Budget 2021 Expectations & Latest News Updates: Indian Budget Analysis from ClearTax

Budget 2021 will be announced on 1st February 2021 addressed by FM Nirmala Sitharaman

With the upcoming Budget 2021, there are high expectations from across industries, including the common man, to promote the growth of the Indian economy that is affected by the pandemic. 

Even after the government’s effort of providing Rs 20 lakh crore-worth stimulus towards the COVID 19 affected areas, the economy could only manage to just stay afloat. To revive the overall economy, a strong focus on COVID-affected industries is required. 

Here are some of the areas that need a hand from the government to come out stronger:

Budget Expectations for Personal Taxation

1. A separate COVID treatment deduction under 80D, 80DD or 80DDB should be provided by the government. Insurance policies do not cover all charges related to COVID treatment. So, relief of up to Rs 2 lakh for treatment of COVID 19 for self, spouse, children, or dependent parents and siblings will be required.
2. COVID cess can be levied on high-income earners earning above Rs 1 crore per financial year. This cess can, then, be utilised towards providing reliefs for COVID treatment and building better health care infrastructure.
3. The income tax department should consider increasing the 80C limit from Rs 1.5 lakh. This deduction has been at the same level since more than a half-decade now. Increasing the 80C limit will not only increase the general public’s investment in LIC policies, PPF, NPS, ELSS, purchase of a house, etc. but will also provide an overall relief to taxpayers.
4. New tax regime introduced in Budget 2020 with concessional tax rates, disallows many tax deductions and exemptions. The government should consider liberalising the new regime and allow some common.
5. The lowest two slabs of income tax can be modified by reducing the tax rates for the benefit of the middle-class population and to support those hit by job losses in the previous year.
6. COVID-19 showed us the importance of preventive health care. Hence, the government should consider increasing the limit of preventive healthcare, which is currently at Rs.5,000 u/s 80D. 
7. House property income-related reliefs: 
   1. Increase in the standard deduction, from 30% to 50%, allowed from house property income. Many people have migrated to their hometowns giving up the rented residence. Also, there have been rent cuts due to salary cuts in many states. Increase in the standard deduction will help the house owners cope up with the reduced rent.
   2. The current limit of interest deduction of Rs 2 lakh u/s 24 should be increased to Rs 4 lakh.
   3. Removing taxation on the notional rental income can be an encouragement for the purchase of new house properties.
   4. The government should take steps to position India as a knowledge, research, and development hub for global companies, which will generate more jobs and create a demand for office spaces. 
   5. The government should consider reducing the holding period for long term capital gains for real estate, which will spur investors’ interest. 
8. Salary income-related reliefs:
   1. Increase in the standard deduction from Rs 50,000 to Rs. 75,000 to cope up with salary cuts.
   2. Work from home facilities by employers, such as the provision of furniture, printers, laptops, and wifi, will become taxable in absence of any clarity. An amendment to keep these facilities as non-taxable should be made. 
   3. Currently, LTA can be claimed for domestic travel in India only excluding expenses incurred for accommodation. LTA rules need to be changed such that it includes accommodation subject to certain ceiling conditions. 
   4. Budget 2020 introduced an amendment that any employer contribution to RPF, NPS, and superannuation above Rs 7.5 lakh would be chargeable as perquisite. Clarity is required if the existing limit of 12% or 10% of salary for employer’s contribution should be considered prior to this limit of Rs 7.5 lakh. Further, a clarification on whether the contributions must be taxed in the year of contribution or at the time of withdrawal is needed. Salary income-related reliefs:
   5. The government had introduced a new Leave Travel Concession (LTC) Cash Voucher Scheme through press releases. As per the scheme cash payments will be given to employees in place of one LTC during 2018-21. Depending on the entitlement class, the employees will receive the full amount of leave encashment and tax-free amount of LTC fare in three flat-rate slabs. The scheme applied to central government employees but later on extended to the non-central government employees as well. It is expected that the block period may be extended beyond 31st March 2021 to enhance consumer spendings.

Budget Expectations for the Travel and Tourism Sector

1. The government should allow a separate exemption for travelling in India. 
2. The tourism industry expects the budget for waiver of IGST. Further, the tax credit should be provided for GST on travelling with registered domestic tour operators, travel agents, hotels, etc. 
3. Extending credit facilities and increasing the cycle of working capital limits, waiver of TCS, etc. could help the industry. 
4. The aviation industry has been majorly hit with almost double the net loss from the previous year approx Rs 210 billion. The government should consider providing financial aid and reduce the taxes on aviation turbine fuel and other charges, such as parking, landing, and navigation charges. Upgradation of airports in Tier-II cities can help improve connectivity.

Budget Expectations for the Healthcare Sector

1. Even though every year the government allocates a substantial amount of budget for healthcare, the pandemic showed that our country has a poor healthcare infrastructure to support during the times of such crises. The government should increase the spend on healthcare infrastructure from the present level of 1.3% of GDP. There has been less than 1 bed and 1 doctor for  1,000 people in India, which recommends the government’s attention towards infrastructure development. 
2. Digital media allowed easy access to people until the last mile in these trying times, hence the government should focus on the expansion of Tele-medicine platforms. A separate medical innovation fund can be set up to provide a push for health-tech companies and startups.   
3. Our country has laid back on focusing on preventing infections in the hospital environment other than OPs and ICUs. Hence, the government should give more attention to infection prevention, sanitisation, etc. as a preventive health measure.  
4. There is a need for skilled labourers and doctors for the medical industry. Medical colleges should be set up in Tier II and III cities for easy access to doctors and skilled medical staff. 
5. The government can mandate a specific share of Corporate Social Responsibility (CSR) to be allocated towards medical and pharma companies. This will bring more liquidity to the healthcare sector. 
6. The incentivising collaboration of private players and government for research and development in the medical industry will provide an expert and financial synergy to the sector.
7. The focus required on building open-air gyms or sports facilities, parks, and public spaces. Public campaigns advising people to move around and addressing nutrition gaps are needed. Expenditure on education on the basics of health and nutrition in rural and less developed areas is a necessary move. 

Budget Expectations for e-Commerce and Startups 

1. Offline businesses are hit hard and people have become comfortable with buying through online platforms. To survive this tough competition, every business owner is planning to go online. Keeping this in mind, the government should implement policies to simplify starting an online business and offer support/exemptions to SMEs from certain mandatory compliances. 
2. As e-Commerce is mainly ruled by two giants, i.e. Amazon and Flipkart, the government should consider promoting other small players to go online by imposing certain restrictions on the big players. The government should consider reducing the compliance burden of GST for small and medium businesses.
3. The government should consider providing the refund of GST paid on capital goods used in setting up a business, especially for the startups. It will help in easing the blocked working capital and covering up liquidity crises. 
4. A provision must be created for offering low-interest loans and increasing the time limit for recognising NPAs from 6 months to 8 months in industries where the working capital cycle has stretched due to low demand. This will give room to the businesses to cope up with this slow economy. 
5. Startups usually offer ESOPs to their employees, and the government should consider lowering the tax in ESOPs, which is very high at the moment. 
6. Many startups are venturing into the leasing of coworking spaces. Accordingly, they have requested for TDS reduction, which is currently at 10% for leasing of office spaces. Also, the reduction of 18% GST charged for renting out the shared workspaces needs to be considered. 

Budget Expectations for the Education sector 

1. Our New Education Policy (NEP) 2020 has already set the pace for development of the education sector in India. From shifting to an online mode of education to amending the New Education Policy, 2020, there have been many changes in the education sector recently. However, the sector still needs governmental support as many schools have faced severe hardships during the pandemic, struggling to sustain amidst parents’ refusal to pay schooling fees and paying teachers’ salaries. The government should consider increasing the expenditure in the education sector.
2. Policies for equalising rural and urban education is to be implemented.
3. Initiatives to be taken to formalise ed-tech startups and the online education sector.
4. Though the core education has been out of the purview of GST, secondary education, such as hobby classes, sports, coaching, etc are taxed at 18%, which is very high considering the current spending capacity of the general public, which should be proposed for reduction to GST council. 

Budget Expectations for Rural and Agriculture Sector

1. The Farm Bill 2020 is expected to get closure in this Budget 2021. The government must add a Minimum Support Price (MSP) in this law and have a specific budget allocated.
2. The government must allocate a higher budget for storage, warehousing, cold storages, transport vehicles, etc. 
3. The government must expedite existing rural projects on infrastructure development, roads, irrigation facilities, etc. with a methodology for tracking issues. 

Budget Expectations for Insurance Sector

1. Presently many treatments are not covered by government-owned insurance companies.  These policies require an update to include a wide range of treatments. 
2. The government should increase medical insurance coverage for senior citizens from the current maximum limit allowed Rs.2 lakh, which includes a 50% co-payment clause, and also increase the permissible age limit above 65 years to cover with COVID packages.
3. The government must enable smooth connectivity between insurance companies and hospitals for faster processing of claims and settlements.
4. GST applicable on insurance premium should be further reduced by the GST Council. 
5. The FDI investment limit in the insurance sector must be increased from 49% to 70% for better market penetration.
6. The government should exempt the annuity income from an insurance policy from tax to encourage more purchases of annuity policies. 

Budget Expectations for Corporate Taxation

1. A waiver of Minimum Alternative Tax (MAT) for at least a period of three years starting from April 2021 is expected for COVID-hit industries, such as travel and tourism, hospitality, and auto companies.
2. Overall the budget needs to facilitate easy access of capital to businesses that are navigating from after-effects of COVID.

Budget Expectations for Indirect Taxation

Though GST policy changes are usually discussed at the GST Council meetings, Budget 2021 can make key announcements in EXIM trade policy and customs law. CGST and IGST Acts may undergo crucial amendments as well.

1. Exporters who avail EPCG benefits having three years to fulfil export obligations are expecting extension by five years.
2. Print Media has also been badly hurt by the pandemic due to supply-chain disruptions during the pandemic. It expects relief by a reduction in the customs duty on import of newsprints, a stimulus package, or releasing advertisements with an increased tariff of 50%.
3. Domestic players in aluminium want basic custom duty on primary aluminium and aluminium scrap to be increased to 10% and elimination of the cess on coal.
4. Gem and jewellery industry wants a reduction in the duty on gold, to 4% from 10%, including polished precious and semi-precious gemstones. 
5. ASSOCHAM wants duty-free import of technology on aluminium shuttering in AFW in affordable housing projects. GST charged on raw materials and services used for the affordable housing projects needs to be reduced to 50% or brought to a single digit. Many developers have requested for the removal of GST on under-construction homes to compete with finished home constructions.
6. Domestic players in electric vehicles want reductions in indirect tax rates on the raw materials imported.
7. Import duties may be hiked by 5%-10% on more than fifty items, including smartphones, electronic components, and appliances, to encourage their manufacturing in India.

Divestment planning by the government in Budget 2021
In the Budget of the current financial year ending on 31st March 2021, a divestment target of Rs. 2.1 lakh crore was set by the government by selling its stake in state-owned companies. But only 3% of the target was achieved up to the first half of the financial year. One of the reasons for slow divestment is the unexpected Covid outbreak. A major amount was planned to be raised from the divestment of government’s stake in the Life Insurance Corporation (LIC) of India. This has been delayed, as there were fewer chances of raising high receipts from the IPO from the crippled economy of India due to pandemic. To Hence, the government could make a huge target for divestment in the upcoming Budget 2021.

For any clarifications/feedback on the topic, please contact the writer at jyoti.arora@cleartax.in

Jyoti Arora

I am a Chartered Accountant by profession with  4+ years of experience in the finance domain. I consider myself as someone who yearns to explore the world through travelling & Reading. I believe, the knowledge & wisdom that reading gives has helped me shape my perspective towards life, career and relationships. I enjoy meeting new people & learning about their lives & backgrounds. My mantra is to find inspiration from everyday life &  thrive to be better each day.