What does budget 2021 mean for your money? What does budget 2021 hold for you?
Days ago, FM Nirmala Sitharaman had promised a “Union Budget” like never before and according to experts and most citizens, she did keep her words. Budget 2021 was one of its kind, the first in paperless form in Indian history. While this is a milestone, the Budget is also celebrated for its proposals.
What does budget 2021 mean for your money? What does budget 2021 hold for you? Where Will the Govt Spend the Money?
- Union Budget Expectations
- Budgetary highlights
- The new tax rates and concessions
In this article, we discuss the highlights of the Union Budget.
Let's get started.
FIRST DIGITAL UNION BUDGET 2021
The Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman, presented the first-ever digital budget for 2020-21 on February 1, 2021. Made with a vision of AtmaNirbhar Bharat, the budget proposals strengthen:
- Nation First Promises
- Doubling of farmers' income
- Healthy infrastructure
- Healthy India
- Best governance
- Best Opportunities for youth
- Education for all
- Women empowerment
- Inclusive development
Highlights of the Union Budget 2020-21:
In a nutshell, Budget 2021 focused more or less on most sectors of the economy to aid their revival from the impact of the ongoing pandemic. Even so, experts opine that the fondly tagged “get well soon” Budget focuses the most on healthcare and infra sectors.
Expenditure: The government has proposed spending of Rs. 30,42,230 crores in 2020-2021. This estimate is 12.7% higher than the revised estimate of 2019-2020.
Revenue: The government expects an increase of 16.3% in the receipts (other than net borrowings) to Rs. 22,45,893 crores. The government made this projection because of higher estimated revenue from divestments.
GDP Growth: A nominal GDP growth rate of 10% (real growth plus inflation) has been assumed by the government. The nominal growth rate estimate of 2019-20 was 12%.
Deficits: The revenue deficit is expected to be 2.7% of the GDP (this is higher than the 2.4% revised estimate of 2019-20). The fiscal deficit is expected to be 3.5% of GDP (this is lower than the 3.8% revised estimate of 2019-20).
Ministry Allocations: Following are ministries with the highest percentage increase in allocations among the top 13 ministries with the highest budgetary allocations:
o Ministry of Communications – 129%
o Ministry of Agriculture and Farmers' Welfare – 30%
o Ministry of Home Affairs – 20%
In a nutshell, Budget 2021 focused more or less on most sectors of the economy to aid their revival from the impact of the ongoing pandemic. Even so, experts opine that the fondly tagged “get well soon” Budget focuses the most on healthcare and infra sectors.
With the economy recovering from the impact of COVID-19, almost all the sectors had expectations from the Union Budget 2021. Nevertheless, all hopes were pinned on the government allocating significant funds to the healthcare sector amid the pandemic. While there are cheers on that front, most other sectors including MSMEs, steel, automobile and farm also welcomed the Budget 2021 wholeheartedly. Let’s look at the proposals briefly. With a total outlay of ₹ 2,23,846 cr as opposed to ₹ 94,452 cr last year, the healthcare sector truly stole the show. Of the total outlay, ₹ 35,000 cr is expected to be earmarked for COVID-19 vaccines. Talking about the infrastructure sector, the Budget announced setting up of a Development Finance Institution (DFI).
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The Budget has more than doubled the funds to be allocated to the MSME sector at ₹ 15,700 cr. Further, the reduction of customs duty on semis, flat, and long products of non-alloy, alloy, and stainless steel to 7.5% would push the demand for steel, copper, and iron products and aid-related MSMEs and other industries. Indian Railways would get an allocation of ₹ 1,10,055 cr, of which ₹ 1,07,000 cr is earmarked for capital expenditure for FY 2022. Further, broad-gauge routes will be 100% electrified by Dec 2023. Talking of the banking sector, the infusion of ₹ 2,000 cr in PSBs would help the entities the capital adequacy norms and, in turn, enhance their lending capability
On the income tax front, the Budget has exempted those aged 75 yrs earning only pension income from filing returns. Individual taxpayers are also relieved from the proposals as the FM has kept the income tax rate unchanged. The Budget has also proposed an additional deduction of ₹ 1.5 lakh on interest for loans taken up till 31st Mar 2022 to purchase a home under the affordable housing scheme. What’s more, the Budget 2021 has also proposed a faceless dispute resolution system to fast-track the process. Further, the addition of 100 more districts to the City Gas Distribution network in the next 3 yrs would be a welcome development to the energy sector.
But just like how a coin has two sides, citizens didn’t embrace certain proposals of the Budget with zeal. First, customs duty of 2.5% will be imposed on sub-parts of mobile phones and battery chargers, making the devices costlier. The same goes for some automobile parts, which would now attract a customs duty of 15%. But the automobile sector has other reasons to cheer riding on the announcement of the voluntary vehicle scrapping policy. As per the policy, personal vehicles will undergo fitness tests after 20 yrs and commercial vehicles after 15 yrs.
Farmers, on the other hand, were mostly taken aback after the Budget proposed linking 1,000 more APMCs or mandis to the e-national agriculture market. On the brighter side, increased credit flows, micro-irrigation projects, the launch of 5 major fishing harbours across the country, and a multi-purpose seaweed park are major proposals in farming, agriculture, and animal husbandry sectors. Looks like many sectors got a piece of the “get well soon” Budget cake.
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EMPLOYMENT AND EDUCATIONAL BOOST
Over 15,000 schools to be qualitatively strengthened under National Education Policy. Propose to launch a portal to collect relevant information on workers, building/construction workers among others.
An announcement of the New Education Policy (NEP) will be made.
Steps will be undertaken to encourage sourcing of External Commercial Borrowings (ECB) and Foreign Direct Investment (FDI) in education.
At the degree level, online education programs will be initiated by institutions ranking within the top 100 in the National Institutional Ranking framework.
National Recruitment Agency:
For the recruitment of non-gazetted posts in the governments and public sector banks, a National Recruitment Agency is proposed to be set up.
SUPPRESSING COVID-19
The government will provide Rs. 35,000 crore for COVID-19 vaccination. The Finance Minister has committed to providing more funds. This allocation is made for the acceleration of the COVID vaccination drive, which is a major factor for economic revival.
A new centrally sponsored scheme called Pradhan Mantri AtmaNirbhar Swasth Bharat Yojna will be launched with an outflow of Rs. 64,180 crores over 6 years.
Provisions have been made to the tune of Rs. 35,000 crores for COVID-19 vaccines.
The government will merge the Supplementary Nutrition Program and the Poshan Abhiyan and launch a Mission Poshan 2.0 to strengthen the nutritional content, delivery, outreach, and outcome.
With a proposed outlay of Rs. 2,87,000 crores over 5 years, the Jal Jeevan Mission (Urban) will be launched for universal water supply in 4,378 urban local bodies.
A voluntary vehicle scrapping policy to phase out old and unfit vehicles was announced.
TAX REGIMEN CHANGES
Small taxpayers can avail to go before the Dispute Resolution Committee instead of costly and timeconsuming appeal systems. For assessments where income is below 50 lacs and the amount in dispute is below 10 lacs, DRC may be approached. Proceedings will be faceless.
The Finance Bill 2020 proposes certain non-tax changes to the Prohibition of Benami Properties Transactions Act, 1988, in addition to the changes in the tax laws:
Change in income tax rates: The table provided below gives a snapshot of the changed income tax rates against the current rates:
It is worth noting here that the new personal tax rates are optional and can only be availed if the individual satisfies specific conditions – such as they do not claim any exemptions or deductions (includes all standard deductions, leave travel allowance (LTA), house rent allowance (HRA), interests on housing loans, Chapter VI-A deductions like investments in PF, insurance premium, donations to charities, etc.). The option, once exercised, will be applicable for all subsequent years.
SOME MAIN POINTS
- Relief to senior citizen: for 75 years and above: Having only pension and interest income: exemption from filing ITR: Paying banks will do TDS
- Reassessment: from 6 years to 3 years
- Serious tax evasion cases: where evasion evidence is above Rs.50 lacs then reopening within 10 years
- Dispute resolution committee: it will be faceless: anyone with total income less than 50 lacs and disputed income less than 10 Lacs can approach this committee
- Faceless ITAT: faceless ITAT centre will be set where personal hearings will be conducted through VC
- Tax Audits: digital transactions from 5 crore to 10 crore
- Advance tax liability on dividend will arise only after the declaration of dividend
- Affordable housing 1.5 lack deduction will now be even available for loan taken till 31.3.2022 80IBA: extended 31.3.2022
- Tax incentive of affordable renting housing project
- Pre-filled income tax return will have pre-filled data regarding Dividend, post office interest income, salary etc.
- Trusts: educational and hospitals: limit increased from Rs.1 Cr to Rs. 5 crore (10(23C)
- Late deposit of employee contribution of PF will now be not allowed as deduction.
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Policy Highlights
Following are the policy highlights of the Union Budget 2020-21:
Legislative changes:
For better governance of co-operative banks, the Banking Regulation Act, 1949 will be amended.
To be eligible for debt recovery under the SARFAESI Act, 2002, the limit for NBFCs will be reduced. The asset size will be brought down to Rs. 100 crores from Rs. 500 crores and the loan size will be brought down to Rs. 50 lakhs from Rs. 1 lakh.
The Deposit Insurance and Credit Guarantee Corporation has been allowed to increase the deposit coverage for a depositor. The coverage will now be Rs. 1-5 lakhs per depositor.
For allowing NBFCs to extend invoice financing to MSMEs, the Factor Regulation Act, 2011 will be amended.
To separate the NPS trust for government employees, the PFRDA Act will be amended.
Laws imposing civil liabilities will be examined and accordingly amended.
To ensure that the contracts are honoured, the Indian Contract Act, 1872 will be amended.
GST Compensation:
The payment of GST Compensation Balances for 2016-17 and 2017-18 will be made in two instalments. Transfer to GST Compensation Fund will only be through the compensation cess from now on.
Divestment:
The government plans on selling a part of its holding in LIC through an IPO. It also plans on selling the balance of its holding in IDBI Bank.
Investment:
FII will have access to invest in certain specified categories of government securities. The limit for Foreign Portfolio Investment in corporate bonds will be increased from 9% to 15% of the outstanding stock of corporate bonds. To provide 'end to end' facilitation and support (like pre-investment advisory at the central/state level), an Investment Clearance Cell is proposed to be set up.
Industry and Commerce:
A scheme has been proposed to encourage the manufacturing of mobile phones, electronic equipment, and semiconductor packaging; with an outlay of Rs. 1,480 crores, the National Technical Textiles Mission will be implemented from 2020-21 to 2023-24. A scheme will be launched to refund duties and taxes on exported products (which aren't exempt under any existing mechanism).
Infrastructure and Urban Development:
Under the National Infrastructure Pipeline, the government will build 6,500 projects (which include housing, safe drinking water, healthcare, etc.). A National Logistics Policy detailing central and state governments' various roles and creating a single-window e-logistics market is proposed to be released.
Transport and Energy:
Through the public-private partnership model, 4 railway station redevelopment projects and the operation of 150 passenger trains are proposed to be done. The government will push the states to replace conventional energy meters with prepaid smart meters by 2023. The National Gas Grid has been proposed to be expanded from 16,200 km to 27,000 km.
Agriculture:
The Pradhan Mantri Kisan Urja Suraksha evam Uthan Mahabhiyan scheme will be expanded by the government to help 20 lakh farmers set up standalone solar pumps.
At the block level, viability gap funding for the setting up of warehouses will be made available.
All beneficiaries under the Pradhan Mantri Kisan Samman Nidhi will now be covered under the Kisan Credit Card scheme.
The government is poised to propose comprehensive measures for 100 water-stressed districts.
Technology:
To enable the private sector to build data centre parks, a policy will be introduced.
1 lakh gram panchayats will be linked through Fiber to the Home connections through Bharatnet.
A new National Policy on Official Statistics has been proposed, which will use the latest technology, including Artificial Intelligence.
An outflow of Rs. 8,000 crores have been proposed for the National Mission on Quantum Technologies and Applications over the next 5 years.
Social Justice:
To ensure that there is no manual cleaning of sewer and septic tanks, legislative and constitutional changes are proposed to be made.
Funds to the tune of Rs. 28,600 crores have been allocated for programs specific to women.
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Key Winners
- Power companies to benefit from the monetisation of power transmission assets (Power Grid) and 100% electrification of broad-gauge routes will be completed by December-2023 (KEC International, Kalpataru Power Transmission).
- Oil & gas companies are key beneficiaries of the potential monetisation of core pipeline infrastructure assets (GAIL and IOCL) and addition of 100 new districts under city gas distribution (IGL).
- Strong boost for infrastructure with increased outlays towards Ministry of Road Transport & Highways (MoRTH), NHAI, Smart Cities, Pradhan Mantri Gram Sadak Yojana (PMGSY). Strong road projects pipeline built up till FY2022 and beyond. Financing addressed through DFIs, NHAI InvIT and proposal for relaxation of conditions for sovereign wealth funds – Positive for L&T, Cummins India, KNR Construction, PNC Infratech, Ashoka Buildcon, Ultratech, Shree Cement, The Ramco Cements, JK Lakshmi Cement among others.
- Real Estate and building materials companies to benefit from the extension of one year for claiming additional tax deduction for buyers and a tax holiday for developers. Financing addressed through dividend exemption to REITs and amendments for FPIs. Allocation towards smart cities and Jal Jeevan Mission (Urban) would give demand fillip for building materials companies – Positive for DLF, Oberoi Realty, Prestige Estates, Brigade Enterprise, Godrej Properties, IRB InvIT, Embassy Office Parks REIT, Mindspace REIT, Kajaria Ceramics, Century Plyboards, Supreme Industries, Astral Poly Technik, Pidilite Industries and Asian Paints.
- Domestic auto-ancillary companies (Bosch, Motherson Sumi and Lumax Auto Tech) to benefit from a proposed increase in customs duties for certain auto parts from the 10% currently to 15%, while the rural centric automobile companies (M&M, Escorts) to benefit from allocation to farm/rural sector.
- Banks & financial sector will be benefited by setting up of an Asset Reconstruction Company (ARC) and Asset Management Company (AMC), which would be set up to take over the existing stressed debt from banks, etc, would not only help in speedy resolution/value recovery from NPAs but also help to clean up the balance sheets (mainly of public sector banks). PSU banks to also benefit from the Rs. 20,000 crore capital infusion. Privatization of two PSU Banks (apart from IDBI Bank) and one general insurance company, along with LIC divestment will also be a positive.
The Union Budget 2020-21 is expansionary. It pushes for infrastructure and healthcare spending with a target to reduce the fiscal deposit without ostensibly raising the tax burden.
So, Is the budget really fair?
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That’s it. That’s our coverage of the budget.
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