The 2021 budget was set against the backdrop of a global pandemic, significant economic growth, rampant unemployment, predictions of uncertain economic recovery, uncertain demand and supply, and the difficulties of small and medium-sized enterprises (SMEs) due to the lockdown and economic impact Submitted cooling. As always, the budget expectations were enormous.
The finance minister had the difficult task of stimulating economic growth and bringing India back to growth levels of 8 to 9%. Their job was to increase demand, enable SMEs to do business, attract foreign direct investment and generate significant economic activity. The slowdown in the first quarter of fiscal 21 was partially offset by better performance over the next two quarters, and the growth trend is expected to continue. However, to accelerate growth, provide momentum to the industry and spark a change in mindset about demand creation, a focused initiative was required. All of this had to be done within the budget deficit while keeping inflation within reasonable limits.
The budget is transformative in its own way. Industry and the taxpayer community in general are very optimistic that the initiatives and concessions on offer would help the economy return to a high-growth area. Indian and multinational companies could invest more and create more jobs locally. These changes in transformation policy have resulted in minor changes in personal tax rules.
Taxpayers are relieved that there are no new taxes and that FM has not tinkered with tax rates or surcharges. Additional burdens such as Covid Cess, wealth tax or estate tax were not introduced.
A remedy was also provided by proposing that input tax liability on dividend income only arises after the dividend has been declared or paid. FM has continued its commitment from previous years to simplify a taxpayer's life and focus on efficiency and transparency in tax administration and tax law. There are several measures that are steps in the right direction. Firstly, no tax return for senior citizens (who are 75 years old and over and are India residents and whose income consists only of interest other than interest received from the bank where the pension is drawn). Two pre-completed tax returns detailing capital gains on listed securities, interest income from banks and post offices, dividend income in addition to salary income, and TDS information for all taxpayers. Third, extend the period until March 31, 2022 for the drawdown of the loan to receive an additional tax deduction up to £1.5 lakh on interest for first time buyers.
In addition, the proposals to extend faceless assessments to tax courts, the dispute settlement committee to reduce disputes for small taxpayers and shorten the deadline for reopening tax assessments are in keeping with the spirit of the previously introduced Taxpayers Charter.
Individuals will also benefit from the Finance Minister's proposals for better investment protection such as the introduction of the Investor Charter and Access £5 lakh (through deposit protection) for depositors holding deposits with banks under stress and consolidation of securities market regulations ((such as SEBI Act, Depositories Act, Securities Contracts (Regulation) Act, and Government Securities Act, 2007) into streamlined individual market code.
Taxpayers are facing some problems as the repayment of unit-linked insurance plans (Ulips) purchased on or after February 1, 2021 is now taxable as capital gain if the annual premium for those Ulips exceeds £2.5 lakh. A securities transaction tax will also be levied on redemption of Ulips. The FM has kept Ulips taxation at the level of equity mutual funds. The FM has proposed collecting additional taxes on high income individuals by proposing to tax interest income in excess of the employee's contribution £2.5 lakh to various retirement funds. As far as I know, the Public Provident Fund (PPF) is not included in this proposal, as the total contribution to the instrument cannot be exceeded £1.5 lakh in each fiscal year. There will also be some impact of agricultural infrastructure development on individuals when they purchase certain foods, cotton, alcohol, silver, and gold, among others.
Some may refer to it as a budget that contributes to inflation and macroeconomic disruption, but I believe the FM could not have done better in the circumstances.
Sonu Iyer is Tax Partner and Head, People Advisory Services, EY
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