Budget 2021

One of the most anticipated days of the year, the Budget day, is responsible for determining the future of a country’s economy. Investors all over the world will be on the edge of the seat to determine how beneficial a strategy would be in yielding returns. Before analysing the Union Budget 2021 by FM Nirmala Sitharaman, let’s understand what a fiscal deficit is.

Fiscal deficits and Funds

Fiscal balance is obtained from the revenue generated in relation to the expenditure i.e [revenue – expenditure]. The proposed fiscal deficit for FY21 is 9.5% of GDP. For the last 40 years, the government has been reporting a fiscal deficit; a surplus is very rare, even in developed countries. The revenue consists of a tax component (corporate tax, income tax, GST) and non-tax component (interest receipts, dividends and profits). The expenditure capital is for providing salaries, pensions, welfare projects etc. The lockdown driven economy indicated the lowest GDP growth rate in over a decade which urges the government to increase expenditure to spur business and investment activities. The government raises funds by issuing bonds during deficits. The highlights of this year’s budget are mentioned below.

Some Highlights of Budget 2021

Since the healthcare sector’s improvement is the need of the hour, a new scheme, titled PM Atma Nirbhar Swasthya Bharat Yojana, to be launched along with other reforms to develop healthcare and sanitation. The budget outlay for the healthcare sector was estimated to be Rs. 2.23 lakh crore – an increase of 137% against budgeted expenditure from the previous year. Asset reconstruction company to take over stressed loans was proposed, which was one of the major reasons for the bank nifty to reach a peak. A portal to maintain data on gig workers to be launched. Another major highlight was the rise in FDI limits in the insurance sector from 49% to 74%. Various reforms in the education and agriculture sectors were also introduced.

For Taxpayers:

Direct Tax

1. IT filing was waived for senior citizens of age 75 and above.
2. Tax holiday for startups has been extended by another year.
3. Proposal to notify rules for removing hardships of double taxation(India and country of residence) faced by NRI.
4. Measures to further ease filing of Income tax return by pre-filing capital gained from dividends, securities and interests.
5. Advance tax to be applicable on dividend income only after declaration for a correct estimation of tax amount.
6. Setting up a Dispute Resolution Committee to reduce litigation by taxpayers with taxable income upto Rs.50 lakhs and any disputed income of Rs.10 lakhs.
7. Contribution in excess of Rs.2.5 lakhs to PF (Provident fund contribution is 12% of basic + employer’s contribution) will be taxed.
8. Tax exemption has been granted for affordable rental projects.

Indirect Tax

1. Duty on copper scrap reduced to 2.5% to enable recycling of critical minerals.
2. Custom duty on gold and silver to be reduced to reduce the price of precious metals.
3. Raised duty on solar inverters and solar lanterns to encourage solar manufacturers.
4. Agricultural Infrastructure And Development Cess(AIDC) to be levied on certain items such as petrol, diesel, gold, apple, sunflower oil etc.
5. Custom duty on cotton was raised to 10%.
6. CGST Act was amended.

There were few tweaks in the tax structure here and there but fortunately no new cess introduced.

Government is listening to markets.

Scam 1992

Akash