hub. Singapore, too, has invested time and money attracting lessors. Along with providing tax incentives, the government will also need to amend regulations and alter double tax avoidance treaties with other countries to make aircraft leasing business in India a reality. Though tax incentives is a good step towards building this segment in India, the government will need to create a regulatory framework with proper financial structuring so that it could also encourage deep pocketed domestic investment in aircraft leasing business.

JSA Viewpoint by Poonam Verma.

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.

Impact of COVID-19, on proposed inclusion of Aviation Turbine Fuel (ATF) under the ambit of Goods and Services Tax (“GST”)

With the aviation sector reeling under the impact of COVID-19, the Government may propose inclusion of Aviation Turbine Fuel (ATF) under the ambit of Goods and Services Tax (“GST”). Since GST is a creditable levy which can be offset against the GST liability suffered by the airlines on their revenues, the move would result in lower tax costs for the airlines and would provide the industry a much-needed relief from high operational costs.

While the proposal would require an approval from the GST Council, the budget may put forth a roadmap for this legislative change and initiate the process for building the consensus amongst Centre and the States on this sensitive matter, which has been a bone for contention for quite some time. This may subsequently pave the roadmap for inclusion of other petroleum products into GST over a period of time, starting with Natural Gas and extending to other petroleum products. “