Finance Minister Nirmala Sitharaman will unveil the Union Budget of FY 2021-22 on February 1. The Budget for this year occupies an important position as Ms. Nirmala Sitharaman has already said; the upcoming budget will be like never before or “unlike anything seen in the last 100 years“. Budget 2021-22 assumes special significance in the wake of the Covid-19 pandemic; since it will be the first Budget of the NDA government in such an extraordinary circumstance. In a never-seen-before break from the tradition, this will be the first time in the history of independent India that the Budget will be paperless.
Source: Financial Express
Background: First Things First
The Budget session of Parliament will be in two parts; from January 29 to February 15 and March 8 to April 8. The session will begin on January 29; with the address of President Ram Nath Kovind to the joint sitting of both the Houses. Earlier, the Budget used to be presented on the last working day of February.
However, with a shift in this practice introduced by former Finance Minister Arun Jaitley, the budget is now presented on February 1 every year. The Government, at this juncture, will have a humongous task; of managing its scattered finances and ensuring a recovery in demand, in an economy facing its worst contraction since 1952. The economy is likely to contract by 7.7 percent in F.Y 2020-21 in the aftermath of the Covid-19 pandemic. The finance minister will also have to revive declining revenues and restore millions of jobs lost during the unprecedented lockdown earlier last year.
What is the Government likely to focus on?
In the Union Budget of FY 2021-22, the government will be looking to focus on strengthening its flagship Atmanirbhar Bharat Abhiyan; providing further stimulus to the ‘Make in India’ program; so as to boost economic demand and stimulate growth, according to experts. The healthcare sector may also receive special attention, with an expansion of the Ayushman Bharat initiative; given the gigantic health crisis, the country is going through. Not to forget, the plight of middle-class salaried employees which has been ignored by the government in its Covid relief package. There are, thus, expectations from the government to adequately address the issues of this group of the population.
The key remedies:
- Increase the upper limit of Section 80C: Under Section 80C of the Income Tax Act; an individual is eligible to claim tax deductions of up to ₹1.5 lakh on various payments; including life insurance premiums, principal payment of the home loan, fixed deposits, provident funds, etc. Considering the inflation in the recent past, the government may increase this upper limit to up to ₹2.5-3 lakh.
- Tax deductions for those working from home: In the wake of the coronavirus pandemic, the remote working facility has become the ‘new normal’. From information technology giants to BPOs, a significant set of companies across the globe have shifted to ‘work from home’ policy in the last year. The salaried individuals have to incur additional expenses due to remote working. The government could look at providing deductions for expenses incurred by salaried employees while working from home in the upcoming Budget.
Besides these arrangements, it is expected of the policy-makers to raise the tax exemption limit in the Union Budget of FY 2021-22; below which income tax is not levied, from Rs 2.5 lakh to anywhere between Rs 3.5-Rs 5 lakh. On the other hand, the government may look at increasing capital gains tax to boost revenues. However, certain relaxations in the same can go a long way in promoting investments and savings.
Infrastructure and Consumer Demand: The key focus for the Union Budget of FY 2021-22
Expectations of the Corporate Sector
The adverse economic impact of the coronavirus pandemic is affecting everyone for some time now; be it MNCs, big domestic companies, or micro, small and medium enterprises (MSMEs). Though there are few sectors that have been resilient to the pandemic, most others are reeling, and at this juncture, may need some support from the government. The government has taken several steps to support and revive the economy; introducing labor reforms, production-linked incentives, and relief packages, particularly for the MSMEs.
- Corporate tax rates were reduced last year to make them globally competitive; with the reduced rates being 15% for new manufacturing companies and 22% for others who forgo certain exemptions/deductions. It is hence important that these rates do not increase any further; be it the base rate or by imposing additional surcharge and cess.
- Under the Companies Law, it is mandatory for specified companies to spend 2% of their average profits towards Corporate Social Responsibility (CSR). Tax deduction for these expenses is not available since these expenses are connected to social and charitable causes and are not incurred for the purpose of business. It is desired that these provisions denying tax deduction for CSR expenditure are revisited and deduction is allowed.
Why Infrastructure needs special attention in this year’s Budget?
It is no denial that infrastructure plays one of the most essential roles in the economic growth and development of a country. In a developing economy like India, especially at a time when millions are facing unemployment by the severity of economic distress, infrastructural development has to play a deciding role in the revival of prosperity. Three sectors that must be given specific attention are agriculture, healthcare, and infrastructure. While the case for agriculture and healthcare needs no rationale, the importance of infrastructure calls for some elaboration.
First, agriculture and healthcare both require modern infrastructure to ensure better outcomes, respectively. Now, States contribute almost 40% of the total infrastructure investments in India. But due to pandemic-related disruptions, the states have high fiscal deficits and are hit with liquidity issues. Therefore, the Centre needs to shoulder more of the burden of raising funds to drive infrastructure investments and projects. Given the Centre’s focus on its Atmanirbhar Bharat mission; infrastructure development can be vital in moving steadily towards achieving these goals.
With an unexpected and unending boom in the capital markets and Sensex reaching newer heights, increasing the imbalance between real economy and the financial markets, it will be interesting to observe the stock market movements post Budget. Finance Minister Nirmala Sitharaman has promised a “budget like never before” and has patiently listened to the concerns of all categories of taxpayers. While taxpayers indeed have a long wish list, it is expected that Budget 2021 will also leave no stone unturned to boost economic activity and steer the pandemic-hit economy towards higher growth path.