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 the government's obsession with structural reforms along with its policy 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, the 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 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 the government will now have to be more vigilant with stringent antitrust regulations. An IPO of LIC during the year 2021-22 was also proposed in the same light.
With regard to taxation, a slew of subtle changes 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 the 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 reduced to 3 years (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 the mandatory requirement of getting annual accounts audited and reconciliation statements submitted by specified professionals.
Now such statements can be filed without certification. Mrs Sitharaman appraised the several measures taken by the 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 the economy structurally while at the same time does little for resolving immediate unemployment crises & increasing private consumption. .Overall budget may be viewed as an attempt to achieve higher growth rates in upcoming years and overcome the slump caused by the Covid Pandemic.
(The writer is a practicing Chartered Accountant. The views are personal)