What the 2021 budget holds for business

By Manoj Kumar, Hammurabi & Solomon
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The budget for 2021-22, which was unveiled on 1 February 2021, impacts a number of commercial sectors.

In the corporate field, small companies are now defined as companies with paid up capital of ₹20 million (US$274,000) or under, and turnover of ₹200 million or under. This will reduce their compliance burden. The threshold of paid-up share capital for one-person companies is removed and the residency requirement for a person setting up such a company is reduced from 182 to 128 days. Non-compliance under the Limited Liability Partnership Act, 2008, is no longer a crime.

Manoj Kumar, Hammurabi & Solomon
Manoj Kumar
Founder and
managing partner
Hammurabi & Solomon

The finance, banking and securities sector will see the introductions of a unified securities market code to replace multiple laws, and an investor charter to protect investors in financial products. The limit for foreign direct investment in the insurance sector will be increased to 74% from 49%. An asset reconstruction company and an asset management company will be formed to manage stressed assets. There will be aggressive divestment of two public sector (PSU) banks and one general insurance firm. The Life Insurance Corporation will be floated, and some PSU banks will be recapitalized.

Taxation will see no change in income tax slabs, but the period for reopening assessments in normal cases is reduced to three years. Where there is direct evidence of tax evasion of more than ₹5 million (US$69,000), the period will be 10 years. Cases before the Income Tax Appellate Tribunal will be held online to remove burdens on taxpayers and speed up access to justice. Dividend payments to real estate investment trusts and infrastructure investment trusts will be exempted from tax deductions at source. Tax holidays and deductions for affordable housing projects and startups are extended until 31 March 2022. Tax incentives are proposed for the international financial services centre, and tax holidays will be offered to aircraft leasing and rental companies. Some 400 Customs exemptions will be reviewed to prepare a revised custom duty structure.

For the digital economy ₹15 billion (US$206 million) has been earmarked for the promotion of digital payments, and the exemption from tax audits for entities doing most of their transactions digitally has been doubled to turnover of ₹100 million.

In manufacturing, the production linked incentive (PLI) scheme will cover 13, as yet unnamed, sectors to incentivize production targets. Infrastructure and transport sees a proposal for a national infrastructure pipeline that will monetize assets, and raise expenditure in central and state budgets. Monetizing initiatives generally feature in the budget. Recycling capacity will be doubled by 2024, generating an additional 1.5 million youth jobs. A Development Finance Institution will be set up with ₹20 trillion in funding. Railways will receive increased investment to make the system future ready by 2030. Dedicated freight corridors will be established and quickly monetized. Private players will provide and operate over 20,000 buses and will manage six major ports. In energy a national policy will implement the generation of hydrogen from green power sources. Independent gas transport system operators will ensure a fair allocation of natural gas transportation capacity.

Initiatives in education and skill development will see partnerships with the UAE and Japan and the realignment of degrees and diplomas in engineering apprenticeships. Health and wellness policies aim to improve healthcare, pollution and water supply. Financial support will aid the response to covid-19.

With regard to textiles, seven textile parks will be established under the Atma Nirbhar Bharat [self-reliance policy]. Finally, social security will be extended to gig and platform workers. Minimum wages are to be paid to all categories of workers and covered under the Employees’ State Insurance Corporation. Capital requirements for loans under the Stand-Up India Scheme are reduced for scheduled castes and tribes, and women.

The Union Budget for 2021 comes in the wake of most difficult times. While not upsetting the apple cart with regards to tax slabs, the budget makes some very bold initiatives such as a new securities code, the PLI scheme, monetization policy, aggressive divestments, professional management of banks’ non-performing assets and government assets with a deeper role of the private sector, as well as increased infra funding and 74% FDI in insurance.

Manoj Kumar is the founder and managing partner at Hammurabi & Solomon

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