BDO India: Countdown to the Budget 2021_Vol-1
20 January 2021
As we begin the run-up to the India Union Budget 2021, BDO India is pleased to share key expectations from this year’s Budget announcements, in our Pre Budget campaign : Countdown to The Budget 2021.(a two-volume series)
The Hon’ble Finance Minister’s announcement that Union Budget 2021 would be an exceptional one, and the vaccination drive that is underway, has stirred hope and doubled expectations amongst citizens. Various stakeholders have made their representations in order to tide over this challenging phase. Some of the proposed policies that could be a part of this Budget are outlined below:
1. COVID-19 related relief measures:
To counter the impact of COVID-19, it is expected that the Union Budget 2021 may introduce several measures, such as:
- Businesses incurring expenditure to vaccinate their employees and their families is to be treated as income-tax deductible business expenditure. Also, such expenditure is to be regarded as a part of the 2% CSR spend for corporates.
- Businesses giving infrastructure support to their employees for working from home (table, chair, internet etc.) is not to be treated as taxable perquisites in the hands of employees. Also, from an employer perspective, such expenditure is to be regarded as revenue expenditure. Alternatively, 100% depreciation on such assets is to be granted to the employer in the first year.
- Due to COVID-19 induced uncertainty in business and the consequent hardship in payment of advance tax, interest under section 234C of the Income-tax Act, 1961 (IT Act) on account of short/non-payment of advance tax, is expected to be relaxed.
- Liberalisation of the Input Tax Credit (ITC) regime – Restriction of credit on medical insurance (including COVID-19), unless required under a Statute, to be removed.
- GST rate to be reduced from 18% to 5% on health insurance to increase penetration.
- Zero-rating of COVID vaccine/treatment to enlarge the ITC benefit to contain the cost and encourage manufactures/service providers.
- For MSMEs - Reduction in GST rate on professional services from 18% to 5%
2. Building resilient Indian business:
To help business resurrect, the upcoming Budget could consider:
- Extending the concessional income tax rate of 15% or 22% to smaller businesses in the form of LLP and Partnerships.
- The present relaxation in case of specified immovable property to adopt value (not less than 80% of the stamp duty value) for income-tax purposes to be extended to all immoveable property.
- Higher tax depreciation to be allowed on COVID-19 induced capex spends.
- Conditional carryback of losses of the fiscal year (FY) 2020-21 to be allowed to be off set-off against profits of FY 2019-20 or earlier years.
- Relaxation in requirement of continuing 51% of shareholding to carry forward and set-off business losses.
- In case of a merger, brought forward business losses and unabsorbed depreciation of a transferor company to be permitted even in cases where the transferor company is not engaged in the specified business.
- Enhancing the cap of eligible monthly salary of INR 25,000 for computing additional deduction section 80JJAA of the IT Act.
3. Encouraging ‘Aatmanirbhar Bharat’:
To further boost the ‘Make in India’ initiative, Union Budget 2021 could dole out the following:
- Sunset of weighted deduction of 150% allowed under section 35(2AB) of the IT Act to R&D spends to be extended for a further period of 5 years. A similar provision could also be extended for qualifying corporate spends on training or other upskilling programs or a contribution towards government approved funds/facilities set up for skill trainings.
- Reduced TDS and TCS rate to be extended by one more year to boost liquidity.
- Concessional income tax rate of 15% to be extended to activities ancillary to manufacturing, e.g., procurement, warehousing, distribution, etc. thereby providing a conducive environment encouraging indigenous production. Further, the deadline for commencement of manufacturing / production to be extended from 31 March 2023 to 31 March 2025.
- Encouraging local manufacturing with liberal tax laws and single window approvals like Manufacturing and Other Operations in Warehouse Regulations, 2019.
- Refund of ITC on inverted duty structure. Input services also to be considered for grant of refund of accumulated ITC.
- Expeditious announcement of Remission of Duties or Taxes on Export Products (‘RoDTEP’) rates to address the uncertainty of the exporters. RoDTEP rates should reckon various non-creditable taxes inbuilt in the commodity price and be made attractive and better placed than MEIS.
- Allowance of usage of Duty Credit Scrip’s , issued under Foreign Trade Policy for discharging GST liability.
- Extension of export incentive benefits for exports to Nepal/Bhutan with INR realisation.
- An alternate dispute settlement mechanism to be introduced to end long-pending income-tax disputes.
- The threshold for applicability of GAAR to be increased and the relaxation in the cap of INR 1 billion for Indian taxpayers to approach the Authority for Advance Ruling to be considered.
- For corporate taxpayers, only 2 headline income-tax rates could be prescribed instead of the current regime of multiple income-tax rates under different provisions.
- The merger of two or more LLPs can be made income-tax neutral.
- In case of faceless assessment under the IT Act, if a taxpayer requests for a personal hearing, the same may be granted without going through an approval route.
- The existing arrangement and delay in the process, leading to indiscriminate queries/rejection of importer’s customs rate/concessions in the faceless assessment under the Customs law need to be redressed.
- Inter-linking of Customs and GST portal to expedite the incentives and refund process.
- Inclusion of petroleum and natural gas in the GST regime to reduce commodity prices.
- Encouraging compliance through a reward mechanism for timely and accurate compliance.
The extent of downturn and the pace of recovery of the Indian economy remains very uncertain and thus continued government support is crucial. Last year the government introduced a slew of measures to boost the economy.
This Budget could be the game-changer for India and is expected to lay the path for recovery.