The Union Budget of India, referred to as the Annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India, presented each year on the very first day of February by the Finance Minister of India in Parliament. The budget, which is presented by means of the Finance Bill and the Appropriation bill has to be passed by the House before it can come into effect on 1 April, the start of India's financial year.
The annual budget announcement every year is an important event and is eagerly heard, observed, and analyzed by the experts, intellectuals, and business entities, apart from the ordinary citizens to study their long term effects on their lives along with the economy of the nation. Let’s further analyze the proposals announced for certain important sectors-
1. Consolidation of various Acts to create a Unified Market Code-
This year too, the Union Finance Minister announced the Budget for FY 2021-22, unveiling her policies for the ‘Financial Capital’ with a big-bang announcement related to SEBI. Many significant regulations, including the SEBI Act, would be consolidated with other important laws to create a common single Code to consolidate the provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contract Regulation Act among others, for ensuring better due diligence and regulation by the market regulator.
Further, the Securities & Exchange Board of India or the SEBI has also been roped in for an additional responsibility to act as a regulator authority for gold exchanges, an idea that was previously proposed in the Union Budget 2018-19. The proposed move would help in cutting down compliance costs and reducing the friction between rules enacted by capital markets watchdog Sebi, depositories, and government, experts said.
For years now, SEBI has established itself capable and competent authority to regulate the capital & securities market, even in situations where its jurisdiction is being widened tremendously. Due to this reason, every year we witness major changes and announcements in regard to SEBI made by the Union Government in the Union Budget.
2. Changes Proposed to GST Act
The Union Budget 2021-22 has introduced major changes in Goods & Service Tax through the Financial Bill proposed for the year 2021. This year the Finance Bill 2021 has proposed changes in the CGST Act & IGST Act, 2017, with a view to discourage GST frauds and enhancing safeguards and GST revenues. Such proposed amendments are expected to effect from the date when the same will be notified, as far as possible, simultaneously with the conforming amendments to the similar Acts passed by the States and Union Territories with Legislature. Finally, provided below is the list of the proposed changes under the above-mentioned Acts-:
a. Expansion of the Scope of the Expression “Supply”
For widening the scope of the expression “Supply” under section 7 of the CGST Act 2017, a new clause has been added with retrospective effect from the 1’st July 2017, for the purpose of warranting levy of tax on activities or transactions involving the supply of goods or services by any person, other than an individual, to its members or constitutes or vice-versa, for cash, deferred payment or otherwise for any valuable consideration. The amendment is brought in accordance with the judgment ruled by the Hon’ble Supreme Court judgment in the case of State of West Bengal & Others. v Calcutta Club Limited [2019(29) G.S.T.L 545 (S.C.)] for the Service tax regime wherein it was held that there cannot be the sale of goods or provision of services between the unincorporated private club/associations and its members owing to the principle of mutuality which treats such clubs/associations and its members as the same person, which similarly applies to the GST.
b. Insertion of an additional condition to avail ITC –
A new clause (aa) to sub-section (2) of section 16 of the CGST Act, for the purpose of addition of a new condition to avail the Input Tax Credit on invoice or debit note, which could be availed only on fulfillment of the condition that-
i. When the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and
ii. Such details have been communicated to the recipient of such an invoice or debit note.
This amendment gives an extra-constitutional backing to much disputed and deliberated upon Rule 36(4) of the CGST Rules, 2017.
c. Scrapping of Audit Requirement under GST –
The Finance Bill 2021, has proposed scrapping of Audit provided under sub-section (5) of section 35 of the CGST Act 2017, to eliminate the mandatory requirement of auditing of annual accounts and reconciliation statement submitted by specified professional(CA/CMA) under the GST.
d. Filing of Annual return on Self Certification basis –
By eliminating the need to furnish a reconciliation statement by specified professional under section 44 of the CGST Act and such other corresponding acts, the Finance Bill proposes the filling of annual returns on a self-certification basis and allows the Commissioner to exempt a class of taxpayers from the requirement of filing the annual return.
e. Interest on Net Cash Liability –
The Finance Bill 2021, intends to amend S.50 of the CGST Act with a retrospective effect to substitute the proviso to sub-section (1), for the purpose of levying interest on the net cash liability with effect from the applicability of the GST Act on delayed payment of GST on net cash liability as per the decision reached by the GST Council in its 39thGST Council.
f. Separate recovery of tax proceeding in Transit checking –
The latest Bill also provides an amendment under section 74 of the CGST Act 2017, which is being amended so as make seizure and confiscation of goods and conveyances in transit a distinct proceeding from tax recovery proceedings.
g. Agriculture Infrastructure & Development Cess-
A new cess namely, the Agriculture Infrastructure and Development Cess has been proposed to be levied on petrol as Rs. 2.5 rupees per litre and Rs. 4 per litre on diesel. Similarly, unbranded petrol and diesel have been proposed to attract a basic excise duty of Rs. 1.4 and Rs.1.8 per litre on petrol and diesel respectively. The same shall be levied on Alcoholic Beverages at a percentage of 100%.
3. Provisions related to Income-Tax
i. Faceless Appellate tribunal & Mechanism
According to the Union Finance Minister of India, our country needs a tax system that would place a minimum amount of burden on the Indian masses. She neither suggested any change in slab rates for the year 2021-22, nor any announcement related to much anticipated COVID cess.
To ease and encourage tax- compliances, the Union Government proposed a faceless dispute redressal mechanism to be launched, through a Faceless Income Tax Appellate Tribunal Centre making the system more transparent through electronic communication and without any prescribed limits of jurisdiction and the same to be facilitated through reduction of timelines for income tax proceedings proposed. And for ensuring the same objective, the FM has announced the case assessment to be reduced to 3 years from the previous limit of six years.
Finally, to encourage a digital economy and reduce compliances, the limit of tax audit has been raised from 5 Crores to 10 crores, such individuals undertaking 95% of their total transactions digitally.
ii. Provisions on Senior Citizen Income & Deposit Interests
The Government proposed that the Senior citizen of the country (who are either 75 in age or above), and who are not in receipt of any income apart from pension and interest on deposits would no longer be required to submit Income Tax Returns. However, any interest income earned on EPF over and above Rs 2.5 lakh will be subject to taxes.
iii.TDS Exemption on Dividend Payment to REIT &InvITs
Reflecting on the Government’s earlier decision to abolish the payment of Dividend Distribution Tax (DDT), from the hand of companies and making it payable from the pockets of shareholders, now, the FM has proposed to make dividend payments in the hands of Real Estate Investment Trusts (REITs) and Infrastructure Investments Trusts (InviTs) exempt from the payment of TDS to further incentivize investments. Also, Foreign Portfolio Investors or the FPIs allowed tax deductions on dividend income at a lower treaty rate.
v. Pre-filled ITR Forms
The Union Government has also proposed to simplify the ITR procedure to encourage tax –payments among the Indian population. The union Budget 2020-21 provided in addition to salary income, tax payments, and TDS details, the revamped ITRs will provide details like capital gains, income from list securities, dividend income, income from interest on bank deposits in a pre-filled in ITR format.
vi. Dispute Resolution Mechanism for small taxpayers
For the purpose of easing compliances and making them hassle-free, the Government of India has proposed to initiate a dispute resolution mechanism for small taxpayers having an income up to 50lakhs and a disputed income up to 10 lakhs, and such disputes shall be resolved through the means of a Dispute Resolution Committee, which will reduce litigation and will encourage dispute resolution at initial stages itself.
e. Taxation Provisions for Unit Linked Insurance Plan (ULIPs)
With an objective to rationalize taxation of ULIPs, the Government has recommended an exemption up to 2.50 lakh of the annual premium associated with ULIPs, which shall be applicable on ULIP policies taken on or after 01.02.2021. However, nothing shall be subject to tax which is received on death without any limit on the annual premium. Additionally, for ensuring transparency, the amount chargeable to tax under ULIP shall be granted similar concessional capital gains as are available to the Mutual Funds at present.
f. Exemption on Certain Foreign Income of NRI’s
Considering the hardships & difficulties faced by the Non-Residents with their foreign incomes on retirement due to taxation data mismatches, the Union FM suggested notifying rules to match the taxation incomes and eliminate such hardships.
g. Tax Exemptions & Benefits for Housing
Taking a further leap towards its objective to provide affordable housing to the Indian population, the Union FM has proposed an extension of the time-period to avail housing loans by a further one year of time to further avail further tax benefits of Rs 1.5 lakh u/s 80EEA of the Income Tax Act, the concerned section allows tax benefits up to Rs 1.5 lakh on the interest paid on loans taken for Residential House Property for affordable housing. Such benefit is over and above, the tax exemption allowed under section 24B of the Income-Tax Act 1961, which allows deduction on interest on loan availed for purchase/construction of House Property. The Government has also proposed an extension of tax holidays for start-ups by a further one more year, for the purpose of relocating funds to IFSC, and for the aircraft leasing businesses.
4. Company Incorporation of OPCs by Non-Resident Individuals (NRIs)
Keeping the prospects of the development of the Indian economy open and wide for the global competition and markets, the Union Government has also allowed Non-Resident Indians to incorporate and operate One Person Companies (OPCs) in India, along with the benefit of no pre-condition for any paid-up capital and turnover of the company, apart from Indian citizen who was only allowed to register OPCs in India.
Further, the Government has also proposed strengthening of the Court system for corporate entities through the strengthening of institutions like the National Company Law Tribunals (NCLTs) and other measures like the adoption of e-Courts and an alternate mechanism for the purpose of debt resolution will also be established apart from the decriminalization of various provisions under the LLP Act, 2008.
5. Relaxation in FDI Provisions in Insurance Sector
Announcing the Initial Public Offer for shares subscription of the Insurance giant, Life Insurance Corporation in India in the same year, the Union Finance Minister has announced FDI in the insurance sector to be raised from 49% to 74% for the financial year 2020-21. This step is going to have a large impact on the Indian economy and is being hugely appreciated on the part of the Government. The same was being requested for many years now and has the potential to attract huge foreign investments and fortify the insurance sector.
6. Amendments to Apprenticeship Act 1961
Taking one more step towards the skill development and the employability of the youth population in India, the Union Government has proposed amendments to be carried in the Apprenticeship Act 1961, defining the role of the employers and the trainee or apprentice/s, which will be later notified by the Government.
Conclusion
The Union Government has presented the mixed bag of Budget 2021 with its own positives and negatives. While some of the provisions like additional duties on commodities like diesel and petrol has discouraged people, on the other hand, relaxation in FDI norms, tax benefits on housing, and the enhancement of the role of SEBI as the market regulator is being widely appreciated and welcomed by the experts and the business industry.
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