A Usual Budget in Unusual Times

BY CA FARHAT MIYAN

Practicing Chartered

The Union Budget 2021-22 was presented amidst challenging times.

The unprecedented Covid-19 pandemic coupled with slow down in

economy and ongoing tensions at borders made this financial year, as

per Mrs. Sitharaman's words, sui generis.

This year's budgetary allocation explicitly reiterated government's obsession with structural reforms along with its policy its of ‘Minimum Government Maximum Governance’ while also reflecting its electoral ambitions in upcoming state assembly elections. Budget sought to give a boost to infrastructure by creating institutional structures, asset monetisation and overall increase in capital spending by the government. There were a slew of reforms in banking, insurance and financial sectors. Initiatives like easing of stressed assets from public sectors banks, increasing permissible FDI limit in insurance sector from 49% to 74% as well as consolidation of statutes relating to capital markets into a rationalised single ‘Securities Market Code’ were an augmentation in existing array of reforms.

Expediting its strategic disinvestment policy, government proposed privatisation of 2 public

sector banks and a general insurance company and planned to carry out disinvestment of

almost all Central Public Sector Undertakings (CPSEs) in a structured manner while

maintaining only bare minimum CPSEs in 4 strategic sectors. While such privatisation

initiatives increase efficiency and improve quality of goods/services, there is always a risk of

private firms colluding and attaining market power for their benefit. Hence government will

now have to be more vigilant with stringent anti-trust regulations. An IPO of LIC during year

2021-22 was also proposed in same light.

With regard to taxation, a slew of subtle changes and reforms were proposed in both direct

and indirect tax laws. The biggest relief though, was no imposition of additional tax or cess

despite a major blow to government revenues during the first half of financial year owing to

the pandemic. The government instead sought to finance its expenditures via borrowings and

disinvestment. Whilst no changes in income tax slabs or deductions have been proposed,

steps have been taken towards easing of tax compliances on senior citizens(above 75 years of

age), comprehensive pre-filing of income tax returns and enhancing transparency by making

Income Tax Appellate Tribunal(ITAT) faceless. To incentivise digital transactions and

reduce compliance burden, tax audit exemption limit has been increased to Rs. 10 crore for

those businesses which carry out 95% of their transactions digitally. The time limit reopening

of assessment has been been reduced to 3 yeas (In case of serious tax evasion cases with

evidence of concealment of income of Rs. 50 lakh or more in a year, time limit of reopening

of assessment is still 10 years). Likewise relief has been provided to charitable trusts running

educational institutions & hospitals by raising blanket tax exemption limit to Rs. 5 crore.

Exemption pertaining to repayment of interest housing loan taken with regard to purchase of

affordable house has also been extended to one year along with extension of various

incentives to start-ups.

In GST Law, a major change has been the removal of mandatory requirement of getting

annual accounts audited and reconciliation statement submitted by specified professional.

Now such statement can be filed without certification. Mrs. Sitharaman appraised the several

measures taken by government to simplify GST law. However serious challenges remain to

be resolved under GST regime in order to enable seamless flow of credit to businesses while

at the same time curbing upon fake invoices and credits.

This budget like all previous budgets, is not a panacea of all problems. It aims to strengthen

economy structurally while at the same time does little for resolving immediate

unemployment crises and increasing private consumption. Overall budget may be viewed as

an attempt to achieve higher growth rates in upcoming years and overcoming the slump by

caused Covid Pandemic.