Budget 2021 – Continuity of Reforms
Given the steep expectations on the FM to present a ‘once in a century’ budget with conflicting demands of providing public welfare on one hand and to lay a road map for a double digit growth, the FM today presented budget in the backdrop of hope of a faster economic revival amidst visible green shoots post the pandemic.
The FM had already taken a series of steps during previous year to address the evolving pandemic scenario, the budget was therefore more of continuity of the reforms already embarked upon.
On the personal tax front, the FM has left the income tax slabs/deductions unchanged and provided relief to senior citizens from filing of the Income Tax Returns (having only pension & interest income). IT returns would now be pre-filled to include details of capital gains, dividend and interest income. This would mean that individuals would have to have a closer look at their IT returns to ensure that the tax positions are reflected correctly.
On corporate tax front, there were no significant changes given that the government had already rationalized the corporate tax rates in the previous budget . The move to provide TDS relief for REIT’s and InVIT’s on their dividend income irons out the ambiguity surrounding the same. Similarly, excluding estimation of dividend income while computing advance tax interest provided much need clarity on advance tax liability . Also, steps such as setting up of a permanent dispute resolution committee for small taxpayers, increase of tax audit limits are positive steps.
There were fears of introduction of a Covid cess and a tweak to the capital gain tax regime to garner additional funds. The fact that none of this happened and the continuance of existing tax regime in a Covid year was welcome step.
On the corporate restructuring front, significant amendments were carried out. The Goodwill depreciation regime is now overhauled. As per the proposed amendment, goodwill will now be excluded from the ambit of depreciable assets FY 21 onwards. The amendment upturns the decision of the Supreme Court in the case on Smifs Securities on the matter and all restructurings going forward should factor in the impact of the same.
Further the ambit of ‘Slump Sale’ has been widened to include ‘Slump Exchange’ which means that going forward such transactions would be taxable. Also, changes have been proposed to reconstitution/dissolution of firms pursuant to which any excess withdrawal from the firm by a partner shall be subject to capital gain tax without taking into account the revaluation of any asset or due to self-generated goodwill.
As far as the changes in Indirect tax regime are concerned, amendments have been made to iron the issues of availment of GST credit subject to restriction of same being reported by the supplier in their returns, substitution of GST audit certification by professionals to self-certified GST audit and levy of interest retrospectively on net GST liability payable in cash since inception of GST. Further Agricultural Infrastructure and Development cess has been imposed on import of certain Agri-commodities including alcoholic goods, Silver and Gold. Also, the said Agri cess has been also imported on Petrol and Diesel under Central Excise.
On the macro front, the fiscal deficit of FY 21 of 9.5% to 6.8% in FY 22 factors in double digit growth to the economy and it would be interesting to see if the same is maintained. The theme of Atmanirbhar Bharat was furthered through policy announcements under six pillars of Health, Infrastructure, Inclusive development, Re-invigorating human capital, Innovation and R&D, Minimum Government Maximum Governance.
The proposed fundraise through the disinvestment of LIC, Recapitalisation of PSU Banks, Proposal for the set-up of INVIT’s by NHAI & PGCIL to attract global investors, Increase in FDI in the Insurance sector are positive steps for the economy and should provide an impetus to the respective sectors. Further increased focus on Healthcare, increased allocation for MSME sectors and the proposed consolidation of all securities laws are a Big positive.
To summarize, the FM has presented a Budget that displays ambition and the focus now lies in the execution.