Expert-led panel discussion decoding Union Budget 2021
Expert insights from Union Budget 2021
Union Budget 2021 | Life Insurance Corporation of India | The announcement of a potential IPO of LIC of India in 2021-22 is a fantastic announcement in the Union Budget 2021. LIC is the pride of India and has the ability to impose the highest level of confidence in investors and policyholders. Its value creation over the years is immense. Even if a divestment of 10% is contemplated, the income generated could constitute a significant part of INR 1.75 lakh crore of budgeted divestment income. The IPO preparedness process of LIC would be unique and interesting, and its listing will enable its evolution to become a much stronger global insurance conglomerate and continue to be the darling of its policyholders. | Khushroo B. Panthaky, Chartered Accountant, Mumbai
Union Budget 2021 | Agriculture | It is apparent that the Budget for the agriculture sector is building on the existing initiatives such as PM-Kisan, Agri Infrastructure Fund, APMC reforms, Kisan Rath, 10,000 FPOs, export promotion and PMKSY for irrigation. The announcements address priority areas with increasing outlay for road and rail logistics, expanding the scope of Operations Green to include 21 crops (from three), a higher target for agriculture credit, doubling outlay for micro irrigation, strengthening infrastructure at Agricultural Produce & Livestock Market Committees under Agricultural Infrastructure Fund, etc., to enhance the competitiveness of the supporting chemicals and fertiliser industry import tariffs rationalisation on raw material inputs is on the agenda.
Further, farmer welfare has been reinforced with announcements on minimum selling price, Svamitva scheme and significant outlays for animal husbandry and fisheries to double farmers' income.
However, certain gaps exist in terms of continued depressed investment towards R&D and extension services, which has been less than 0.5% of agricultural GVA. | Kunal Sood, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Customs Duty | The Finance Minister has announced an increased on certain critical components of mobile phone including parts for manufacturing Printed Circuit Board Assembly , Camera modules, moulded plastic for chargers/adaptors etc. The hike in duty is ranging from 2.5% to 10% for different products effective April 1, 2021. This will effective increase the cost of imports and subsequently the cost of mobile phones across the Board since the margins are limited in the Industry.
Local mobile manufacturing has grown exponentially in the country and now India is exporting mobile phones and chargers to other countries. Increase in customs duty will promote more local manufacturing which is in line with PM’s vision of Aatmanirbhar Bharat | Naveen Malpani, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Dedicated Freight Corridor | Majority of the revenue for the Indian Railways comes from freight trains. A dedicated freight corridor (DFC) will now handle major freight traffic for the Indian Railways and in turn allow the Railways to improve its profits and also propose newer passenger trains, which will significantly take the load off the current railway network. INR 1.07 lakh crore, as opposed to INR 70,000 crore, has been sanctioned in this year for the DFC. Budget 2021 also hints at the potential of PPP to be introduced for the DFC.
The detailed budget on state/city wise plans and expenditure data on metro lines, busses, roads and highways and similar infrastructure investments show desire and hope by the government to increase income and create demand. Not being constrained by the fiscal deficit norms, the Budget 2021 pushed for investment and consumption aimed at bringing the economy to the pre-COVID-19 era. | Ravinder Reddy, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Personal Tax | With an objective to achieve ‘Housing for All by 2022’, the proposal to extend exemption available for the purchase of affordable house for first time home buyers and rental housing projects by another year is a welcome move. Relaxation by way of increasing the safe harbor limit on purchase of residential units up to INR 2 crore will give a boost to the real estate sector. On the compliance front, introducing faceless dispute resolution mechanism for small taxpayers to close long pending litigation is a step forward towards simplifying the tax administrations. Contrary to the popular expectation, there is no change in tax slabs, tax rates, limits applicable for various deductions, etc. applicable to individual tax payers. Further, the proposals related to bringing ULIPs and interest on employee contribution to provident fund in excess of INR 250,000 under the tax net, will have huge impact on higher income earners. Overall, a bold budget with the path of economy expansion being chosen over short term benefits. | Akhil Chandna, Associate Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Overall Budget | This budget has given a big push to set the Indian economy on a high growth path for the rest of this decade. A path breaking budget that has resisted the calls for fiscal deficit focus and debt/GDP centricity. 2021, along with the Atmanirbhar announcements of 2020, will be remembered as the new 1991. | Vishesh C. Chandiok, CEO, Grant Thornton Bharat LLP
Union Budget 2021 | Auto & Manufacturing Sector | Saket Mehra, Partner, Grant Thornton Bharat LLP
Union Budget 2021 has spurred the automobile and manufacturing sector for growth ahead and laid the foundation for a vibrant and self-reliant nation.
Top 4 hits
Enhanced outlay of INR 1.97 lakh crore in PLI scheme and INR 5.54 lakh crore for capex spending would help support core competencies in global supply chains along with potential and preferred Foreign Trade Agreements with global players
Incentivising start-ups and MSMEs for making India self-reliant, restricting imports through hike in custom duties on specific auto parts from 7-10% to 15%, will foster high scale local manufacturing
Benchmarking skilling with training initiatives and investments in road and urban infrastructure by extending national highway corridors is an impetus for growth for the ecosystem, particularly for the commercial vehicles segment
The vehicle scrappage policy has immense potential in supporting original equipment manufacturers (OEMs) and suppliers to induce demand and auto sales
Top 3 misses
Additional outlay towards National Automotive Testing and R&D Infrastructure Project (NATRIP) to make India a preferred hub for auto design and engineering
Lowering GST on two-wheeler and smaller vehicles to adopt personal mobility in a post pandemic era
Rationalisation of customs duties on Semi Knocked Down/Completely Knocked Down (SKD/CKD) for faster market penetration by new auto OEMs in the country
Union Budget 2021 | BSFI Sector | Vivek Iyer, Partner, Grant Thornton Bharat LLP
Top 4 hits
Bad bank set up to help invigorate economy by providing impetus to banking balance sheets for credit revival
Rationalisation of single market reforms code would go a long way in promoting ease of business in India and attracting foreign capital
Increase in FDI limits in the insurance sector to bring in more foreign capital would also help bring in more players helping deepen insurance penetration
Focus on incentivising digital payments for increasing digital adoption will directly contribute to financial inclusion
Top 4 misses
While some reforms did exist for NBFCs with a minimum asset size of INR 100 crore, the liquidity window facility for NBFCs was not directly addressed
INR 17,5000 crore is the planned receipt from divestments, which is an aggressive assumption as the timing of the market may not necessarily support the same
While rationalisation of the deposit insurance framework is a welcome reform, there is a need for a focus on a special resolution framework for financial institutions that currently does not exist
Important miss on the indirect tax side is in relation to the reduction of GST on medical insurance premium, which was a significant expectation of the industry. Lower GST rate could have further benefitted insurance industry and would have made the medical insurance premium more affordable
Union Budget 2021 | Overall Budget | The Budget reiterates the government’s continued endeavour on further simplification of the GST laws by removing anomalies in the GST provisions, easing compliance requirements and enforcing stricter measures to check tax evasion. This is coupled with a further attempt to overhaul customs duty exemptions as also rationalisation of custom duty rates primarily to encourage domestic manufacturing with focus on availability of essential raw materials through import are welcome steps. However, the industry would expect that the government lives up to its commitment of ensuring there is no adverse impact on account of the levy of Agriculture Infrastructure and Development Cess on specific products to apportion some part of the customs and excise duties towards promoting agriculture and other infrastructure development, as the economy finds its way back to a steady growth path. | Krishan Arora, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Healthcare | Amit Kumar Bajaj, Partner, Grant Thornton Bharat LLP
Top 3 hits
Increased spend on the sector through PM Atmanirbhar Swasth Bharat Yojana to improve infrastructure and access in line with industry expectation of 2.5%-3% of the GDP
Commitment to increase COVID-19 vaccine spends beyond INR 35,000 crore and no cess or additional taxes to fund the vaccine drive
Increased Production-linked Incentive Scheme (PLI) allocation in line with the Aatmanirbhar Bharat campaign to be self-reliant
Top 3 misses
Reduction in GST on API from 18% to 12% to reverse the inverted duty structure
Reduction of import duty on medical devices to reduce cost of healthcare services
Incentives to attract investment in R&D
Union Budget 2021 | Tech Sector | As Finance Minister presented the first digital budget, it reflected the government’s commitment on digital, technology, innovation and R&D. The adoption of new-age technologies, such as AI and ML, in administration of companies, tax administration and focus on fin-tech, digital payments as well as proposed investment of INR 500,000 crore towards National Research Foundation all substantiate the government's endeavour. The proposals around setting up of Fintech Hub at GIFT City, INR 1500 crore fund as incentive for digital payments and impetus to the start-up sector by extending tax benefits by one year would further strengthen the Digital India programme. One would, however, have welcomed a move to direct overseas listing as it would have been an impetus to new age tech companies. | Raja Lahiri, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Overall Budget | The Budget has focused on the development agenda, keeping diverse interests of the nation and its citizens. The six-part budget has stressed significantly on ‘self reliance’ by boosting infrastructure and domestic trade. In addition to budgetary outlay for the MSMEs, revision in custom tariffs are also aimed at increasing economic activity. For example, changes in duties for leather, synthetic stones and on gold and silver will increase business for artisans, 'karigars' and craftsmen. Agri products, metal components and electronic duty changes are also aimed to provide better opportunities to the MSMEs. These initiatives will positively impact the e-commerce activities. The start-up ecosystem will see benefit from some structural changes to encourage entrepreneurship. Relaxations in definitions of ‘one person company’ or OPC will boost start-up activity, especially by NRIs who can now incorporate OPCs. | Anupam Kumar, Chartered Accountant, Gurgaon
Union Budget 2021 | Tax Rates & Administrative Reforms | No change in the tax rates achieves twin objectives. First, provides a big relief to the tax payers as their tax outgo does not increase. Second, sends a strong message to the investors globally that the government is committed to a long term low tax rate regime and provide certainty on the broad tax policy framework. Administrative reforms such as faceless assessment at Tax Tribunal Level, reduction in the time period for the re-opening of the tax assessments and further impetus to the digital transactions, are all moves in the right direction to help India gain further on ease of doing business. | Vikas Vasal, National Managing Partner, Tax, Grant Thornton Bharat LLP
Union Budget 2021 | Social Security | In line with recognising human capital as one of the main pillars of the economy, the government has reiterated universal social security coverage to all workers. For the first time, the benefits would extend to gig workers, platform workers, inter-state migrant workers, building and construction workers, etc., who have now been covered under the Code on Social Security. Applicability of minimum wages to now apply to all categories of workers and participation of women in all categories of employment are some of the steps that would bring more skilled workers into the formal employment sector. Implementation of the new Labour Codes is now eagerly awaited. | Akhil Chandna, Associate Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Overall Budget | A bold budget in the backdrop of the pandemic and huge fiscal deficit. Focus has been to open up the economy further, boost capital formation, increase government spending, step up the disinvestment process and continue administrative policy reforms. Status quo on tax rates is a big relief to the tax payers and provides re-assurance to investors about the government's resolve to provide certainty on broad tax policy framework. | Vikas Vasal, National Managing Partner, Tax, Grant Thornton Bharat LLP
Union Budget 2021 | BFSI sector | Finance minister Nirmala Sitharaman had a tough task ahead of her in terms of developing a budget that focused on economic growth while balancing many variables at play. This budget has been well received judging by the stock market performance. Some key takeaways from a BFSI standpoint are setting up of bad bank, rationalisation of market reforms code, increase in insurance FDI, setting up of gold exchanges in India and additional recapitalisation of public sector banks to the tune of INR 20,000 crore amongst others. Focus on enhancing financial inclusion through incentives for digital payments and deposit insurance amendments are additional noteworthy reforms keeping the end consumer in mind. | Vivek Iyer, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Infrastructure | Reforms, disinvestment, status quo on tax rates and long-term infrastructure development have been the focus of this year’s Budget. As expected, the government has stepped up the expenditure on various large-scale projects to provide impetus to the economy and largely relied on asset monetisation and borrowings to fund the same. | Vikas Vasal, National Managing Partner, Tax, Grant Thornton Bharat LLP
Union Budget 2021 | Retail Depositors | To further restore the confidence of retail depositors in banking industry, an effective implementation framework would be in place, whereby the depositors would be able to withdraw up to INR 5 lakh against their deposits, which now stands insured under the Deposit Linked Insurance Scheme. The success of this initiative can be measured only when the process of withdrawal could be made seamless and agile since depositors during such times already face a lot of stress and have a home to run and daily expenses to be incurred. | Khushroo B. Panthaky, Chartered Accountant, Mumbai
Union Budget 2021 | Affordable Housing | Tax exemption for affordable housing projects will provide the necessary fillip to the rental housing and will lay out a framework for built to rent asset class. This has the potential to increase the rental yields with more green field housing projects being launched with focus on leasing and also increase significant investor and developer participation. | Alok Saraf, Associate Partner, Grant Thornton Advisory Pvt. Ltd.
Union Budget 2021 | COVID Cess | With the significant announcements made in order to boost infrastructure and healthcare, it would be interesting to see if there would be central revenue augmentation measures such as introduction of COVID or Pandemic cess on specific goods and/ or services. | Krishan Arora, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Asset Reconstruction | Constitution of Asset Reconstruction Management Company in the banking sector to transfer bad and stressed loans is a great reform which would reduce the stress on account of NPAs and bad loans | Khushroo B. Panthaky, Chartered Accountant, Mumbai
Union Budget 2021 | Technology | There is a strong focus on digital covering setting up of fintech hub at gift city, enhancing digital payments and use of AI ML etc in governance – all provides the a great platform for digital India | Raja Lahiri, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Digital Payments | The key to financial inclusion today is digital adoption and the allocation of 1500 cores as incentives for promoting digital payments is a step in the right direction | Vivek Iyer, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | FDI in Insurance | Increase in FDI limit to 74% in the insurance industry is a welcome change, where control and significant ownership can rest with foreign JV partner/s with specific safeguards, such as the majority directors to be Indian residents and whereby 50% of the board will comprise independent directors. The proof of the pudding is in eating and it would be wait and watch to experience how many global insurance players having presence in India would be keen to take benefit of such an increase. | Khushroo B. Panthaky, Chartered Accountant, Mumbai
Union Budget 2021 | Start-ups | Impetus for startups continues with tax holiday extended to 31 March 2022 and capital gains tax exemption also to 31 March 2022 | Raja Lahiri, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Faceless Tax Assesment | The introduction of a Faceless Income tax Appellate Tribunal Scheme will be a game changer as it will require a complete change in the manner of approaching appeals | Riaz Thingna, Chartered Accountant, Mumbai
Union Budget 2021 | Public Sector Banks | An outlay of INR 20,000 crore has been proposed to further capitalise the Public Sector Banks which would continue to improve the financial health of PSBs and provide easy capital to them during the difficult times the PSBs in general have been going through. | Khushroo B. Panthaky, Chartered Accountant, Mumbai
Union Budget 2021 | Infrastructure | The Budget reflects how an increased thrust and investment in infrastructure sector can create a multiplier effect on the economy. The announcements are not just on increasing the capital expenditure outlays (highest ever in some sub-sectors including roads and highways), but also a thrust for the most needed institutional strengthening for boosting sector performance. Clean water and sanitation as well as the urban transportation sector announcements through the most-awaited launch of Jal Jeevan Mission – Urban and a new scheme for improving urban transportation respectively, will be an enhancer for urban livability. Infrastructure debt funds are now enabled to issue tax efficient bonds and this is expected to create a further boost to the sector. | Padma Priya J, Partner, Grant Thornton Bharat LLP
Union Budget | Automotive | The Budget has laid the foundation for a cleaner and environment-friendly mobility ecosystem. Hydrogen energy mission for generating hydrogen from green power sources; enhancement of CNG – city gas distribution network for vehicles to over 100 more districts and mandatory fitness assessment of personal and commercial vehicles will push adoption of alternative fuel vehicles and accelerate R&D in alternative fuel technology | Saket Mehra, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Healthcare | PM Aatmanirbhar Swasth Bharat Yojana to develop capacities of health care systems, develop institutions for detection and cure of new and emerging disease is the first step to boost rural health and keep country ready for emergency handling of pandemic situations | Amit Kumar Bajaj, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Privatisation | One Public Sector Insurance Company to be privatised is a great step towards demonstrating the willingness of the government to focus on privatisation and enabling a better platform for this PSU (currently) to effectively compete with other players in the industry. | Khushroo B. Panthaky, Chartered Accountant, Mumbai
Union Budget 2021 | Transport | The infusion of multiple thousand crores into the public transport system in the country and government’s dedication to investments into construction of metro lines and in improving public bus service, specifically in the Tier 2 cities has the potential to give boost to the much-needed employment generation | Ravinder Reddy, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | Overall Budget | Great to see the FM enhance spend on Healthcare, Infra, Stressed Assets, Insurance FDI as expected, and enhanced monetisation of infra assets | Vishesh C. Chandiok, CEO, Grant Thornton Bharat LLP
Union Budget 2021 | Infrastructure | Focus on rail and road infrastructure especially, economic and logistic corridors will enhance competitiveness of Indian agriculture by lowering the cost of transportation and better connectivity between production and consumption markets, mainly domestic but also global | Kunal Sood, Partner, Grant Thornton Bharat LLP
Union Budget 2021 | IPO | Life Insurance Corporation of India to come out with an IPO is a major disinvestment decision within the BFSI sector and a very small percentage of such a disinvestment would lead to a major cash inflow for the government and could constitute a significant portion of the modest number of INR 175,000 crore of disinvestment income budgeted. | Khushroo B. Panthaky, Chartered Accountant, Mumbai
Union Budget 2021 | Real Estate | Amendment in InvIT and REIT structures for debt investors will ease fund raising and will provide the momentum to commercial real estate asset class | Alok Saraf, Associate Partner, Grant Thornton Advisory Pvt. Ltd.
With policy announcements, legislative changes, judicial precedents, etc. almost daily, it is challenging to stay informed. TaxPod gives you quick updates on latest key tax and regulatory developments.
All the relevant information you need from our coverage of the budget over the last few years. Access expert views, comprehensive analysis, webinars and much more.
Tax & Regulatory Services
At Grant Thornton, we provide tax advisory and regulatory service in India and can help you minimise your tax exposure and highlight the risks presented by constantly evolving and increasingly complex legislation.