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Major Highlights of the Union Budget 2021-22 (Part-1): Direct & Indirect Tax Proposals

The Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman, unveiled the Union budget 2021-22. It is the first budget of this decade, and it’s also a digital one. In this article, we shall look at the major highlights of this budget comprising of Direct and Indirect tax proposals proposed by the Finance Minister. 

Objective of the Union Budget 2021-22

Laying a vision for Atmanirbhar Bharat, the finance minister stated that the budget is an expression of Indians who have full confidence in their capabilities and skills. She further stated that the budget is expected to strengthen the Sankalp of nation first, doubling the income of farmers, healthy India, good governance, education for all, opportunities for youth, women empowerment, and inclusive development.

Pillars for Reviving Economy

The Union budget 2021-22 focuses on six pillars for reviving the economy:

• Health and Well being;
• Inclusive development for aspirational India;
• Physical and Financial Capital and Infrastructure;
• Reinvigorating Human Capital;
• Innovation and R&D; and
• Minimum Government and Maximum Governance.

This part has been discussed in another part of this article. You are advised to go through it for detailed information.

An Overview on Union Budget 2021-22

The total capital expenditure for FY- 2021-22 is 5.54 lakh crore rupees. Since the health care sector needs improvement, the Finance Minister proposed a new centrally sponsored scheme called PM Aatmanirbhar Swasth Bharat Yojana with an outlay of approx. 64,180 crore rupees over six years.

The budget outlay for Health and well being is estimated to be 2,23, 846 crore rupees for FY 2021-22. The increased allocation might just expand and further strengthen the existing national health institutions, health emergency operation centres, and mobile hospitals.

Another key highlight to take note was the increase in FDI limits in the insurance sector. The limit was raised from 49% to 74%. The government is contemplating to divest two PSUs and insurance company.

Union Budget 2021-22: Direct Tax Proposals

The Finance Minister asserted the intentions of the government to simplify the tax administration, litigation management and ease the compliance of direct tax administration.  There were certain direct tax proposals that were introduced. The individual and corporate tax rates were not changed.

In a significant move, the limit for tax audits has been increased to 10 crore rupees from the existing 5 crore rupees. It has come as a relief for many corporate houses.

Let’s now take a look at other amendments proposed in Union Budget 2021-22:

• Income Tax relaxation for senior citizens

The Finance Minister proposed to exempt senior citizens of 75 years of age and above from filing income tax returns if pension income and interest income are their only annual source of income. They have inserted an amendment to enforce the banks to deduct tax on citizens above 75 years of age who are having pension and interest income from bank.

• Dispute Resolution Committee

Those assessed with a taxable income of up to 50 lakh rupees and any disputed income of 10 lakh rupees may approach the Dispute Resolution Committee which would help in preventing new disputes.

• National faceless Income tax appellate tribunal centre

A provision has been made for faceless proceedings before the Income tax appellate tribunal in a jurisdiction-less way, which will help in reducing compliance cost for taxpayers and increase transparency in the disposal of appeals.

• Tax incentives for start-ups

The tax holiday for start-ups is extended for one more year that means up to March 31, 2022.

• Pre-filing of returns

Pre-filing returns shall be permitted for salary, payment of tax, etc. The details of capital gains from listed securities etc., shall be prefilled.

• Applicability of Advance tax on dividend income

The advance tax shall now be applicable on dividend income after its declaration. Tax holidays have been proposed for aircraft leasing and rental companies.

• PF contribution

Where the PF contribution of an employee was deducted but the same was not deposited by the employer, it will not be allowed as a deduction for the employer.

• Amendments to Section 43 CS and Section 44 ADA

The stamp duty value can be up to 120%, 10% more than earlier, on the consideration if the transfer of residential unit is made between November 12, 2020, and June 30, 2021.

Further, section 44 ADA, which applied to assessees being residents in India, will now apply to the resident individual, Hindu undivided family, or a partnership firm other than an LLP.

• Extension of Section 80EEA deduction

The affordable housing additional deduction is extended till March 31, 2022. Tax exemption is also granted for affordable rental projects.

Union Budget 2021-22: Indirect Tax Proposals

In the case of indirect tax proposals, the Finance Minister claimed that record GST collections have been made in the past few months. She stated that many steps have been taken to simplify GST. Deep analytics and artificial intelligence have been deployed to identify tax evaders and fake billers.

Let’s now take a look at other major announcements under Indirect Tax Proposals:

• Custom duty rates on some items have been revised. Few of the examples include reduced duty on copper scrap from 5% to 2.5%, basic as well as special additional excise duty on petrol and high speed diesel oil has been reduced, increase in custom duty rates on solar inverters from 5 to 20%, basic customs duty on silver and gold reduced. It may be noted that the above-mentioned revised rates shall be applicable from February 2, 2021.
• Agriculture Infrastructure and Development Cess has been proposed on a small number of items. The Finance Minister, while applying the cess, commented that they have given due care not to put any additional burden on consumers.
• In case of agricultural products, the customs duty has been increased on cotton, silk, alcohol, etc.
• The exemption of social welfare surcharge on the value of Agriculture Infrastructure and Development Cess has been imposed on silver and gold. Hence, these items will attract surcharge at normal rate only on value plus basic customs duty.
• Considering the fact that leather is produced domestically, the exemption on leather import will be withdrawn.
• A new initiative called the Turant Customs has been proposed for paperless, faceless, and contactless customs measures.
• The Finance Minister further stated that there are certain changes proposed to benefit MSMEs. Duty on steel screws and plastic builder wares has been raised from 10% to 15%. Customs duty on finished synthetic gem stones has also been raised with a view to encourage their domestic processing.

Conclusion

The Finance Minister confidently stated that the government is prepared to support and facilitate the economy’s reset and that the Union Budget^[1] 2021-22 provides an opportunity for the economy of India to raise and capture the pace that it requires for sustainable growth.

Read our article:Union Budget 2020-21: Live from Parliament

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