The budget presentation on February 21, 2021 was, in a way, the first of its kind. Breaking a longstanding tradition, the Finance Minister, Nirmala Sitharaman, chose to go completely paperless. Instead, she opted to present the budget through a ‘made-in-India’ tablet.
Being the first budget of this decade and the one immediately after the COVID-19 outbreak, there were varying expectations regarding what Budget 2021 would include. To its credit, the budget did address several key expectations of individuals and corporates alike.
Here’s a quick summary of the key announcements in Budget 2021.
During the presentation of the budget, the Finance Minister briefed the parliament on the financial impact of the AtmaNirbhar Bharat packages and continued to reiterate the need to establish an AtmaNirbhar Bharat - a self-reliant India. Budget 2021 focused on 6 major pillars, with healthcare and infrastructure sectors enjoying the maximum levels of attention.
Let’s take a look at the key announcements that were made.
Taking the COVID-19 pandemic and its impact on the economy and livelihoods of people into account, the Finance Minister placed huge focus on healthcare and allied services.
Around Rs. 64,180 Crores was earmarked to be spent over a period of 6 years towards a new scheme - PM Atmanirbhar Swasth Bharat Yojana. The entire scheme is centered around revamping and developing primary, secondary, and tertiary healthcare systems throughout the nation.
In addition to this, three other schemes were also announced by the Finance Minister - Mission Poshan 2.0 for improving nutritional outcomes, Jal Jeevan Mission (Urban) for universal water supply in urban households, and Urban Swachh Bharat Mission 2.0 for promoting better cleanliness.
Budget 2021 also attempted to address the problem of rising air pollution by providing Rs. 2,217 Crores for combating the problem in 42 urban centres, which carry a population of more than a million. Furthermore, a new voluntary vehicle scrapping policy was also proposed to phase out polluting and old vehicles.
The total budgetary expenditure towards health and wellbeing for the upcoming financial year 2021-2022 was increased multifold to Rs. 2,23,846 Crores from just Rs. 94,452 Crores, marking a massive increase of over 137%. Out of the total capital outlay, around Rs. 35,000 Crores was earmarked towards COVID-19 vaccinations in 2021-2022.
The Finance Minister also reiterated the need to bolster the infrastructure of the nation. In view of this, she introduced several new schemes and measures that would help reignite the economy. Here’s a brief summary.
An additional 8,500 kilometers of roads and highways will be awarded under the Bharatmala Pariyojana project, and around 11,000 more kilometers of highways would be completed by March, 2022. Furthermore, economic corridors in the states of Tamil Nadu, Kerala, West Bengal, and Assam are also to undergo construction in the near future. The proposed projects would not only enhance connectivity between various cities and towns, but they would also work towards creating more employment opportunities at various verticals.
The Finance Minister announced that the Western Dedicated Freight Corridor (DFC) and Eastern DFC would likely be formally commissioned by June 2022. Several other DFC projects such as the Kharagpur to Vijayawada corridor, Bhusaval to Kharagpur to Dankuni corridor, and Itarsi to Vijayawada corridor are also under the pipeline.
Additionally, 100% electrification of Broad-Gauge routes is also expected to be completed by December, 2023. To promote further safety, an automatic train protection system is also to be implemented, which would work to eliminate train collisions due to human error. Budget 2021 even provides for Rs. 1,10,055 Crores towards the expenditure to be incurred by Indian Railways. Upon completion, the projects proposed in Budget 2021 are expected to boost transportation efficiency and safety in addition to saving costs for the Indian Railways.
A single Securities Markets Code has been proposed by the Finance Minister in the Budget 2021. The code would attempt to rationalize and consolidate multiple securities laws including the SEBI Act, 1992, the Depositories Act, 1996, the Securities Contracts (Regulation) Act, 1956, and the Government Securities Act, 2007.
Another major financial reform that Budget 2021 proposed is the increase in FDI limit of insurance companies from 49% to around 74%, which would effectively enable foreign ownership in the sector. Other financial reforms introduced in the presentation include the formation of an institutional framework for the corporate bond market, an investor charter for all financial products, and setting up of regulated gold exchanges with SEBI as the regulator.
Additionally, since cleaning up Public Sector Banks’ books is the need of the hour, the government of India has proposed to start up an Asset Reconstruction Company (ARC) and an Asset Management Company (AMC) to take over stressed assets for value realization. Around Rs. 20,000 Crores has been earmarked for recapitalization of PSBs in the year 2021-2022.
Although Budget 2021 left the income tax slabs and rates unchanged, it brought about several other proposals in the direct tax segment. One of the most impactful announcements was the exemption that was offered to senior citizens. The budget proposed that senior citizens aged 75 and above, who receive only pension income and interest on deposits, need not file their annual income tax returns. The paying bank would be responsible for deducting taxes from the concerned senior citizen’s income and depositing it on their behalf. This move would considerably reduce the amount of compliance burden placed on ageing citizens.
The Finance Minister also announced that the turnover threshold limit for tax audits would be raised to Rs. 10 Crore from Rs. 5 Crore for assessees who carry out 95% of their transactions through digital means. Also, the additional deduction of Rs. 1.5 Lakhs under Section 80EEA of the Income Tax Act, offered on the interest paid on home loans for affordable housing, was extended till March 31, 2022.
ULIP proceeds will be taxable for salaried employees making a contribution to EPF over and above Rs. 2.5 Lakhs during any year. In such cases, the interest on contributions over Rs. 2.5 Lakhs will be taxable as a part of the employee’s total income. Furthermore, in the case of ULIPs, if the premiums paid during any year exceed Rs. 2.5 Lakhs, the proceeds from the policy will be taxable as capital gains at the time of maturity. Proceeds paid out on death, however, remain exempt from tax.
The customs duty structure was in dire need of rationalization. With that view in mind, the Finance Minister proposed to review over 400 old exemptions and sought to bring out a revamped customs duty structure by October, 2021.
Since the theme of Budget 2021 was to promote domestic manufacturing and self-reliance, several key measures with regard to customs duty were proposed. This included an increase in the customs duty on the import of certain electronic and mobile phone parts, solar inverters, solar lanterns, capital equipment and auto parts, cotton, raw silk and silk yarn, and denatured ethyl alcohol, among others. This move is likely to boost the demand for these products locally, thereby giving the domestic manufacturing sector a push.
In an attempt to reduce the burden on MSMEs and other small industries and to get them back on their feet, the customs duty on various key products was effectively reduced. Non-alloy stainless steel products, iron and steel scrap, copper scrap, nylon chips and fibers, and naphtha, among others were on the list. Such a move would without a doubt be of benefit to MSMEs, since it can help reduce the cost of manufacturing.
Additionally, to boost domestic MSME production and demand for their products, the customs duty on a few other products were also raised. This included steel screws, plastic builder wares, prawn feed, and synthetic gemstones among others. The exemption given to imported leather goods also stands withdrawn, since they are domestically produced in good quantity and quality, mostly by MSMEs. This bodes well for small businesses.
The Budget has maintained a fine balance between capital expenditure and investments. Government spending for FY22 has been focused greatly on creating additional infrastructure. MSMEs and domestic manufacturers will likely stand to benefit from many of the new measures proposed. As for individual taxpayers, they will need to take note of tax reforms, which, though minimal, may be material nonetheless.
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