Pre-budget Expectations and Predictions from our Experts

Vikas Vasal

Vikas Vasal, National Managing Partner, Tax, Grant Thornton Bharat LLP

The Union Budget should unveil bold policy and administrative reforms to propel the economy to its pre-pandemic growth level. It is expected that focus will be to provide impetus to investment in infrastructure and manufacturing, to revive consumption and generate more job opportunities.

If status quo is maintained on the tax rates and no additional cess is introduced, it will be a big relief to the businesses and households. In order to garner more resources, a combination of measures, such as PSU disinvestment, further opening up of the economy for foreign investment, developing bond markets and funding large scale projects through innovative financial products, may be considered, along with a relatively higher fiscal deficit, which is justifiable under these unprecedented circumstances.

 

Krishan Arora

Krishan Arora, Partner, Grant Thornton Bharat LLP

Keeping in mind the vision of a ‘Atmanirbhar Bharat’ and ‘Vocal for local’, indirect tax-related announcements could focus largely on boosting indigenous manufacturing with emphasis on ease of doing business, as well as hiking specific custom duties to provide level-playing field to domestic players.

With number of initiatives taken by the GST Council, in terms of tax simplification and automation over the year, some concrete announcements towards further rationalisation of GST rates and input credit, inclusion of petroleum sector, extending specific concessions to front line sectors, such as healthcare and pharma, coupled with some interim benefits to aid revival of most adversely impacted sectors, such as auto, tourism and hospitality, would provide much needed boost and uplift the overall sentiment of India Inc.

 

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Alok Saraf, Associate Partner, Grant Thornton Advisory Private Limited

The real-estate industry was passing through protracted recession even before the COVID-19 and the pandemic only worsened it manifold. The industry is therefore, pinning its hope on the Budget for revival. The sector expects a two-pronged approach from the Budget — i) A just GST regime to bring down the cost and give liquidity for generating demand. A rational GST regime, with temporary waiver or reduction in GST rate for retail home buyers and; ii) An allowance for availing input credit during construction period for commercial properties which would engage in commercial leasing and rent, to pare down the overall construction cost for the sector.

The real estate sector has been confronting crippling liquidity for a long time. A relaxation in norms for raising capital, tax incentives for home buyers, reduction in housing finance cost through preferred interest rates, continuing subsidies under Pradhan Mantri Awas Yojana (PMAY), and paving the road for quick availability of Alternate Investment Funds (AIFs) are some of the relief measures the sector expects. These initiatives will put more money in buyers’ and developers' hands, stoking the revival in the sector. With the pandemic ebbing and green shoots in the economy in sight, the industry is ready for explosive growth.

 

Amit Kumar Bajaj

Amit Kumar Bajaj, Partner, Grant Thornton Bharat LLP

I believe owing to COVID-19, one of the key themes of the budget would be healthcare and there is an expectation for higher allocations to incentivise making healthcare affordable and increase the investment in innovations. The key expectation from the pharma and healthcare sector would be to provide higher allocations for affordable COVID-19 vaccine to the masses, tax holiday incentives to promote rural healthcare with Pradhan Mantri Bharatiya Janaushadhi Pariyojana (PMBJP) and Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana (PMJAY) and measures to promote pharma exports. Further, I would also expect more clarity and expansion of the Production Linked Incentives Scheme to become self-dependent and self-reliant, giving incentives to increase footprints in the telemedicine and teleconsultations space and boosting the medical devices sector.

 

Vivek Iyer

Vivek Iyer, Partner, Grant Thornton Bharat LLP

The finance ministry has been thinking of a Banking Investment Company (BIC) model since 2014. The super holding company structure to hold all government holdings of public sector banks will not only bring in transparency and better governance, but will also ease fiscal pressure as the BIC will help raise capital more effectively. Hope to see this fructify in the Union Budget 2021.

 

Naveen Malpani

Naveen Malpani, Partner, Grant Thornton Bharat LLP

Post the pandemic, a lot of small sellers have moved to e-commerce platforms for having a wider coverage of customers. The uniform TDS of 1% on e-commerce transactions is creating challenges for small vendors since in some cases, their tax liabilities are not very high resulting in a refund. It would be appropriate for the government to consider a reduction of the TDS rate as it will definitely help these small sellers.

 

Akhil Chandna

Akhil Chandna, Associate Partner, Grant Thornton Bharat LLP

COVID-19 led to a long-term impact on the India’s economy. Therefore, Budget 2021 is being eagerly awaited with the expectation that it will fulfill the hopes of all stakeholders, particularly the salaried class, which is one of the major contributors to direct tax revenues. Wishlist includes reducing overall tax rates specially rolling back the surcharge rates as increased in 2019 for high net individuals (HNIs); increasing the overall limit for investment-linked deductions to INR 3 lakh and rationalising the standard deduction limit which is currently, INR 50,000. These measures will go a long way in increasing the disposable income in the hands of individual households, thereby resulting in more consumption and giving an impetus to the economy as a whole. Additional tax deductions for expenses incurred on COVID-19 tests/treatment in private hospitals and clarification on residential status for individuals stuck in India due to travel restrictions in FY 2020-21 are some COVID-19 related relief measures expected in the budget.

 

Sridhar R

Sridhar R, Partner, Grant Thornton Bharat LLP

On corporate tax

2019 saw a major tax reform where the government introduced an alternate concessional tax regime of 15% for companies setting up new manufacturing facilities. This made Make in India sweet with one of the lowest corporate tax rates for manufacturing globally. Despite the COVID-19 pandemic, this incentive has positioned India to be a preferred destination for global multinationals to consider for manufacturing set up. However, there are a few aspects that still require clarity. Whether Indian companies engaging in contract manufacturing or working as job workers qualify for the concessional tax rate; whether both the contract worker and the company awarding the contract for manufacturing its goods would be eligible for the alternate concessional rate. All this would provide much needed clarity to foreign investors. This is especially important given that foreign direct investment (FDI) policy now treats companies awarding contract manufacturing at par with manufacturing. There is also some scope for government, especially during these difficult times, to consider entities undertaking substantial expansion to qualify for the lower rate.

On corporate social responsibility

The whole intention of introduction of corporate social responsibility (CSR) provisions under the Companies Act, 2013 was to encourage corporate participation in socially important initiatives, make corporates look beyond profits and contribute to overall development goals of the country and society. A significant road block has been the position in income tax where expenditure towards CSR is not tax deductible. On the other hand, corporates that donate the applicable CSR amount to recognised institutions are able to claim deduction under Section 80G of the Income-tax Act, 1961. This defeats the whole purpose of introducing the CSR provisions and therefore government should consider allowing tax deduction for CSR expenditure.

On mergers

The Companies Act, 2013 and exchange control regulations have been amended to allow cross border mergers including outbound merger (i.e., an Indian company merging with a foreign company) subject to satisfaction of the conditions specified in the respective regulations. However, there is still a gap under Indian income tax law where only inbound mergers (i.e., a foreign company merging with an Indian company) is considered tax neutral. In order to provide options to the investors and certainty on tax treatment, the government can consider introducing specific provisions for tax treatment of outbound mergers and under the Income-tax Act.

 

Amit Kedia

Amit Kedia, Chartered Accountant, Mumbai

The Indian and overseas fund industry are an integral part of the Indian financial services sector. Given the importance of the fund industry in raising growth capital for the country, it is hoped that the Budget 2021 would focus to make it more attractive for the domestic and overseas investors to invest in Indian public and private Indian companies. Some tax and regulatory changes expected from Budget 2021 includes providing tax pass through status for Category III alternate investment funds (AIFs), allowing expense deduction incurred by the AIFs to the investors, providing GST waiver on management fees charged by AIFs to overseas investors, reduction in the tax rate for unlisted securities, providing tax exemption to offshore funds upon redomiciling to IFSC GIFT City, providing indirect transfer exemption to foreign entities in case of corporate actions, etc. These changes could go a long way in making India a favourite investment destination especially for the overseas investors.