The Union Budget 2021 was presented in the Parliament by Finance Minister Nirmala Sitharaman on February 1, 2021. While the Finance Minister had herself made history moving away from the British-era leather briefcase to the Bahi Khaata when presenting the Union Budget 2020, the Union Budget 2021 took it a notch higher and moved digital in line with PM Modi’s Made in India vision. FM Sitharaman used a tablet and digital copies of the Budget.
This was the first Union Budget to be presented after the outbreak of the Coronavirus pandemic in 2020. Consequently, the primary focus of the Union Budget 2021 was on strengthening healthcare facilities in the country and pandemic-proofing the economy from the jolts of pandemic-led lockdowns. The highlight of the Union Budget 2021 was Sitharaman’s outlay for AIIMS and other medical institutions around the country.
The Budget allocation for healthcare saw a whopping 137% jump at Rs 2.23 lakh crore for FY 21-22. A special allocation was also made for wellness centres, nationwide COVID vaccination, and rebuilding the Indian economy.
The six pillars of the Union Budget 2021 were:
- Health and Wellbeing
- Physical & Financial Capital, and Infrastructure
- Inclusive Development for Aspirational India
- Reinvigorating Human Capital
- Innovation and R&D
- Minimum Government Maximum Governance
Here’s a brief look at the landmark changes made in the Union Budget 2021 that are here to stay and will outline the future of the Indian economy in the years to come.
Changes on the tax front
Income tax relaxation for senior citizens
Senior citizen pensioners over the age of 75 are now exempt from filing income tax returns. For senior citizens who report interest income and pension income as their only source of income, Section 194P of the Income Tax Act enforce banks to deduct taxes at the source without the individual having to file an income tax return. This process will help ease the compliance burden on senior citizens.
Tax relaxations for NRIs
It was proposed in the Union Budget 2021 that double taxation be eliminated for NRIs seeking to return to India. Until now, NRIs had to pay taxes on the income accrued in their retirement accounts first in the resident country and then file taxes in India too. This was primarily due to mismatched tax seasons in India and other countries. The relaxation in the double taxation is a relief for thousands of NRIs who seek to come back to India but are held back by the perils of income loss through taxation.
Tax on dividends
In a significant relief to the taxpayers, FM Sitharaman announced that the Government will levy an advance tax on the income from dividends only when the dividend has been declared. Until 2021, taxpayers had to pay interest on advance tax on dividend income due to inaccurate dividends. Since dividend payouts are highly uncertain, the latest tax relief aids taxpayers to save interest. Moreover, the Government has also made dividends on Real Estate Infrastructure Trusts and Infrastructure Investment Trusts exempt from TDS.
Tax benefit for startups
To boost India’s startup ecosystem, Sitharaman announced in the Union Budget 2021 that the tax holiday for startups had been extended to March 31, 2022. This means that startups incorporated between April 1, 2016, and March 31, 2021, with an annual turnover of less than Rs 25 crore, can claim a 100% tax rebate for capital gains to use for working capital needs.
The window for reopening the assessment of IT cases was reduced to 3 years from 6 years. For serious fraud cases where undisclosed income breaches the Rs 50 lakh mark, the reopening window is increased to 10 years.
Tax Neutrality on the conversion of Urban Cooperative Banks (UCB) into Small Finance Banks (SFB)
To make sure that the UCBs transition into SFBs seamlessly and effortlessly, FM Sitharaman announced tax neutrality for the conversion in the Union Budget 2021. Thus, UCBs won’t have to pay capital gains taxes on the assets being transferred to the SFB.
Making Income Tax Appellate Tribunal (ITAT) faceless
As a significant step in ‘minimum Government maximum governance’, ITAT now holds electronic, faceless proceedings for enhanced transparency.
FM Sitharaman announced the formulation of a Securities Markets Code in the Union Budget 2021 to consolidate four Acts under one umbrella Act. These include the SEBI Act (2007), the Government Securities Act (2007), Depositories Act (1996), and Securities Contracts Act (1956). This will help regulate and modernize the markets.
Infrastructure & real estate changes
A new Bill to establish a Development Financial Institution (DFI) was announced. This Bill will help with infrastructure financing, as proposed in the Union Budget 2021.
To promote affordable housing, homebuyers will be given a tax relief of up to Rs 1.5 lakh on the interest paid on home loans until March 31, 2022. Similarly, affordable housing projects can also avail of a tax holiday until March 31, 2022.
The Union Budget 2021 made some significant proposals that have helped reshape the Indian economy and empower the taxpayers. For instance, the Government announced setting up an Asset Reconstruction Company Limited and Asset Management Company to consolidate and take over the stressed debt and manage and dispose of assets.
As we prime for Union Budget 2022, it is a wait and watch to see how much of an impact the previous measures have made, and what new does the Government have to offer. To stay updated with all things Budget, check out Yubi’s curated Budget portal, in association with MoneyControl, here.