This article has been co-authored by Shankey Agrawal (BMR Legal Associates).

A budget for everyone, which does not disappoint any sector and instead is magnanimous to usher growth and increase productivity with various measures. The impressions from the Finance ’s speech clearly indicate that a massive boost for the economic sentiment is here. The enormus spending on infrastructure through capital expenditure and outlays beyond one year by formally seeking a deviation from Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) clearly endorses acceptance of the vision document in Economic survey and also meeting the time-rested macro-economic theory of Keynes that the recession is best address by indulgent government intervention.

On the tax front, it was widely anticipated that the massive expenditure would require increase in tax rates on a new tax. However, through innovative measures such as land monetization the Finance Minister has shown that new tax is not an answer to desire for growth and the Indian Economy is resilient to match the expectations of becoming a developed nation within the current economic paradigm. Further, continuing with the trend of the recent years, the Government has continued its’ efforts for reducing the tax litigation and increasing the trust on the taxpayers. The mettle of the government shall be tested in ensuring that today’s announcements are implemented in letter and spirit. However, without doubt the recipe of success has been laid out by the FM towards ensuring economic revival and growth.

In a difficult year where the fiscal deficit has shot up to as high as 9.5%, the Finance Minister has shown great restraint by not levying any new or additional taxes, except for increasing customs duty intended to provide a conducive environment for domestic manufacture. As there was no space to give fiscal relief the Finance Minister has chosen to give administrative relief for example, by reducing the period within which assessments can be reopened and increasing the prefilled portion of Income-tax Returns. As always there are two sides to every coin and therefore, the continuing thirst towards simplification by faceless assessments and appeals has the negative of leaving assessees with a feeling that their issues may not be understood or appreciated in the proper perspective. Also, increased fiscal deficit and consequent inflation is effectively, taxing everybody linked to their consumption. Such a hidden tax is regressive as the impact of the “inflation tax” on the middle classes and on those below the poverty line is far greater than on HNIs. The real impact of the budget is on expenditure, on health, on infrastructure and other areas and it is the efficiency of Government expenditure which will decide the success or failure of this annual plan. The policy initiatives are in the right direction and if the expenditure targets are achieved and the money is used efficiently, it should lead to a significant improvement in the economy, in the environment and in the life of every Indian.

Budget 2021 – The Continuity of Reforms

The budget was presented in the backdrop of hope of a faster economic revival amidst visible green shoots post the pandemic. The expectations were steep on the FM and the ask was to present a ‘once is a century’ budget with conflicting demands of providing public welfare on one hand and to lay a road map for a double digit growth. Considering that the FM had taken a series of steps through the previous year to address the evolving pandemic scenario, the budget was therefore more of continuity of the reforms already embarked upon.

On the personal tax front, the FM has left the income tax slabs/deductions unchanged and has provided relief to senior citizens from filing of the Income Tax Returns. The announcement of pre-filled ITR’s to include capital gains, dividend and interest income would mean that individuals would have to have a closer look at their IT returns to ensure that the  tax positions are reflected correctly. On corporate taxes, considering that the government had already rationalized the corporate tax rates in the previous budget there were no significant changes on that front. The move to provide TDS relief for REIT’s and InVIT’s for dividend and providing clarity on advance tax liability in case of dividend income irons out the ambiguity surrounding the same. Further steps such as setting up of a permanent dispute resolution committee for small taxpayers, increase of tax audit limits are positive steps. To summarize on the direct tax front, non introduction of any additional Covid cess, leaving the capital gains tax rates untouched and continuity of existing tax regime is a Covid year is certainly a positive signal.

The corporate restructuring front saw significant amendments. The proposed amendment to exclude goodwill from the ambit of depreciable assets FY 21 onwards upturns the decision of the Supreme Court in the case on Smifs Securities on the matter and all restructurings going forward should factor in the impact of the same. Further the ambit of ‘Slump Sale’ has been widened to include ‘Slump Exchange’ which means that going forward such transactions would be taxable. Also changes have been proposed to reconstitution/dissolution of firms pursuant to which any excess withdrawal from the firm by a partner, capital gains shall be computed without taking into account the revaluation of any asset or due to self-generated goodwill or any other self-generated asset.

On the macro front, the fiscal deficit of FY 21 of 9.5% to 6.8% in FY 22 factors in double digit growth to the economy and it would be interesting to see if the same is maintained. The theme of Atmanirbhar Bharat was furthered through policy announcements under six pillars of Health, Infrastructure, Inclusive development, Re-invigorating human capital, Innovation and R&D, Minimum Government Maximum Governance.

The proposed fund raise through the disinvestment of LIC, Recapitalisation of PSU Banks, Proposal for the set up of INVIT’s by NHAI & PGCIL to attract global investors, Increase in FDI in the Insurance sector are positive steps for the  economy and should provide an impetus to the respective sectors. Further increased focus on Healthcare, increased allocation for MSME sectors and the proposed consolidation of all securities laws are a Big positive.

To summarize, the FM has presented a Budget that displays ambition and the focus now lies in the execution of the same.

The Union Budget 2021 – 2022 was presented in the backdrop of the devastating Covid-19 pandemic that has impacted the world, and continues to do so even today.  In this context, the Budget was a balancing act, because of the infra spending and the overall Government spending that was expected to go up, on one hand, and, on the other hand, the Government revenue has certainly taken a significant beating, and may continue to be tepid for some more time.

 In the above context, there was a concern of increase in tax rates, though equally, with the highest tax slab at about 43% on individuals, one was wondering how the increase could be effected at all.  In case of corporates, having reduced the rate to 25% a couple of years back, it was difficult to do an upward roll back.  In this context, in one sense, it is not surprising that tax rates have not changed, which is welcome.

 There is surprisingly no mention of the much awaited number of days of stay relaxation for NRIs for FY 2020-21.

 On the direct tax front, some key highlights:

 Ø   Some M&A related amendments: Most of them negative from an assessee standpoint, and effective from FY 31 March 2021 itself; Depreciation on goodwill not allowable, partners of a partnership firm or LLP liable to capital gains on retirement on the amounts/assets received in excess of capital balance, and slump exchange (which was arguably not taxable), has now been made taxable

 Ø   The relentless expansion of TDS and its consequential compliance burden keeps getting broader.  A new section 194Q has been inserted to provide for 0.1% TDS on purchases in excess of INR 50 Lakhs by an assessee whose gross turnover/receipts exceed INR 10 crores during the FY immediately preceding the FY in which the purchase of the goods is carried out. (effective 1 July 2021).

 Ø   Various amendments have been made regarding dispute resolution, including discontinuation of Settlement Commission, discontinuation of the Authority for Advance ruling (“AAR”), introduction of a new Board for Advance Rulings (“BAR”) (with several changes compared to AAR including that both the members will be senior revenue officials and the advance ruling of the board not to be binding on the applicant or tax department), Dispute Resolution Committee for small and medium tax payers (returned income up to INR 50 Lakhs and disputed income up to INR 10 Lakhs). Given the limited scope of the BAR (same as AAR) and the composition (2 senior revenue officials), this is likely to be another dead letter.

 Ø  Amendments relating to real estate extending the scope and time for 100% deduction of builders of affordable homes, and the outer date for deduction in respect of interest on loan taken by individuals (where the loan has been sanctioned up to 31 March 2021) ; both have  been extended by one more year (i.e. up to 31 March 2022.) Also, no TDS on dividend credited or paid by an SPV to a business trust (REIT or InvIT) by a an SPV.(effective retrospectively from 1 April 2020.)

Ø  there are other sectoral amendments re Aviation (intended to help the sector), and insurance (in the nature of anti-avoidance re certain types of insurance policies) and several amendments re funds (most linked to IFSC)

Overall, from a direct tax standpoint, not many negatives, but a disappointing absence of amendments which were needed to facilitate restructuring and the amendments on the much needed dispute resolution seem ineffective.

Welcome moves by the Government: 

Tax audit limit increased to INR 10 crores in case of tax payers who undertake transactions to the extent of 95% or more in digital mode.  Anomaly existed in the previous budget for tax exemption for transactions subject to equalisation levy now removed. The exemption is now applicable from FY 2020-21 and onwards. However, there is no exemption to royalty or FTS transactions and a corresponding amendment in made in equalisation levy provisions to exclude royalty or FTS transactions. Extension of date of incorporation for eligible start up for exemption and for investment in eligible start-up 

Time limit reduced for intimations/ assessments/ re-assessments. Relaxation for certain category of senior citizen from filing return of income-tax. Advance tax liability in case of dividend income shall arise in the immediate next quarter after the same is earned. Presumptive taxation scheme in the case of a profession earlier restricted to individuals now extended to resident HUFs and firms other than LLP. Further, National faceless Appellate Tribunal proposed to be introduced and physical hearings to take place through video conferencing in required cases. Also, Dispute Resolution Committee proposed to be constituted for small tax payers. 

Points to be revisited by the Government: 

After Supreme court judgement in the case of Smifs Securities Ltd, wherein it clarified that goodwill is eligible for depreciation, move taken by the Government w.r.t. excluding goodwill (of a business or profession) from the definition of intangible assets and respective amendments brought under section 32 & section 55 is discouraging. Therefore, from AY 2020-21 and onwards, if goodwill forms part of block of assets, and depreciation is claimed thereon, the written down value and short term capital gain thereon shall be determined in the prescribed manner, which will be notified.  Slump sale definition amended to include transfer by any means. Therefore, this now covers a case of slump exchange as well and accordingly, the computation mechanism of slump sale applies to a case of slump exchange. It is worthwhile to note that tax payers were taking a position that no capital gains will arise in absence of computation mechanism and this was argument was upheld by judicial decisions in the past. This position will have to be relooked at and its implications would need to be analysed. 

EPF interest would be subject to tax if the contribution in a financial year is more than INR 2.5 lakhs. Further, delayed remittance of employee contribution under section 36 of the Act to suffer permanent disallowance and this amendment being clarificatory in nature would have retrospective application.  TDS on purchase of goods at 0.1 % in case payment by specified buyer (turnover exceeds 10 crores in the PY) to resident seller exceeds 50 lakhs rupees. PAN not available cases – rate would be 5%.  Income-tax Settlement Commission abolished and Interim Board shall be constituted for settlement of pending applications. This provision will take effect from 1 February 2021. 

[The comment is co-authored by Mr. Rohit Saboo (Manager, Deloitte)]

Budget 2021 is largely expenditure focused, with few important taxation proposals. There is a willingness to brave a large fiscal deficit, calculating on the economy’s projected buoyancy and better compliance and administration to yield tax revenues in an improving economic scenario, despite continuing Covid-19.

Though our Honourable Finance Minister spoke only about a few broad procedural and administrative tax changes, the Finance Bill contains a few far-reaching substantive changes. Notable ones are the ones that deny depreciation on goodwill as well as clarify the taxability of ‘slump exchanges’, overturning some favourable judicial decisions.

Clarifications made retrospectively in the arena of Equalisation Levy have now explicitly expanded its ambit to almost all transactions having some element of a digital character. It is clarified that payments in the nature of royalty / FTS will not fall within its scope. One beneficial change here relates to the income-tax exemption for receipts liable to Equalisation Levy. This provision was originally made applicable only from FY 2021-22, but it is now proposed to make it apply from FY 2020-21 itself.  

There are important changes on the administrative / procedural side as well, which include the reduction in time for re-opening assessments to 3 years and rationalization of tax audit provisions. Changes to the AAR and Settlement Commission mechanisms are far reaching in their scope.

In the first digital Budget presented by our FM during these unprecedented times hit by the pandemic that saw contraction of global economies, seems to be an honest attempt of fine balancing act with aptly identified six pillars covering areas like Health and Well-being, Physical and Financial capital and Infrastructure development etc., that fuel the much needed economic growth. While the announcements have ticked all the right boxes, one needs to see the action around implementation of the same at the ground level and the adequacy of the outlays.

It appears from the FM’s speech, there is no additional tax burden proposed on the taxpayers which is a right move considering the contraction or loss of income for many. There are attempts made in the form of proposals to ease the burden of compliance including reduction in timeline for reopening assessments which alleviates uncertainty.  Proposals covering extension of tax incentives to startups and affordable housing seem to be appropriate. The efficacy of the proposed Dispute Resolution Committee for small taxpayers needs to be seen in the light of the functioning and effectiveness of current Dispute Resolution Panel covering transfer pricing and international tax matters.  Overall the budget appears to be in the right direction.

The Finance Minister had unenviable task of delivering on her promise of a never before seen budget this year. She and her team worked under extremely challenging times : The GDP having shrunk into negative in fiscal 2020-21 due to obvious negative economic situation faced by the economy under the pandemic.  She has acted deftly and with confident boldness, which is exemplary and laudable. Not increasing any direct taxes is a major positive. Instead, as mentioned in her speech, the fine print of the Finance Bill clearly demonstrates plugging of several loopholes and removing some uncertainties for better compliance. Levy of agri cess under indirect tax is a clever stroke. Everyone dealing in those goods will pay the cess but it is not slapped on foreign investor if the latter is not subject to indirect tax, which majority of private equity, investment funds and foreign portfolio investors are not. And yet, it is likely to result in higher collections! Some of the measures announced for senior citizens, individual tax payers etc are very welcome. E.g. no advance tax on dividend income unless the dividend is declared and accrued. Reducing the reopening of assessment to 3 years in normal cases is very welcome step. Removing the uncertainty of withholding tax  rate for foreign investor  buy providing that treaty rates will apply was necessitated by a recent Supreme Court decision which caused a lot of worries. Removing the restriction of carry forward of losses in case of public sector strategic divestments  and amalgamations or demergers will provide much needed shot in the arm to the disinvestment activity. Removing levy of dividend withholding tax for REITs and InvITs  coupled with expanding the class of assets to qualify for InvITs will go a long way in  restoring the attractiveness of moentising infra assets.

While a lot of good measures have been announced, this was the time to also make a bold statement of removing causes of international tax disputes which have emerged due to the retrospective change in law for taxation of indirect transfer of Indian assets. Hopefully, soon, provisions will be brought in to provide tax certainty in case of offshore listing of Indian companies and the much talked about  Special Purpose Acquisition Corporations (SPAC), looking to infuse the huge investible funds available offshore. The dispute resolution which is provided for small companies can be extended to ALL companies involved in cross border transactions and especially non-resident tax payers.

“FM gave a growth oriented reformative budget giving due thrust on capital investment.  Amidst the high expectations of a pandemic-struck India, FM treaded the tightrope successfully, maintaining a balance between revenue gap and government’s commitment to the pained sectors of the economy, viz. infrastructure, healthcare, public transport system, auto, textiles, digital India. This will have the desired impact of enhancing employment - keystone of the economic recovery program. Government’s decision to increase the FDI limit in the insurance sector from 49% to 74% will help attract greater foreign investment and strengthen the insurance sector. Measures to clean up the NPAs in the banking sector by creation of an ARC and Asset Management Company will help improve the health of the banking sector.  

A fine print analysis is required to decipher the real impact of the Agricultural Infrastructure and development cess, since there is apparently a simultaneous reduction in BCD.

Doomsday measures such as an additional cess and increase in tax rates were rumoured but the Finance Minister put these to rest by not increasing the effective tax rate for any class of taxpayers Constitution of faceless ITAT is another step in the inexorable march towards transparency and impartiality through digital means.

Keeping in mind the unprecedented government expenditure due to the pandemic and recognizing the need to promote India as an investment hub. Virtual hearings option at ITAT and NCLT, could have huge impact on speed of resolution of disputes, reinstating investor confidence. Ensuring that TDS be at DTAA rates is big step in adhering to treaty obligations and creating predictability, reversing the PILCOM case, goes a long way in settling the legal position. Aptly incentivising the start-ups, one person company can now be setup without within 120 days. Also, tax holiday period and capital gain exemption for investment in start-ups has been extended by a year. Keeping in mind the reduced efforts required in a digital era, the timelines for filing of belated returns, revised returns and completion of assessments has been shortened. Highly litigated issues such as depreciation on goodwill and deduction of employee contribution to funds beyond the statutory due dates have been put to rest. “

For Budget 2021, it seems FM has listened to and sought to implement all the major suggestions made by economists and businesses alike. Thus, a massive dose of expenditure outlays skewed towards capital expenditure is proposed in critical areas such as healthcare and infrastructure. Also, some significant announcements for the financial sector including bank privatisation and setting up stressed assets structures for NPAs have been announced. Whilst the fact that no major changes in the design or rates of direct taxation signals strong resolve to have stability in the tax regime, there are certain welcoming changes to clarify or provide relief in appropriate cases. For example, the time limit for reopening of past cases has been reduced from six to three years and foreign shareholders in Indian companies will get the benefit of lower withholding rates on dividends under tax treaties. However, disallowance of deduction on goodwill in merger transactions is an unexpected dampener. Also, the announcement of a dispute resolution committee for only small taxpayers is disappointing as there is a crying need for an omnibus mediation channel for all taxpayers, especially where large tax disputes are likely to arise.

Growth Centric Budget in difficult times

Hon’ble Finance Minister Smt. Nirmala Sitharaman (Hon’ble FM) presented the first ever ‘paperless budget’ amid the ongoing COVID-19 pandemic. Some major amendments/announcements made by the Hon’ble FM from the direct taxation front are as below:

1)      Reduction of time limit in income tax proceedings/Tax certainty: General time limit for reopening of past tax assessments has been proposed to be reduced from 6 years to 3 years.

2)      Faceless Tax Tribunals: The bill proposes to make functioning of Tax Tribunals as ‘faceless’. Accordingly, all electronic communications between taxpayers and Tax Tribunals will now be routed through ‘National Faceless Income Tax Appellate Tribunal Centre’. It has also been proposed that personal hearing wherever needed will be conducted through videoconferencing. Finer details needs to be seen as this is very significant changed proposed by Govt.

3)      Set up of Dispute Resolution Committee: It has been proposed to set up a ‘Dispute Resolution Committee’ for resolution of tax disputes of small taxpayers (i.e. small taxpayers with disputed income upto Rs 10 lakhs and taxable income upto Rs 50 lakhs will be eligible to approach the committee for resolution of their tax disputes).

4)      Relief for non-residents: It has been proposed to notify rules for removing hardship of double taxation of income for non-residents from foreign retirement funds.

5)      Relief for Senior Citizens: It has been proposed to exempt senior citizens (ie 75 years age or above) from tax return filing requirement if their income consists of pension and bank interest only.

6)      Dividend income related relaxations: Dividend paid to REIT and InvIT is proposed to be exempted from TDS. It has been proposed that advance tax liability on dividend income shall arise only after declaration/payment of dividend. The bill further proposes that FPIs will be eligible for deduction of tax on dividend income at lower treaty rates, if applicable.

7)      Relaxations for foreign Sovereign Wealth Funds: Certain eligibility conditions (i.e. relating to prohibition on private funding, restriction on commercial activities, and direct investment in infrastructure) for foreign Sovereign Wealth Funds exemption have been relaxed.

8)      Pre-filled tax returns: It is proposed that details regarding capital gains income from listed securities, dividend income, interest from banks, post office etc will be pre-filled in the Income-tax return forms.

9)      Incentives for start-ups: Tax holiday for start-ups has been proposed to be extended till 31 March 2022. Further, capital gains tax exemption on investment in start-ups has also been proposed to be extended till 31 March 2022.

10)   Affordable Housing: Additional interest deduction of Rs 1.50 lakhs is proposed to be extended for loans taken till 31 March 2022.

Comments: Overall, a very positive and focused budget in such unprecedented and difficult time, laying significant emphasis on infrastructure and health sector.

Reducing time lime for reopening of completed tax assessments from present 6 years from the end of relevant tax assessment year to 3 years is a great initiative by the Government which will go a long way in promoting certainty and clarity in tax matters. This is also in line with what Hon’ble Supreme Court had observed in famous Vodafone Tax ruling of 2012 that certainty in tax matters is of paramount importance for taxpayers community and to promote conducive business and foreign investment environment in the country.

Finally, not levying any new covid related tax/cess itself is a big positive in itself from taxpayers perspective!

Disclaimer-Views expressed (if any) are personal and should not be considered as legal advice.

India is emerging from the COVID -19 crisis, and now the commitment and sheer will of the finance minister will act as a catalyst in the next phase of the growth process. Hon’ble finance minister has promised a transparent, efficient, accountable, and faceless tax system that plans to simplify administration, reduce compliance and reduce tax litigation in the country.

We also welcome a review of over 400 ages of old customs exemptions that will remove distortion from the tax structure and improve tax collections in the country.

Some important changes has also been made in GST law one of which is the removal of mandatory requirement to getting annual accounts audited and reconciliation statement submitted by specified professional. GST law is already witnesses huge racket of GST fraud and clandestine removal of goods as well as the law is in ever-evolving mode, relaxing the compulsory third party independent certification at this juncture seems to be nothing less than a gross mistake. Relying solely on the departmental officers to interpret and examine the GST provisions and laying down an invincible law for over 12 million taxpayers is an over-ambitious project.

Also, the provisions of zero-rated supply have been suitably amended to restrict the zero-rated supply on payment of integrated tax only to a notified class of taxpayers or notified supplies of goods or services. This amendment has been borrowed back from the previous taxation regime in the wake of fraudulent GST refunds issued in an automated matter by customs ICEGATE.

Amendment has been made to link the foreign exchange remittance in case of export of goods with the GST refund so that the fundamental purposes of garnering foreign exchange is kept intact, while admissing in taxation benefit to a supplier.

Higher capital spend and status quo for corporate and personal income tax rates are two main highlights of the budget 2021. Various steps taken for digitalization of tax compliance and faster dispute resolution. Reduction of period to three years for reopening of assessment, faceless ITAT and no deduction of late payment of employee contribution are few important proposals under Direct tax. Concrete steps will be taken for elimination of inverted duty rate under GST and customs duty rate rationalization for promotion of make in India, are steps in right direction whereas non-inclusion of few petroleum products in GST and no amnesty for customs are dissatisfying, leading to mix budget for indirect taxes. Overall a good budget to boost economic growth, attract FDI with more certainty on tax matters supported by early dispute resolution.  

Union budget 2021

Finance minister Nirmala Sitharaman presented the first paperless budget today.

In the wake of COVID-19 pandemic careful measures were expected from the Government in the Union Budget to support and recover the economy. The six-pillar budget for Health and Wellbeing, Infrastructure, Inclusive development, Development of human capital, Research and development, Minimum government, maximum governance focuses on contribution to aspirational India.

Detailed allocations have been made for various sectors including Agricultural, Education, Infrastructure, etc. which is a welcome move.

Measures such as target for 100 percent electrification of broad-gauge railways will reduce dependency on conventional fuels.

Increase in FDI cap in the Insurance sector from 49% to 74% is an appreciable move. This will provide more exposure to players at all levels.

Not many measures from taxation perspective have been provided in the budget speech. Some of the significant changes announced are doing away with the requirement to file return of income for senior citizens who have only pension and interest income, reducing the time limit for re-opening of assessments, new rules for removal of double taxation for non-residents to bring rates in line with DTAA etc.

Further, as an extension of steps to reduce tax litigations, a Dispute Resolution Committee is going to be set-up for small taxpayers. Certain long-pending litigations are now been settled with adoption of reduced tax rates as per applicable treaties for Dividend income, denial of deduction on late deposit of employee contributions towards social security by employer, etc.

From compliance perspective, increase in threshold for tax audit applicability will be a great relief to small taxpayers. Pre-filling of return of income is further extended to have inputs regarding interest, dividend and capital gains from listed securities. Setting up Faceless Income Tax Appellate Tribunal was an expected action in the process  of administrative reforms. However, one has to wait and watch on how there will be demarcation for those appeals, that require online hearing to present arguments.

Start-up benefits meets industry expectations with extended tax break. Capital Gains exemption on investment in start-ups is also extended to 31 March 2022.

Overall, the budget seems to be more focusing on stabilizing the economy and infrastructural development rather attempting at bolstering the economy .. ‘Ease of Living’ has been the mantra of budget. In short this was a budget broadly on expected lines post pandemic but more could have been done to bolster consumption.

Prima facie the 21-22 budget looks like one of the best budget in the recent past. The tax payers are pleasantly surprised as the fears of government imposing a COVID tax, wealth tax  etc. proved wrong.  The budget proposals are founded on 6 pillars namely, Health and well-being, Physical, financial capital and infrastructure, Inclusive development, Human Development & skilling, innovation and R&D and minimum government and maximum governance. The proposed expenditure in the budget on the above 6 pillars, is expected to  expedite  the “V” shape recovery of the economy in the financial year 21-22. There is no increase in personal or corporate tax rate even under these extreme circumstances  of COVID led slowdown in revenue collection. However, there is significant increase in customs duty to promote local manufacturing and widespread relaxation in statutory compliance requirement under various laws envisaged in the budget. As expected, the fiscal deficit is high at 6.5% of the GDP as opposed to the limit of 3% under FRBM Act, indeed the FRBM act such high deficit in unusual circumstances. These deficit will be financed by improving revenue collection through better compliance mechanism, disinvestment of Public sector undertaking and market borrowing. Government spending is on expected lines like making major investment in infrastructure and financial support to the industries and agricultural sectors, discarding or amending old laws including de-criminalization of certain  legislations. The initial reaction of the stock market itself shows the optimism generated by the budget. Overall, the budget looks positive, growth oriented and expected to give s fillip to the “V’ shaped economic recovery and  help achieve a GDP growth of 11 – 11.5% in the next financial year 1921-22 as opposed to  7.7% contraction in the GDP growth in the year 2020-21.

This year's budget as expected focussed on the MSME sectors and encouraging public private partnership models, privatization of public sector banks and disinvestments in certain sectors. The FM's policy seems to be based on the belief that the tax system should be transparent, efficient and promote investment and employment, yet at the same time have a lesser burden on tax payers. The Hon'ble FM mentioned that GST is 4 years old and measures have been taken to simplify it constantly including the capacity of GSTN enhanced, launched drives against evaders. Fine print needs to be reviewed further on the proposed GST related changes.

It is proposed to make robust changes in the customs duty rates (including looking into the inverted duty structure, custom duty rationalisation) maintaining the fine balance between easy access to raw material and export of value added products and giving impetus to the domestic industry. Notification providing for the validity of customs duty exemptions is proposed to be effective till 31 March of the 2 succeeding years from date of its issue. Some sectors where changes have been made are electronic and mobile, where exemptions are proposed to be  withdrawn, iron and steel where duty rates have increased, reduced customs duty rate on naphtha to 2.5 percent. It is also proposed to notify a phased manufacturing plan for solar cells and solar panels etc. in India.

Clearly this budget endeavours to provided the much needed impetus to the economy and the people of India Inc.

It is a good budget addressing many important areas of interest and the market also has responded positively. The devil may be in detail, but overall it should address all important concerns. The important points from Indirect taxes to take note are:

1. Time bound investigations will bring certainty to the trade.
2. Customs duty rationalisation is a laudable exercise and removal of end use based exemption will certainly improve the revenues and bring down litigation in the long run. Duty rationalization proposed from 01st October, 2021 is eagerly awaited by the trade.
3. New cess, AIDC could have been avoided as already SWS is in operation.
4. In the budget speech, there is a mention about Tribunals but no notifications were issued in this regard for setting up of GST tribunals.
5. Facilitation provided under IGCR Rules is good for the industry.

On personal income tax, though there were lot of expectations but no announcement was made. It is a good measure to introduce pre-filled tax returns for the individuals, where the details of investments, taxes deducted etc will be fetched from all sources as all these are connected with PAN data.

Corporate tax related announcements were also accepted by the trade on a positive note.

Vehicle scrap policy details are not notified, but will certainly help the ailing auto sector to bounce back. This sector has shown marginal revival in the last quarter thanks to the LTC related adjustments made in income tax rules, which has contributed to the year end sales coupled with discounts normally being announced by the auto majors.

It is heartening to note that further funds will also be granted depending on the requirement for COVID vaccination in addition to the grants already proposed in the budget.

Continuing with the crusade to rationalise duty, the Finance Ministry presented several Custom Duty rationalization measures. The measures have been announced with the twin objective of promoting domestic manufacturing and helping India get onto global value chain and increase export.

With the above objective in mind and continuing with the overhaul of the Customs duty structure, it is proposed that about 400 old exemptions would be reviewed and post extensive consultations a revised customs duty structure, would be made effective from 1st October 2021. New customs duty exemption will have validity up to the 31st March following two years from date of issue. The fact that the exemptions would be rationalised only post industry consultations is commendable and the industry should actively participate in the same and ensure that no genuine exemptions are withdrawn.

Certain sectors where domestic value addition has been encouraged include Electronics, Mobile Phone, Auto, Textile, Chemicals and Solar Industry where duties have been rationalised. This is in line with the leitmotif of promoting make in India

Agriculture Infrastructure and Development Cess (AIDC) has been proposed on a few items (including apples, certain peas, fermented beverages etc). However, Basic Customs duty has been reduced on such items so as not to put any additional burden on consumers. On similar lines, AIDC will also be imposed on as additional duty of excise on petrol and diesel.

As for continued simplification of GST, the requirement to get GSTR-9C certified from Chartered Accountant / Cost Accountant has been done away with. A self-certified reconciliation statement would suffice.  To strengthen anti-evasion measures, by way of amendment in the CGST Act input tax credit with respect to any invoice or debit note would be available only where the supplier has furnished the details of such invoice in its outward supply return. To give effect to the decision of the GST Council, the CGST Act has also been being amended, retrospectively, such that provision charging interest only on net cash liability has been made effective from the 1st July 2017.

The Indian Union Budget 2021-22 was highly anticipated in light of the impact of the pandemic across the globe over the last year.  The FM had the unenviable task of balancing the expectations of domestic and foreign investors, corporate India and the common man to meet the dual objective of reviving the economy and balancing the huge strain that the pandemic has placed on its coffers.  Given the constraints, the FM has walked a tightrope and striven to lay down a path for a healthy recovery of the economy.

From a tax standpoint, there were many expectations for personal tax relief. However, given the huge fiscal deficit, no rate relief has been announced, although some simplification of compliance has been undertaken. 

The Government’s focus on making India a financial services center is again visible in the budget proposal as tax holidays for IFSC have been extended on capital gains earned by aircraft leasing companies, tax exemption granted for aircraft lease rentals paid to foreign lessors and investment divisions of foreign banks located in IFSC and tax breaks granted for relocating foreign funds in IFSC.  The announcement of extension of the tax holiday for the affordable housing sector and startups is a welcome move.

The Government has sought to reduce litigation by reducing the time limit for reopening assessments from 6 years to 3 years (in non-tax evasion cases), which is a welcome move. It also gives much needed tax certainty for both taxpayers and inbound investors.

The Government has extended Treaty benefit on dividend income earned by FPIs, which was much needed. 

With a significant emphasis on easing compliance and dispute resolution, the Government has continued its policy of reducing litigation and improving transparency, enhancing ease of compliance and inviting greater foreign investment into India.

“The budget of 2021 has been presented amidst unprecedented times: The economy which was already sluggish had been forced into contraction by the pandemic. Industries across all sectors and geographical locations had pinned their hopes and expected it to present a reset formula. The Hon’ble Finance Minister not only acknowledged the situation but also boldly laid down expenditure outlays to fuel the infrastructural growth. From the indirect tax perspective, while the budget speech merely referred to rate rationalization and proposal to review various exemptions, the fine print points to various changes. The imposition of cess (Agriculture, Infrastructure and Development cess) equivalent to basic customs duty on import of goods seems dampening, but seems only corollary to the wide fiscal deficit. Given the recent buoyancy in tax revenues, the cess could perhaps have been avoided or a lower tax base could be mooted. The Finance Bill seeks to make filing of Form-GSTR-1 and accordingly reflection of details of input tax credit in Form GSTR-2A essential for availment of input tax credit. The said amendment while being in sync with the proposals announced by GST Council in its last meeting, casts a heavy burden on the industry to ensure compliance by fellow trade members. The doing away of tax audits by chartered accountants through Form GSTR-9C substantially decreases the compliance burden. While at one glance it seems that the provision could open doorway for evasion, the same should be unlikely given the recent infrastructural developments, use of artificial intelligence by the revenue authorities and imposition of restrictions on availment of ITC.”

Trust you will find the same in order. In case of any clarification, please feel free to revert.

From indirect tax perspective – Union Budget 2021-22

• Total indirect tax receipts to increase from INR 9.9 lakh crores (RE 2020-21) to INR 11.0 lakh crores (BE 2021-22). 
• BE for GST for 2020-21 (i.e. pre-pandemic) was INR 6.9 lakh crores, whereas BE for 2021-22 is INR 6.3 lakh crores.  Increase in capital expenditure (from INR 4.4 lakh crores to INR 5.5 lakh crores), investment through Development Financial Institution of INR 5 lakh crores (in next three years), growth of manufacturing sector including focus through PLI Schemes should add to cash collection of GST.
• Revised customs duty structure to be put in from October 1, 2021, after reviewing more than 400 old exemptions is a good step to ease the duty structure and to simplify the law.
• Matching of invoices for availing input tax credit under GST laws, being made mandatory as part of legislation.  Interest to be paid on net cash liability only - now provided in GST law, retrospectively from July 1, 2017. Concept of mutuality done away with, retrospectively from July 1, 2017 - to levy GST on transactions between members associations / clubs, society etc.  These are some of the important changes in GST law.
• Agriculture Infrastructure and Development Cess is to imposed, effective from midnight of today, to be imposed on import of certain specified items at specified rates; basic customs duty is being reduced correspondingly.  This new cess is to be also imposed as additional duty of excise on petrol and diesel with corresponding reduction in basic excise duty and special additional duty of excise.  This will reduce State’s share in central taxes.

Commendable effort by the Hon’ble Finance Minister to tide over the economy through these difficult times. Her focus has been on reinstating the path to economic growth whilst maintaining fiscal prudence.  Some progressive measures include divestment and monetisation of assets, liberalization of FDI in insurance sector, consolidation of securities law and increase in health spend. As expected, on the direct tax side, there have been no big tax breaks. Tax proposals primarily focus on offering tax certainty on some vexed issues, rationalizing and streamlining existing tax provisions and alleviating compliance burden for the small taxpayer.

Budget 2021 will go down in history as India’s year where social causes saw their deserved allocations and a record surge in infrastructure projects setting the stage  for what we can safely say is Version 2.0 to what the Golden quadrilateral did in early 2000!

The budget set the tone for foreign capital esp sovereign funds to see the infrastructure funding opportunity, perhaps with no major world economy having such a pipeline of infrastructure projects and with an ageing population globally, India is logically seen as the worlds investment destination  for pension and wealth funds and some tax rules dealing with TDS on dividends have been dispensed .  Also the FPI’s would cheer with no new taxes kicking in and being allowed to factor their treaty rates of withholding, avoiding the need to claim refunds.

Investors wanting  to hear about tax administrative reforms including means to resolve litigation will have to wait. Faceless is the new buzz word and now tax tribunals have been brought into it..needs to be seen how crucial aspects of international tax would be dealt with by the tribunals, clearly the expectation would go up and it is hoped that faceless assessment and appeals would bring down the litigation travelling to the tribunal.

 With record transactions likely to come to market over the next few years, the provisions of tax law dealing with M&A would be tested and the investor community would want predictability of their returns, whether the curtailment of reassessment period by three years would do some potion of the trick needs to be seen..  the impact of agriculture cess on inflation and resultant impact on disposable income would be tested to see if the GST collection breaks new  records.  Net net the corporate India need to see the pick up in the economy and draw up their investment plans especially borrowing plans quickly given the huge  borrowing plan of the Govt evaluate if it’s prudent to lock in long term financing plans while the rate stays low and there is liquidity on tap

“It’s a progressive and inclusive budget. The Hon’ble Finance Minister has tried to touch up all aspects of the growth spanning from divestment to augment the revenue proceeds to more spending on public infrastructure and healthcare. One needs to be courageous to be resilient about fiscal deficit and continue with public expenditure. There are lot many changes proposed which did not find space in the Speech. The more glaring ones are the Faceless ITAT, TDS on purchase of goods and rationalization of M&A related provisions. The focus of tax proposals has been to provide certainty, stability and increasing the tax base.”

If one were to go by the sharp jump in capital market indices and in particular Bank stocks, the Banking sector is clearly thrilled with the announcements by the Finance Minister. Major announcements related to Banking sector, insurance sector, IFSC and asset monetizing vehicles like REITS, InVITs and Infra funds.  A special asset reconstruction company focused on taking over NPAs of PSU banks will certainly help improving the health of affected banks. In order to mobilize funds for this purpose, apart from government capitalizing the ARCs, this should ideally be coupled with relaxation in foreign investments in the ARC trusts and open it up to various classes of investors other than FPIs.  Increase in FDI limit in insurance from 49% to74% will be at par with the FDI norms for private sector banks. The limit was already increased for insurance intermediaries last year. The hike will help the under penetrated sector to scale up and increase penetrate.

A major thrust is proposed to be given to IFSC in the GIFT city in Gandhinagar in the form of extending tax holiday currently available to other businesses to aircraft leasing companies. Global aircraft leasing companies currently use vehicles in certain countries like Ireland to lease air-craft, the change will hopefully encourage leasing companies to house operations in IFSC. Further currently if offshore funds from other countries were to relocate to IFSC the shift would trigger huge tax cost. The proposal to make such relocations tax neutral will make such a shift attractive provided SEBI makes appropriate changes in FPI regulations to make it seamless from regulatory perspective.   

Rationalizing TDS on dividends for FPIs to reduce it to treaty rates ranging from 5 to 15% depending on the country of residence of FPI from current rate of 20% will certainly provide a big cash flow relief for FPIs.

The Hon’ble Finance Minister, Ms. Nirmala Sitharaman, presented the Union Budget 2021-22 in the Parliament today. It was the first digital budget in the history. The focus of the Budget emphasised on the Atmanirbhar India. The Hon’ble FM has laid special and specific focus on the much needed sectors like education, health care, infrastructure, manufacturing, farmers/agriculture, etc. The Budget rests on six pillars:

• Health and well-being;
• Physical and financial capital and infrastructure;
• Agriculture;
• Inclusive development of human capital;
• Innovation and R&D;
• Minimum Government; Maximum Governance

Fiscal consolidation, while remaining one of the top priorities, has been balanced / maintained by the Hon’ble FM. Fiscal deficit has been pegged at 6.8% which is still noteworthy considering the unprecedented pandemic outbreak and the ramp up in the government expenditure to support and revive the economy. Special emphasis has also been given to ReITs and InvITs as well as financial restructuring to ensure that the country receives foreign investments. An additional step in this direction is to increase FDI in insurance sector to 74% (from existing 49%). While the stakeholders are still perusing the fine print, the initial reaction by the stakeholders seems to be very positive.

Key tax and regulatory highlights are summarised hereunder:

• Minimum Government; Maximum Governance: this is no longer just a cliché. Several amendments have been proposed to increase the business community, foreign investors as well as overall stakeholders confidence. Relaxations provided on this front include:
  • One person company (‘OPC’):
    • Increase in threshold in share capital and turnover for eligibility as OPC;
    • Non-residents allowed to incorporate OPC;
    • Residency criteria revised from 182 days to 120 days for ascertaining OPC.
  • Time limit to reopen the past assessments reduced from six years to 3 years and in case of serious tax evasion, where there is evidence of concealment of income, the cases can be reopened upto 10 years only if such concealment is INR 50 lakhs or above;
  • Introduction of faceless ITAT appellate Scheme and setting up of National Faceless ITAT Centre;

• Tax administration – transparency, ease in compliance, etc:

• • Tax audits – threshold increased from INR 5 crore to INR 10 crore for business having more than 95% digital transactions;
  • FPIs will enjoy the lower withholding tax rate under the DTAA on dividend income;
  • Advance tax to be paid on dividend income only on declaration or receipt of such income;
  • Pre-filled income tax return will now also include capital gains on listed securities, interest income from banks / post office, etc;
  • No ITR filing for senior citizens earning interest and pension income;
  • Dividend payment to ReITs and InvITs exempt from TDS;
  • For NRIs returning back to India – rules will be notified to remove hardship and rationalise tax on the accrued income in their foreign retirement account;
  • Extension of additional deduction of INR 1.5 lakhs on loans for the affordable housing upto March 31, 2022. Tax holiday also extended by one year i.e. upto March 31, 2022 for the affordable housing projects;

• Certain other important amendments that have been proposed are:
  • The introduction of the definition ‘liable to tax’ is likely to cause up some stir on account of the various interpretation that could arise especially considering taxability of the stateless person u/s 6(1A) of the Income tax Act, 1961 (‘the Act’);
  • The term ‘block of assets’ u/s 2(11) of the Act has been amended to exclude goodwill of a business or profession from within its ambit. Section 32 has been correspondingly amended as well. Hence, no depreciation will now be available even if the goodwill has been paid for. Further, section 55 of the Act has been amended to provide that in case the goodwill has been paid for, then the said purchase price would be considered as the cost of such asset. Where depreciation has been claimed in the earlier years, the same will be adjusted against the cost of such goodwill. This amendment is likely to have far reaching implications;
  • Certain income are exempt u/s 10 of the Act. Certain amounts which have been subjected to equalisation levy were exempted u/s 10(50) of the Act. The Finance Bill provides that where any amount which is chargeable to income tax as royalty or FTS will not get covered within the ambit of section 10(50) of the Act. As a result, such royalty and FTS will continue to be taxable u/s 9(1)(vi) of the Act read with relevant Article in the DTAA (and not as equalisation levy).

Further, it has been provided in the explanatory memorandum that suitable amendments will be made to section 163 of the Finance Act 2016 so as to exclude any income chargeable to tax as royalty or FTS from within the ambit of equalisation levy;

• • Dispute Resolution Committee (DRC) has been set up to further reduce litigation in the direct tax area. A small taxpayer having income upto INR 50 lakhs and disputed income upto INR 10 lakhs is eligible to approach the DRC. This is another step to provide certainty to the taxpayers in the direct tax domain;
  • Boost to start ups and innovators:
    • Tax holiday to start ups extended by one more year;
    • Capital gain exemption for investments in eligible start-ups.
  • IFSC – Government plans to make the IFSCs a global financial hub; in addition to the incentives already provided to units located in the IFSC, the Hon’ble FM further proposed as under:
    • Tax holiday on capital gains as well as rental income for aircraft leasing companies;
    • Tax incentive to foreign funds relocating in the IFSC;
    • Tax exemption to investment division of foreign banks.

It must be acknowledged and a special mentioned that even despite the tax collection and revenue pressure on the government, the Hon’ble FM has succeeded to provide a fine balance and walk the tightrope. It must be noted that there have been no additional taxes levied on individuals as well as corporates – no increase in base tax, surcharge or cess. No COVID cess on super rich as was widely being discussed pre budget. Such measures are bound to further increase confidence in the government policies and will bring certainty amongst the taxpayers.

[With inputs from Kartik Mehta (Associate Director – India Direct Tax)]

Budget 2021 is oriented towards increased  infra spending, health reforms, asset monetization thru’ divestment/ strategic sale, Easing compliances under Tax & Corporate Laws for Small Companies, etc. A new Asset reconstruction & Management Company & a Common securities code need to be closely looked at. Announcements regarding reduction in Reassessment time period form 6 years to 3 years (section 147/148) & move towards faceless appeal procedures for Tribunal hearings are positive & reflects the direction Govt. is keen to pursue in times to come. Also, increase in turnover limit to Rs. 5 cr. (if digital transactions constitute 95%)  is a welcome measure for small businesses to reduce overall compliance burden. Also the liability to pay advance tax on dividend incomes (amendment in section 234C) only after dividend is announced is a corrective amendment. Tax exemption to Aircraft Leasing Companies in domestic law will certainly have a positive impact for Airlines sector. Compliance relief for citizens above 75 years if their incomes are only from Pension & interest already subjected to TDS is a welcome measure. While, no tax reliefs are announced, but,  no new taxes or Covid cess is a big relief. The focus is clearly to generate resources from expected buoyancy in economic activity, increased spending in creating capital assets in infrastructure sector, focus on divestments to finance & give enough fillip to reforms including attracting new FDI in Sectors like Insurance, Debt funding in REITs/Invits etc.

In the wake of a pandemic-hit economy, the Finance Minister today presented in the Parliament, what has been dubbed as a ‘Never Seen like Before’ Union Budget. The main thrust of the Budget was on the themes of health, human capital, innovation and R&D, physical infrastructure and providing impetus to Government disinvestment program. There are several amendments proposed in the Finance Bill to rationalize tax provisions, promote transparency and ease of doing business.  Following are some of the salient features of the Finance Bill:

Key Clarifications

• It was a repeated ask of the industry to demystify the ambiguities surrounding the provisions of Equalization Levy (EL). The Finance Minister has clarified a few aspects pertaining to it. It is proposed to exclude royalty or FTS payments from the scope of EL. They will, thus, continue to suffer higher tax @ 10%. Further, the expression ‘online sale of goods’ and ‘online provision of services’ has been significantly widened.
• Overturning the decision of the Supreme Court in the case of Smiffs Securities, it has been clarified that goodwill will no longer be treated as a tax depreciable asset, irrespective of whether it arises on an amalgamation or demerger or a slump purchase.
• To augment revenue and to keep a check on tax evasion, it is proposed to introduce TDS on purchase of goods from a resident, at the rate of 0.1%, subject to conditions.

Dividends

• To ease compliance, the Budget proposes that dividends paid to ReIT and InVIT shall not be subjected to TDS.
• Further, FPIs shall be entitled to avail of Tax Treaty benefits at the stage of withholding tax on dividend payment.

The above amendments will provide major respite to ReITs, InVITs and FPIs.

Litigation

• Having made assessments, appeals and penalty proceedings faceless, in a far reaching proposal, the Budget proposes to make Tribunal appeals also faceless. This seems to go against the principles of natural justice of giving a taxpayer an opportunity of physical hearing before the Tribunal.
• In recent times, the posts of Chairman and Vice-Chairman of the AAR have remained vacant for a long time due to non-availability of eligible persons, which has resulted in pendency of large number of cases. To ensure faster disposal of cases, AAR is proposed to be replaced by a Board for Advance Rulings (‘BAR’) that shall consist of two members, each being an Officer not below the rank of Chief Commissioner. Orders of the BAR shall be directly appealable to the High Court. To enable taxpayers to get fair and impartial rulings, it would have been advisable to provide for the members of BAR to be independent tax experts or retired Tribunal members.

Tax Holidays

• Start-ups have recently fueled India’s growth story. In order to incentivize start-ups, tax holiday and capital gains exemption provided to them is proposed to be extended by another year to 31 March 2022.
• Tax holiday on affordable housing projects (including affordable rental housing projects) is proposed to be extended by another year, till 31 March 2022. This would assist in realization of Government’s “Housing for All” goal.

Compliance

• In a significant move, the time limit for reopening of assessments is proposed to be reduced from 6 years to 3 years from the end of the relevant AY, except for cases involving concealment of income in excess of Rs. 50 lacs, where cases can be reopened upto 10 years. This would go a long way in providing certainty to taxpayers with respect to their tax assessments.

The first Budget of this new decade, that too a digital one celebrates the dawn of a new era – one in which India is well-poised to be the land of promise and ho

Certain impactful changes to the GST law have been proposed by the Finance Bill 2021. Foremost among them was the accede to the request of the industry to make the changes proposed in Section 50 of the CGST law in relation to interest on delayed payment of tax on net tax liability, retrospective. While this is welcome retrospective amendment, the Government should have reconsidered the use of the words “declared in the return for the said period furnished after due date” as continued use of these words may have the effect of limiting the benefit only for delayed returns.

Further, by bringing in the provisions to restrict entitlement to credit of input tax only when furnished in GSTR 1 by the supplier, the Government has ignored pleas made by the industry that they should not be penalised for default of the supplier.

The much-litigated provisions of detention, seizure and confiscation have been rationalised. Payment of tax may no longer be necessary where detention of goods is to be challenged in appeal, but a certain amount of penalty will have to be deposited.

To date, physical movement to a place outside India has been the only condition for qualifying as export and claiming the refund, notwithstanding that the new Rule 96B introduced in March 2020 mandated an exporter of goods to repay the amount refunded to him, proportionate to the export proceeds not realised. The amendment proposed in IGST law by the Finance Bill seems to provide legal backing to the said Rule in a curious case of legislative action following the executive directions.

Exemptions from duties are long regarded as creating distortion. Now all conditional exemptions, unless otherwise specified or varied or rescinded, given under Customs Act shall come to an end on 31st March falling immediately two years after the date of such grant or variation.

As a welcome trade facilitation measure it is now allowed to send materials imported under concessional rate of duty  for job work and to do 100% out-sourcing for manufacture of goods on job-work in respect of material imported at concessional rate of duty. This will certainly boost the activity of manufacturing for export.

Any imposition of new cess is always to be viewed with caution. The newly introduced ‘Agriculture, Infrastructure and Development Cess’ (‘AIDC’) has been proposed on import of few specified goods. But nothing may prevent imposition of this Cess on additional goods. The fact that it is levied at different rates on specified goods also indicates an element of discretion and it is hoped that the discretion shall be judiciously exercised so as not to make already high incidence of duties an unbearable burden on the consumers.

Budget 2021 has witnessed a slew of changes focusing on “atmanirbhar Bharat” – Self Reliant India. The Budget stabilizes the economy from the aftermath of COVID and fosters India’s growth story. With focus on capitalizing from the “Post Pandemic – New World Order”, thrust areas of the Government hinges on Healthcare, Manufacturing, Infrastructure, Financial Markets and Human Capital, that will be guided by “Minimum Government and Maximum Governance” approach. To boost the economy and domestic demand, the Government has promised a significant ramp-up in capital expenditure.

On the direct tax front, reduction of timelines for re-opening assessments from 6 years to 3 years for cases not involving serious evasions will provide peace of mind for businesses and individuals. Further, the Government has put an end to re-opening assessments on frivolous grounds alleging serious tax evasion by requiring permission from Principal Chief Commissioner. This will reduce needless litigations by bringing in subjective discretion of a high-ranking executive officer to re-open tax assessments. Faceless adjudication  and hearings through video conference will prove to be effective steps towards India’s digital transformation. It will have to be seen how many forums apart from ITAT will be successfully able to adopt this transformation. The Government has also kept up with its promise of ease of doing business by hiking the exemption limit for mandatory Audit. On the other hand, senior citizens will greatly benefit from exemption on filing returns.

Simplification process continues in the GST as well. Government’s focus on artificial intelligence and deep analytics has yielded results. We have witnessed effective crack-down on fake invoice cases and higher revenue generation as a result of these technologies. With new provisions to block credits, it is hoped that lesser number of people are taken in custody but not at the cost of revenue protection. Government will review over 400 exemptions after receiving feedback from industries. It is hoped that removal of exemption does not adversely prejudice ongoing benefits that were committed against fulfilment of export obligation else, this is bound to attract more litigation as has happened in case of Advance Authorisation scheme. We are also witnessing hike in Customs duties to boost domestic procurement and manufacturing.

Budget 2021 proves to be a thoughtful and pragmatic budget that addresses many critical aspects concerning economic revival and makes India attractive destination for investments.

The Finance Bill seeks to do away with the requirement of getting the reconciliation statement, which was required to be filed with the Annual Return, certified by a Chartered Accountant and replace it with self-certification. This is a welcome move which had been requested by the stakeholders and will provide ease of compliance. The companies would now have to ensure that the turnover declared in the GST returns reconcile with the audited financial statements.

“As against the much touted ‘covid cess’, the introduction of ‘agriculture infrastructure and development cess’ came as quite a surprise. Well, as long as the cess does not drain the consumer’s pockets (which it promises, not to), it may pass off quite smoothly with the public. Further, the customs duty rate rationalisation for mobile phones, solar panels etc was much expected and delivered. Overhauling of customs tariff by 1 October 2021 will be a welcome move as the legislation is dated and needs revision. The insistence of the FM on correcting Inverted Duty Structure resonates with her previous speeches and interaction. However, no mention of new FTP or RoDTEP in the speech, considering that Atmanirbhar Bharat and boost to exports was repeatedly asserted, left some vacuum. Though the FM promised the use of technology to plug fake invoicing, the wild goose chase going across the country and numerous writs on account of the same is a reality that cannot be denied.

 On the GST front, a new clause in the definition of supply has been inserted to include supply from any person (other than individual) to its members, constituents or vice versa. This shall put to bed the numerous case laws on the issue. Self-certification of GST audit may come as respite to the trade but will bring a jolt to the professionals who are anyways protesting against the government on timelines and due dates. Another example of wide powers given to officers in the form of amendment of Section 151 wherein the officers can now seek any information from any person as maybe required.”

With nation still recovering from biggest pandemic in history, the Finance Minister laid down its first ever digital Budget. Budget proposals of establishment of “Common Customs Electronic Portal” and automation of functioning of Income Tax Appellate Tribunal are steps towards “Digital India”.

 On Customs front, significant changes have been brought in Basic Customs Duty rates of many goods across sectors. These changes coupled with proposal to review 400 duty exemptions in coming financial year are further steps towards “AatmaNirbhar Bharat”. There will also be sunset date of 2 years for conditional exemptions instead of all exemptions being perpetual as of now. Mandatory time limit for departmental officers to complete inquiry / investigations will bring accountability.

 On GST side, the Finance Minister committed to smoothen GST law further including correction of present anomalies. The legislative changes in Finance Bill like taxability of transactions between club and its members, furnishing of Invoices & Debit Notes by supplier in GSTR-1 as pre-condition for recipient to avail Input Tax Credit, elimination of mandatory GST Audit by external GST Auditor (and replacement thereof by self-assessed reconciliations) were important and need of the hour.

 Lastly, on CST side, the Government has corrected anomaly that Form C can be issued only for procurement of goods that are subject to CST / VAT and not for other goods.

 Overall, the Finance Minister has presented a good budget from Indirect Tax perspective which is full of steps to encourage domestic value addition in India and other legal changes that were much needed.

Hailed as the most crucial Budget of India in recent years, the Union Budget 2021-22 has come in the backdrop of the largest GDP contraction that India has suffered post-Independence due to the COVID-19 pandemic. In a significant departure from the tradition, this year’s Budget was not printed and was only made available in a digital format. This Budget focused on higher spending, healthcare expenditure with Rs. 35,000 crore on Covid-19 vaccine development, infrastructure development and public sector bank privatisation. But ironically, the experts’ speculations seem to have turned true as Nirmala Sitharaman's first budget of the decade didn't have much hype for the common man.

Presenting the Union Budget for 2021-22, FM said that the Budget proposals for this financial year rest on six pillars — health and well-being, physical, financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D and minimum government and maximum governance. Significant announcements included a slew of hikes in Customs duty to benefit ‘Make in India’, proposal to disinvest two more PSBs and a general insurance company, and numerous infrastructure pledges to poll-bound States. FM, in her speech, announced a push to the textile industry, a new cess on agriculture development – Rs 2.5 per litre on petrol and Rs 4 per litre on diesel. Insurance Act amendment is also proposed to increase FDI limit from 49 to 74% with safeguards, while, the LIC IPO will be introduced in 2021.

In significant changes to the taxation process, FM announced the scrapping of income tax return for senior citizens having pension and interest income only, new rules for removal of double taxation for NRIs, and a reduction in the time period of tax assessments among other measures. Start-ups will get an extension in their tax holiday for an additional year. FM also announced that the advance tax liability on dividend income shall arise after declaration or payment of dividend. On GST front, the FM said that record GST collections have been made in the last few months. She said several measures have been taken to further simplify the GST. The capacity of GSTN system has been announced. Deep analytics and artificial intelligence have been deployed to identity tax evaders and fake billers, launching special drives against them. The Finance Minister assured the House that every possible measure shall be taken to smoothen the GST further and remove anomalies such as the inverted duty structure.

Benchmark stock indices Nifty and Sensex gave a thumbs up to government's 'expansionary budget' as FM Sitharaman chose the path of additional borrowing instead of taxing the super-rich or raising taxes on high-income individuals. Market response to the budget reflects growth optimism. But, this Budget may not bring cheer to pandemic-hit aam aadmi. The common man was eyeing some income tax benefits from this budget as Covid-19 has burnt their pockets in over a year. While no changes were made to the personal income tax, only senior citizens were offered benefit. Under the proposal, those above the age of 75 will no longer have to file IT returns. Moreover, a Covid-19 cess that was much speculated to be enforced to revive the economy in post-coronavirus world did not find mention in the Union Budget 2021-22.

In nutshell, though this budget may be considered as growth oriented and visionary one amidst the situation when India is slowly emerging from the Covid-19 crisis and the economy is gradually returning to normal, but the present situation of the economy and taxation system was requiring lot more for the aam aadmi. People had been anticipating tax incentives to increase spending and reinvigorate household consumption demand, and other benefits to grapple with the woes of the Covid-19 pandemic. Also, it is time that we strive to maintain stability of provisions and systems under GST, as frequent changes cause disruptions in business operations as well as increasing confusions in trade. Though, Centre and States are quite receptive to resolve GST issues, but certain level of steadiness is also required

One of the clear themes running through the indirect tax proposals is enhanced enforcement – this has been sought to be achieved through enlargement of powers/discretion available with the tax authorities, efforts to plug perceived loopholes in the legal provisions leading to tax evasion/wrongful credit availment as well as attempts to overcome legal/constitutional arguments against certain provisions against which writ petitions have been/could be filed.

The proposed amendment in Section 16(3) of the IGST Act may add to the difficulty of exporters who were claiming refund after paying IGST on exports since they may now have to necessarily go through the bond or LUT route (unless included in the notified categories of exceptions). This amendment, it appears, seeks to plug the gap in GST laws by granting power to the legislature to restrict refund of the IGST paid on zero rated supplies only to a few notified categories. Earlier, since no such restriction could have been placed in absence of such powers under the statute, the rules which placed such restrictions, for example Rule 96 (10) of the CGST Rules, were amenable to constitutional challenges.

Proposed insertion in Section 16 of the CGST Act (to provide that input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note) appears to be an attempt to overcome legal/constitutional arguments in writs filed all across India against the input credit restrictions imposed under Rule 36(4) of CGST Rules.

On the Customs side, the proposed new section 114AC seeks to prescribe penalty in cases where a person has obtained any invoice by fraud, collusion, willful misstatement or suppression of facts to utilize input credit on the basis of such invoice for discharging any duty or tax on goods that are entered for exportation under claim of refund of any duty or tax. This is line with similar provisions under GST laws and aligned with the Government’s efforts to curb input credit frauds. One only hopes that such wide powers would not be weaponized by overzealous officers against genuine taxpayers.

The retrospective amendment in the definition of supply under Section 7 of the CGST Act and the corresponding retrospective omission of Entry 7 of Schedule II effectively overcomes the decision of the Hon’ble Supreme Court in the case of State of West Bengal Vs Calcutta Club & Others [TS-779-SC-2019-VAT] wherein the Hon’ble Supreme Court, applying the principles of mutuality, inter alia held that services by a  club to its members amounts to services to self and would not qualify as a service for the purposes of levy of tax.

Departure from the traditional presentation from hard copy, the Hon’ble FM presented the budget from a Made-in-India tablet, thereby reinforcing the ambitious ‘Digital India’ and ‘Make in India’ mission. The speech on Indirect tax proposals started with the FM reiterating recent achievements under GST (such as e-invoicing, nil return through SMS, pre-filled returns etc.) and under Customs (such as contactless procedure and new procedure for administration of Rules of Origin)

The FM spoke about record GST collections over recent months, stressed on persistent deployment of artificial intelligence to obviate tax evasion and provided assurance that GST Council would continue to introduce measures to further smoothen GST by removing anomalies such as inverted duty structure.

Key GST changes introduced in the budget are replacing submission of audited reconciliation with self-certification reconciliations and availability of input tax credit only on reporting of invoices/debit notes by the suppliers.

On Customs front, the FM continued to provide thrust on overhauling Customs duty structure by proposing to review more than 400 old exemptions and implementing revised Customs duty structure w.e.f 1 Oct 2021. With the larger theme of promoting domestic manufacturing in sectors such as electronics, renewable energy, capital equipment, auto parts, MSME products, the FM proposed to withdraw exemptions on products such as parts of charger, sub-part of mobiles and increase Customs duty on solar inverters, auto parts etc. Additionally, Customs duty rates were rationalized for textile sector, chemicals sector and gold & silver. Other Customs tariff changes include changes proposed to be effective from Jan 1, 2022 on account to change in 351-line items of HSN/customs tariff

When a pipe is clogged and the clog is removed the water would rush out at a super speed.  This in effect is the economic surge that the country is witnessing after removal of the lock down and relaxation of restrictions.  However, the flow would continue only when there is adequate water in the tank and the tank is continuously filled up with water.  The Finance Minister has clearly understood this logic and the number of steps taken in the Budget whether in terms of allocation or targeted spending would clearly facilitate the growth in the economy.  

Contrary to expectations, the Finance Minister did not resort to an all-pervasive corona cess but chose to look at other mobilization exercises including unlocking and monetizing Government assets.  Old habits never die and being identified as a historical budget, the Minister goes back in time and amends the scope of supply as an attempt to nullify the principle of mutuality.  The amendments to Section 16 of the CGST Act clearly shows that some of the amendments to the Rules had been made without the Act stipulating such conditions. The amendment to Section 16 of the IGST Act to restrict the route of payment of IGST on exports only to certain notified categories would affect the competitiveness of our exports. 

TDS on purchases through Section 194C would only increase the burden of compliance and would not serve any purpose. The reduction in time limit for reopening of assessment is a step in a right direction. Faceless ITAT based on the scheme to be notified is testimony to the fact that the virtual world is here to stay.

Today, the Finance Minister has announced the Union Budget 2021 while the country is tackling the Covid-19 pandemic. It seems the government has earnestly attempted to push the agenda of growth and incentivize several constituents of the economy to promote stimulus to the propellants of the economy.

In its endeavor to promote digitalization, government has announced the faceless scheme at the Income-tax Appellate Tribunal level taking ahead its agenda of faceless assessments and faceless appeals. Taking cues from the removal of the Dividend Distribution Tax from the last Budget, government has taken certain measures viz. withholding tax in case of foreign portfolio investors to be made at a lower of tax treaty rates, dividend income of REIT and INVIT being exempt from TDS, advance tax liability on earning dividend income has been aligned with the declaration or payment of dividend.

To extend the benefits of affordable housing, the government has extended the benefits of additional deduction of INR 1.5 lakh in case of loans taken up to 31 March 2022 as well extension of the dates for availing the tax holiday in case of approval of housing projects till 31 March 2022.

With a view to have greater certainty, the timeframe for re-opening the assessments have been reduced from the existing 6 to 3 years with an exception in case of serious tax evasion cases. The announcement of the faceless Dispute Resolution Committee will also be another measure in reducing litigation for taxpayers having taxable income up to 50 lakh (and disputed income up to 10Lakh).

With a view to make the International Financial Services Centre (IFSC) in GIFT City a global financial hub, several announcements have been made to further incentivize to make IFSC globally competitive for e.g. tax holiday for capital gains for aircraft leasing companies, tax exemption for aircraft lease rentals paid to foreign lessors; tax incentive for relocating foreign funds in the IFSC.

One will also have to wait for the rules that would be notified to remove hardship of double taxation in case of non-resident Indians returning to India.

While relief has been provided in case of senior citizens by way of exempting them from filing returns in case of pension and interest income along with certain other measures viz. pre-filing of information in the income-tax returns etc., the government could have done more on several fronts which could have helped further the cause of the common man.

While the government does a balancing act of providing stimulus to the economy as well as managing the fiscal deficit, particularly in the post-pandemic period, if we may say so, there could be several stakeholder’s whose issue may still not have been addressed.

The Budget 2021 has allayed the latent fear in taxpayer’s mind of an increased tax rate in view of the global pandemic as the Government reinforces its faith in the “V” shaped recovery of the Indian economy and proposes to garner funds for the Budget outlay through Government borrowings and strategic disinvestment. The key most important proposals that struck me from this budget are extension of the faceless drive to Tribunal appeals and reduction in time limit for assessment and reopening of assessments.

Faceless Appeals

The Budget has also continued its thrust on faceless assessments and appeals and proposes to now extend this to the higher appellate forum being the Income Tax Appellate Tribunal. It seems the Government is nudging the tax payer, the tax department and the judiciary to harness the collective learning of humanity from the pandemic – “Namaste” is preferred over a “handshake”! Having said that, considering the complexity of the disputes and the challenges of shifting away from a historical manner of seeking justice – both in the mindset as well as physical reality; the proposal does seem a little ambitious. This is not to doubt the time efficiency that a faceless scheme of disposing appeals can bring in, but is just an honest introspection on the challenges of faceless appeal process like ability to understand the other person’s mindset through observation and steering the discussion accordingly, the digital infrastructure required for faceless appeals etc. The framework for Faceless Tribunal Appeals to be announced before March 2023 will hopefully take into account the experiences of faceless assessments and commissioner level appeals and carve out the necessary contours such that taxpayers are provided the necessary options.       

Reduction in assessment timeline and re-opening of assessment

From a taxpayer’s standpoint, the reduction in the time limit for assessments as well as the reopening of assessments is indeed a welcome relief. While the tax department and tax consultants would indeed be hard-pressed for time in the initial period, from an economic perspective, one can hope to divert the savings on time and energy towards more constructive projects.  Re-opening of assessments has also been codified though a procedure as laid out by the principles laid out by the Apex Court in the case of GKN Driveshafts (2003) 259 ITR 19.

While numerous amendments to reduce long-drawn litigation for small tax payers is indeed a welcome step, it would have been an icing on the cake to see some amendments to curb the cause of high pitched Transfer Pricing litigation for MNCs. Also, amid COVID-19 pandemic, the Budget 2021 seems to have completely ignored the asks from the Transfer Pricing fraternity on guidance and relaxations to manage the arm's length pricing for the year where there was tremendous pressure on the margins affected on account of the nation-wide lockdown.

“Budget 2021-22 is a progressive budget with a long-term view on reviving the economy. The Budget makes a realistic assessment of fiscal deficit at 9.5% of the GDP and a plan to reduce it to 4.5% in the coming five years. Key welcome amendments include reduction in the reassessment timelines under Income tax and doing away with mandatory GST Audit and replacing it with a system of self-certification. Whereas the other amendments relating to taxability of slump exchange and depreciation on goodwill or mandatory condition conditions under GST which requires supplier to file returns in order to avail credit, are deflating.  Atma Nirbhar Bharat and Made in India has been the focus of the Indian Government, and to this end, the Customs duty rates on various products have been enhanced to encourage manufacturing in India. An Agriculture Infrastructure and Development Cess has been introduced for financing the agriculture infrastructure, however, the burden on consumer has been adjusted by bringing down the basic customs duty.”

In the backdrop of the current crisis, Budget 2021 was one of the most awaited, and I must say, the Finance Minister has done a quite a good job to balance the expenditure as well as provide incentives to boost investments. Finance Bill 2021- With no changes in tax rates may result in increased liquidity and spending power - a boost to the economy!

Some of the main provisions relates to additional benefits being provided to incentivize the International Financial Service Centre for being the Financial Hub of India. Reduction in the withholding tax on dividend to treaty rates for FIIs and no TDS on  dividend paid to REITS and INViTs are two major reliefs on cash flows.

Benefits for Affordable Housing extended to Affordable Renting business and sunset clause extended  till March 2022. Safe Harbour margin in relation to sale of residential property, not held as capital asset, for the first time for a consideration upto Rs. 2 crores increased from 10% to 20%.

Provisions have been introduced to rationalise divergent views especially in relation to taxability of slump exchange, goodwill being depreciable asset and taxability of excess amount over capital account balance received by a partner of firm / member of AOP on dissolution or reconstitution of firm/AOP/BOI. Further, the Finance Bill also brings in various amendments to streamline the assessment process and reduce the timeline for re-opening of assessment.

Further to enhance the ease of doing business, the threshold of tax audit has been enhanced from Rs. 5 crores to Rs. 10 crores.

So on an overall basis, the amendments made are in line with the theme of minimum government maximum governance!! 

No change in the tax rates, achieves twin objectives. First, it provides a big relief to the tax payers as their tax outgo does not increase. Second, it sends a strong message to the investors globally that government is committed to a long term low tax rate regime and provide certainty on the broad tax policy framework.

Administrative reforms like faceless assessment at Tax Tribunal Level, reduction in the time period for the re-opening of the tax assessments and further impetus to the digital transactions, are all moves in the right direction to help India gain further on ease of doing business.