[2021] 123 taxmann.com 459 (Article)
Date of Publishing: January 29, 2021
India is currently witnessing one of the strongest support from the complete globe which is evident from the fact that the SENSEX reaching mount 50K representing strong investors confidence in Indian economy. India is a global hub for medicine manufacturer and is right now feeding the global demand for COVID-19 vaccine which is well appreciated by everyone globally. This will not just help India getting better investor sentiments but also getting good geo-political support from the world.
The Hon’ble Finance Minister has already indicated to bring a budget full of reforms that will transform India’s economic outlook and to help India becoming a USD 5 Trillion economy. This year budget is much awaited and will remain special for the reason that the government has already taken bold steps during COVID-19 under Atmanirbhar Bharat Package to revive the economy which is now getting seen through the earning numbers of Quarter 3.
However, the next question that comes up is what else one can expect when the government has already announced special measures including new industrial policies, overhauling of social security schemes, rationalisation of tax administration and the tax rates are already at the lowest level in the history of the country. We are outlining below the realistic expectations one can have from Budget 2021:
| 1. | Reduction in corporate tax rate & indirect tax looks difficult as the corporate tax rates has already been reduced vide introduction of Section 115BAA and Section 115BAB. However, the government can announce sector specific measures including special deductions/ exemptions under income tax to boost investment some of which are as below:- | |||
| – | Widening the scope of LTA provisions to cover not only travel but also hotel stay for a certain star hotels. | |||
| – | Accelerated deduction can be provided for capital investment in certain sectors including EV, solar power, startups etc. | |||
| – | Transfer pricing safe harbour rules can be widened to cover more industry sectors and may provide rationalisation of margins. | |||
| – | Increase in the interest deduction from house property income can be enhanced to promote investment in housing sector. | |||
| – | Specific tax benefit can be expected for employees working from home (WFH). | |||
| – | The government has recently asked the corporates to cut the royalty payments outside India and in continuation to that one can expect some rationalising measures for the royalty payment. Rationalisation of profit repatriation will remain a key especially when the government has already removed the bigger hurdle of non-creditable dividend distribution tax. | |||
| 2. | The faceless assessment and appeal scheme has been framed and implemented for Income tax & Customs which can be very well replicated with GST as well. Modification in GST law in this regard can be expected. This can bring more transparency in the GST administration and will definitely boost India’s position in ease of doing business. | |||
| 3. | The government has always tried to support entrepreneurship. In lieu of providing further support, the government can announce measures including but not limited to creating a fund to support and special tax rate benefits. An additional tax deduction can be expected for development and registration of intangibles in India. | |||
| 4. | The bold steps taken by the government to save the sinking ship of Yes bank was well appreciated. Some of the measures to improve reporting by banks and financial institutions can be expected. The possibility of recapitalisation along with announcement of merger of some public sector banks cannot be ruled out. | |||
| 5. | The Supreme Court has in its ruling (Writ Petition (Civil) No.528 of 2018 & Writ Petition (Civil) No.373 of 2018) revoked the RBI directions of banning Cryptocurrencies in India. Law in relation to regulation and exchange of cryptocurrency can be expected to provide boost to the financial markets through inclusion of cryptocurrencies within the overall framework for financial institutional investment. | |||
| 6. | The COVID-19 has helped the government to reduce the dependency on the railways for transportation. Such a long closure of the world’s biggest rail network was seen for the first time. This has helped the government to further plan its divestment plans for the Indian Railways operations. A detailed scheme can be expected to be announced in the budget. This will include measures on privatisation of part of a railway network along with improvement in railway infrastructure through public private partnership. | |||
| 7. | In order to rationalise the provisions for taxing the digital economy, the government has last year introduced the equalisation levy on non resident ecommerce companies. The measures brought by the government was criticised by many countries including US as tax biased policy. The government can come out with measures including introduction of UN suggestions to further bridge the gaps and rationalise the provisions. | |||
| 8. | The government in order to incentivise the businesses for adopting to the UN sustainable development goals (SDGs) can bring some incentives including exemption to carbon credit incomes. | |||
| 9. | Developing the real estate sector is the need of the hour and the government is well aware of this therefore, one can expect bold steps to be taken in incentivising the investment in real estate sector including tax benefits for the retail homebuyers to rationalisation of financing measures for real estate companies. | |||
| 10. | The government has recently taken a note on timelines through the circular issued on extension of due dates for filing ITRs. Considering the fact that there are multiple due dates under various laws, the professionals can expect some rationalisation in the due dates under various laws to avoid the problems faced by the professionals to support the businesses. | |||
| 11. | Rationalisation of tax provisions to provide for measures to curb treaty shopping and the GAAR provisions can be rationalised to make them more effective. | |||
| 12. | The tax administration laws could be revisited to synchronise the same within the different tax laws (direct and indirect) and there can be a possible merger of appellate forum of taxation in order to simplify tax litigations. | |||
| 13. | Considering the growth in the number of unicorn startups, the government may ease lisiting requirements for such kind of startups. Further, the government can potentially ease the foreign listing of securities. | |||
| 14. | Decriminalisation of offences under the tax laws can be expected atleast upto a certain threshold given the government’s thrust on ease of doing business. | |||
| 15. | Provisions under the Income tax laws providing ad hoc taxation such as Section 68, 69 etc. can be revisited to improve business sentiments. | |||
| 16. | The limit for maintaining the transfer pricing documentation can be enhanced from 1 Crores to 5 crores to reduce the burden on small taxpayers of maintaining the transfer pricing documentation. | |||
| 17. | Insolvency & bankruptcy Code (“IBC”) is proved as an effective measure for resolving the non-performing assets of the banks. Certain bottlenecks are being faced by the entities who are taking over the businesses through IBC. In this regard, clarity with respect to the treatment of write offs under tax laws (direct & indirect) can be expected in order to provide relief to the businesses to not pay any tax liability on amounts written off and to further claim the GST inputs in some cases. | |||
This Budget 2021 has huge expectations from the businesses as they restart their growth path to become leaders in the world. The growth trajectory after the lifting of lockdown has fuelled the hope for India becoming the next superpower of the world. In this crucial time of recovering from the shock of COVID-19, India is looking at the government for the brighter and stronger budget 2021 that will pave the path of Industrial Revolution 4.0.
(The views expressed here are personal and does not purports to reflect the view of any organisation)
