January 2021 / India

On 1 February 2021, the Finance Minister presented the Union Budget 2021/22 before Parliament. The key highlights of the amendments introduced in the Finance Bill 2021 are summarized below.

Corporate tax

• There will be no change in the corporate tax rate.
• Late deposit of employees' contribution to the provident fund by employers shall not be allowed as a deductible expenditure in the hands of the Company.
• Goodwill (other than acquisition of goodwill by purchase) of a business or profession shall not be considered as an asset and therefore not be eligible for depreciation.

Personal tax

• There will be no change in the slab rates for individuals.
• Additional annual deduction of INR 150,000 for interest on a loan taken for first time purchase of affordable housing property will be available up to 31 March 2022.
• New rules were proposed for the removal of double taxation for non-resident Indians (NRIs).

Incentives for financial services

• Dividend payments to real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) shall be exempt from tax deducted at source (TDS).
• Advance tax liability on dividend income shall arise only after declaration or payment of dividend.
• For foreign portfolio investors, treaty rates can be availed for withholding tax on dividend income.
• To further incentivize operations of units in the International Financial Services Centre (IFSC) in GIFT City, the Finance Minister proposed to allow an exemption on capital gains for aircraft leasing companies, a tax exemption for aircraft lease rentals paid to foreign lessors, a tax incentive for relocating foreign funds in the IFSC and to allow a tax exemption for the investment division of foreign banks located in the IFSC.
• To incentivize investment in eligible start-ups, the eligibility for claiming a tax holiday for start-ups is extended by 1 more year – until 31 March 2022. Further, in order to incentivize funding of start-ups, the capital gains exemption for investment in start-ups is also extended by one more year - until 31 March 2022.

Tax administration and other measures

• Relief measures will be granted to senior citizens by removing the need to file income tax returns for those aged 75 years and above, having only pension and interest income. Paying banks will be required to deduct the necessary tax on their income.
• Details of capital gains, dividend income, income from listed securities and interest income from bank deposits will also be pre-filled in the income tax return form.
• The following amendments on tax audit, assessment and appellate proceedings were proposed:
  • The tax audit limit will be increased from INR 50 million to INR 100 million for persons carrying out 95% of their transactions digitally.
  • The time limit for re-opening income tax assessment cases will be reduced from 6 years to 3 years. Only in serious tax evasion cases, where there is evidence of concealment of income of INR 5 million or more in a year, can reassessment be opened for up to 10 years.
  • A National Faceless Income Tax Assessment Tribunal (ITAT) Centre will be set up. All communication between the ITAT and the appellant shall be electronic. Where personal hearing is needed, it shall be done through videoconferencing.
  • A dispute resolution committee will be created for small taxpayers with taxable income up to INR 5 million and disputed income up to INR 1 million.
• The definition of the term "slump sale" will be amended so that all types of "transfers" as defined in section 2(47) of the Income Tax Act are included within its scope.
• NRIs will be allowed to operate one person companies in India.

Further details will be reported as they develop.

To promote e-governance and encourage the public to participate in curbing tax evasion, the Central Board of Direct Taxes has launched a dedicated e-portal to receive complaints for tax evasion, undisclosed foreign assets and income and benami transactions (i.e. transactions where property is transferred to one person for a consideration paid or provided by another person).

Informers can file complaints regarding violations of the Income Tax Act 1961, Black Money (Undisclosed Foreign Assets and Income) Imposition of Tax Act 1961 and Prevention of Benami Transactions Act. Informers may or may not have an existing Permanent Account Number (PAN) or Aadhar, and they may opt to claim a reward.

The e-portal can be accessed on the CBDT's e-filing website.

In another historic Union Budget, one preceded by stimulus packages in the form of Atma Nirbhar packages and the Pradhan Mantri Gareeb Kalyan Yojna in 2020, Hon’ble Smt Nirmala Sitharaman delivered an action-oriented plan to help lift the Indian economy in her speech. As countries across the globe are struggling to cope with the loss of demand and investments, Indian economy is slowly gaining momentum, and as per the Economic Survey, Indian real GDP is slated to rise at a rate of 11% between 2021-22. Resonating with such projections, the budget today featured announcements on various schemes and proposals, many of which were pivoted towards leveraging and enhancing the consumer spending power of India’s 1.3 billion population, thus, giving impetus to the growth of the retail and e-commerce market.

Among the major announcements made today, a few of the notable ones are mentioned below:

Encouraging Digital Payments

₹1,500 crore earmarked for a proposed scheme to incentivise innovations in digital payment systems.

Implications

India’s m-commerce market is expected to rise to nearly $63 bn by 2023. Innovations in digital payments systems will help secure transactions in the space, and enable offshoots to the e-commerce/m-commerce to grow, thereby, increasing income and generating employment.

Employment Laws and Regulations Reforms

1. Social security benefits to be extended to gig and platform workers.
2. Women to be allowed to work during night shifts with adequate safety provisions.

Implications

As per a report, over 17 million women were left unemployed in India in April 2020. Measures to allow women to work during night shifts will ensure upward mobility of working women by enhancing available economic opportunities. Extending social benefits will act as hedge against economic deprivations induced by the pandemic

Textiles Reforms

Scheme for Mega Integrated Textile Regions and Apparel Parks (MITRAs) will be rolled out creating world-class infrastructure with plug-n-play facilities; 7 textile parks over 3 years to be created.

Implications

India is a major retail hub with a consumption expenditure that is expected to rise to nearly $6 tn by 2030. Thus, it is being keenly looked upon as an expansion destination by major international retailers. Developing textile infrastructure in tandem with growing retail market will help companies looking to enter India under formats such as Single Brand Retail Trading (SBRT), as they can then look to locally source products to comply with the FDI rules requirement for the same without incurring heavy expenditure on technical textiles.

Boost to Infrastructure

1. National monetisation Pipeline of Warehousing (CWC)
2. Proposal to increase capital expenditure at INR 5.54 lakh crore, from INR 4.39 lakh crore in 2021. Economic corridors being envisaged with plan to boost road infrastructure.
3. National Infrastructure Pipeline (NIP) has now expanded to include 7400 projects, in a thrust to monetize public projects.
4. Project to construct over 13,000 kms length of roads have been awarded under the ₹5.35 lakh crore ‘Bharatmala Pariyojana’

Implications

1. A boost to infrastructure will lead to a commensurate increase in logistics operations, which are important to retail and e-commerce entities. Digital serviceability ensures functioning of an online marketplace, but a robust physical infrastructure will help companies complete the transaction loop by providing the goods and services to the remotest of places within stipulated timelines.
2. Better infrastructure with a focus on exports will help retailers looking at India as a sourcing destination.

Production Linked Incentive (PLI) schemes

Production Linked Incentive (PLI) schemes to create manufacturing hubs across 13 sectors, including textiles, food, electronics and pharmaceuticals, have been announced, with an allocation of ₹1.97 lakh crores over 5 years starting FY 2021-22

Implications

The schemes will help increase local manufacturing output and increase the base of local vendors. Thus, PLI will help make India into a sourcing destination for global players.

Reforms in Startup Ecosystem

1. Incorporation of One Person Companies (OPCs)
2. Focus on allowing OPCs them to grow without restrictions in paid up capital and turnover.
3. Reducing residency limit from 182 days to 120 days for Indian Citizens setting up OPCs.
4. Eligibility for claiming tax holidays extended by one year, till 31 March 2022.
5. Capital gains exemption for investment in start-ups increased by 1 more year, till 31 March 2022.

Implications

Tax holidays and capital gain exemptions to help infuse liquidity into the startup ecosystem; limited residency limits will help more Non-Residential Indians (NRIs) looking at India to establish presence, bringing in much needed technical expertise and capital.

Change in Customs Duties

1. Revoking Anti-Dumping Duty (ADD) and Countervailing Duty (CVD) on certain steel products.
2. Reducing duties on copper scrap from 5% to 2.5%.
3. Exempting duty on steel scrap for a specified period.
4. Reduction in duty on Gold and Silver from 12.5% to 7.5%.
5. Reduction of the BCD rates on nylon fibre and yarn to 5%.

Implications

1. Removal of Anti-Dumping Duty and Countervailing Duty on steel products and copper scrap will benefit MSMEs.
2. Reduction in gold duty will give impetus to its consumption, thus, boosting gems and jewellery retail.
3. Reduction in duty on textile raw material will further help scale manufacturing, thus, allowing companies to ensure competitive retail prices.

Infrastructure

• Highest ever allocation towards capital expenditure: A sharp increase in capital expenditure is proposed at 5.54 lakh crore, from Rs 4.39 lakh crore in 2021.
• National Infrastructure Pipeline expanded to 7,400 projects. 217 projects worth over INR 1 lakh crore completed under National Infrastructure Pipeline.
• Government has committed INR 1.97 lakh crore for PLI schemes covering 13 sectors.
• Enhancing India’s textiles competitiveness globally, alongside PLI, the scheme for Mega Integrated Textile Regions and Apparel Parks (MITRAs) will be rolled out creating world class infrastructure with plug and play facilities. 7 mega textile parks to be established in 3 years.
• Government to support the development of a world-class fintech hub at GIFT, investor charter to be introduced.
• Allocation to rural infrastructure development increased to INR 40,000 crore in next fiscal, up from INR 30,000 crore.
• Policies to make it easy for foreign investors to invest in India's infrastructure projects. Proposal to make dividend payments to REIT (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) exempt from Tax Deducted at Source (TDS).

Road & Highways Infrastructure

• By March 2021, an additional 8,500 Kilometers (KMs) of National Highways will be awarded and works on 11,500 KMs of National Highway corridor will be completed this year. Planned economic corridors include:
  • INR 1.03 lakh crore for development of 3,500 KMs of National Highway works in Tamil Nadu, including Madurai-Kollam Corridor.
  • INR 65,000 crore for development of 1,100 KMs of National Highways works in Kerala, including 600 KMs of Mumbai-Kanyakumari Corridor.
  • INR 25,000 crore for development of 675 KMs of Highway work in West Bengal, including upgradation of existing Kolkata – Siliguri Road.
  • 1,300 km in Assam in the next 3 years.
• Voluntary Vehicle Scrapping Policy: Vehicles to undergo fitness test at automatic fitness centres on a voluntary basis. All private vehicles beyond 20 years and commercial vehicles older than 15 years old will have to undergo fitness test.
• National Highway Authority of India (NHAI) sponsored InvIT to be launched with 5 operational toll roads.
• Centre to provide INR 18,000 crore for public buses.
• Advanced Traffic management system with speed radars, variable message signboards, GPS enabled recovery vans will be installed in all new four and six lane highways.
• Major Expressways/Corridors:
• Delhi-Mumbai Expressway: Remaining 260 km will be awarded before 31st March 2021.
• Bengaluru – Chennai Expressway: 278 KM will be initiated in the current financial year. Construction will begin in 2021-22.
• Delhi-Dehradun economic corridor: 210 KM corridor will be initiated in the current financial year. Construction will begin in 2021-22.
• Kanpur-Lucknow Expressway: 63 KM expressway providing an alternate route to NH 27 will be initiated in 2021-22.
• Chennai – Salem corridor: 277 KM expressway will be awarded and construction would start in 2021-22.
• Raipur-Vishakhapatnam: 464 km passing through Chhattisgarh, Odisha and North Andhra Pradesh will be awarded in the current year. Construction will start in 2021-22.
• Amritsar-Jamnagar: Construction will commence in 2021-22.
• Delhi –Katra: Construction will commence in 2021-22.

Railways

• Railways to monetize dedicated fright corridor assets for operations and maintenance after commissioning.
• INR 1.10 lakh crore outlay for railways, of which Rs 1.7 lakh crore for capital expenditure
• Central fiscal funding for Kochi Metro, Chennai Metro, Bengaluru Metro, Nagpur Metro and Nashik Metro projects.
• Metrolite/Metroneo systems requiring lower outlay and higher comfort and convenience to be deployed.
• National Rail Plan 2030: Create a future ready railway system to bring down the logistics cost of industry at the core of the ‘Make in India’ strategy.
• Western Dedicated Freight Corridor and Eastern Dedicated Freight Corridor to be commissioned by June 2022. Sonnagar-Dankuni section to be implemented through Public-Private Partnership (PPP) mode.
• Total broad-gauge network electrified to reach 72% of the entire route length up from 65% in the previous year.
• Introduction of modern Vistadome Linke Hofmann Busch (LHB) coaches for a safer travel experience.
• Indigenously produced cutting edge anti-collision system on high density routes to reduce manual errors.

Ports and Shipping

• Seven projects worth more than INR 2,000 crore in PPP mode for ports.
• Move towards privatisation of major ports.
• Indian companies to be given subsidy in global tenders under scheme for promoting flagging of merchant ships in India.
• Recycling of ships to be doubled by 2024. 90 Ship recycling yards in Alang expected to generate 1.5 lakh jobs for Indian youth. Efforts to bring ships from Japan and Europe.

Power and Energy

• Proposal to create a framework to give consumers alternatives to choose from more than one power distribution company to avoid monopoly of Distribution Companies (DISCOMS).
• Establishment of an independent gas transport system operator for facilitation and coordination of booking of common carrier capacity encompassing all the natural gas pipelines in a non-discriminatory open access basis.
• Power transmission assets of INR 7000 crores to be transferred to Power Grid Corporation of India (PGCIL) InVits.
• INR 3.05 lakh crore outlay for the power sector.
• 100 more cities to be added in the next 3 years to the gas distribution network.
• Ujjwala scheme extended to cover 1 crore more beneficiaries.
• Gas pipeline project to be taken up in Jammu and Kashmir.
• INR 1,000 crore to solar energy corporation of India and INR 1,500 crore to renewable energy development agency.
• Introduction of schemes for DISCOMS for infrastructure creation like pre-paid smart metering and feeder upgradation worth INR 3.05 lakh crores.
• Announcement of Hydrogen Energy Mission to generate hydrogen from green power sources.
• To build up domestic capacity, a phased manufacturing plan for solar cells and solar panels to be notified.
• Duty on solar inverters raised from 5% to 20% and on solar lanterns raised from 5% to 15%, to encourage domestic production.

Housing

• Affordable housing projects will get a tax holiday for one year till 31st March 2022.
• Additional deduction of interest: INR 1.5 lakhs for loans taken up to 31st March for the purchase of affordable housing.
• Affordable rental housing for migrant workers - tax exemption for notified affordable rental housing projects.