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Indian Budget 2021 | Pre-Budget Expectations

Indian Budget 2021 | Pre-Budget Expectations

Indian Budget 2021 (#budget2021) is a testament towards a confident India and a progressive, resilient economy. Hon'ble Finance Minister Smt. Nirmala Sitharaman expected to present a sound, confident Budget on Feb 01st 2021 in the house of the parliament.

This article provides Team EZTax.in recommendations and a straight talk on what to expect in this budget.

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What is Budget?

A budget is a financial plan for a specified period say Year in general. The Government of India i.e., Ministry of Finance after consultation with all the other ministries prepares the annual budget. The budget will be generally presented by the Finance Minister on the first day of February in Parliament. The proposed budget will come into effect from April 1st of the respective year.

Pre-budget Expectations


BACKDROP

By far CY 2020 is one of the most challenging year for the Indian administration to have a balanced budget for FY 2020-21. With a backdrop of COVID-19 Pandemic, Escalation at Indian Borders, massive shortfall in GST collections, upward pressure to increase the help for farming sector, migrated labour, and many other factors along with a huge +ve uptick in digital consumerism, the Budget 2021 is a challenging task.

OVERALL

Our team's expectations are very similar to last year's expectations and are focussed on individuals and small businesses. Budget 2021 is expected to increase the importance for self-reliance in manufacturing, infrastructure, domestic service sector, and a possible restrictions on imports.

Overall, Budget 2021 may focus on efforts to keep more money in the hands of the people to the spur demand. In other words, critical changes could be the rationalisation GST rates, and increase in Income Tax standard deduction.


 Expected to focus on Infrastructure, ways to keep the money in the hands of the people to spur the demand 

GOVERNANCE
  1. Continued reforms towards "minimum government & maximum governance", possible to take a bold reformative steps towards automation, privatization of non-functional PSUs, centralizing government functions to reduce the Government expenses, and increase the Governance
MSMEs
  1. Re-focus on 6.5 to 7 Crore MSMEs who are deeply affected by the COVID-19 pandemic, with some observation, around 25% of MSMEs are closing their businesses by un-attending their GST obligations, and around 10% are closing their GST accounts formally.
  2. MSMEs needs a massive boost even at the expense of ramifications from QE. Expected to increase Credit Flow to MSMEs through certain liberal means to re-start their business.
  3. Provide larger incentives for Start-ups who are providing employment and innovation for the society. Similar to popular US programme "Pay-check Protection Programme" (PPP) for Small Businesses. The PPP let small businesses get direct government subsidies for payroll, rent and other costs. The subsidies come as collateral-free, credit-free loans.
  4. Spur Demand: Give IT Relief to Taxpayers for a higher consumption. Also, Reduce / Adjust GST rates on basic commodities with an eye on rural economy.
GST
  1. GST Compliance: Avoid frequent changes to the process and systems. GST is not the problem for the Economy but it's the Demand. Enforce full GST including Reverse-Charge mechanism for proper ITC. Differ e-Invoicing for businesses w < 500 Cr turnover.
  2. GST Compliance: Re-Organize GST Slab Rates to promote employment, in the lines of Raw (lower GST Slab), Processed (Manufactured), Heavily Processed, Imported (higher GST Slab).

 Theme of the Budget 2021 is expected to be Self-Reliance 

INCOME TAX
  1. Income Tax: Basic Exemption Limit for Individuals should be increased from Rs. 2.5L to Rs. 5L. Limit Cash Transactions for Doctors, Hospitals, Lawyers and other Professionals.
  2. Income Tax: Only bank deposited (or Digital) House Rents are allowed to be considered for HRA (if Old Tax Regime).
  3. Income Tax: Encourage Small Family of 4 (Wife, Husband and 2 Kids) to get special rebate. Also introduce 'Family' as a IT Return Type to enable Family Filing with Incentives.
EASE OF DOING
  1. Ease of Starting Business: Eliminate most professional certifications for Firms, LLPs, Private Companies below 5Cr turnover limit. At the same time, enforce strict compliance norms after 5Cr annual turnover.
  2. Ease of Doing Business: Re-enable Aadhaar based eSigns & KYC for both IT and GST Returns. This will enable ease of use and reduce the fraud due to DSCs
  3. Create Level Playing Field for the small and medium businesses to sustain as they co-exist with the eCommerce eco-system.
LOANS
  1. Root Cause of Loan defaults: Re-enforce standards in Asset valuations part of lending industry. Link & Enforce GST turnover in Income Tax Filings immediately to reduce the inflated turnovers & Bad Loans.
  2. Cost of Money: Promote Government based Payment / Wallet Services Rupay & UPI with Zero MDR. Enforce the same across all payment gateways with immediate affect as not all have implemented this yet (even after year later). Like a Paper Currency, Digital Currency should not have transaction cost. Today Digital Rs. 100 is actually Rs. 97.5 as the 2.5% is the MDR / Need to address it immediately.
  3. EZ Loans to SMEs: Enable a measure to give Online EZ Loans based on GST Turnover, Sector Specific Indicators. Craft standards for faster / STP Loans by eliminating non-material, 3rd party Balance Sheet Certifications.
  4. Cost of Credit: 1 year interest-free, collateral-free Credit for the eligible MSMEs who have proven record of credit history or against the collateral.
HIGHER EDUCATION
  1. As recommended part of last year's pre-budget expectations, we propose Institution Industry Quotient ( IIQ ) for better innovation @ scale in India that spur growth.
  2. Build Institution Industry Quotient (IIQ) for better Synergy and Innovation. Increased Grants must be linked with IIQ. Promote entrepreneurship from the Institution onwards.
BANKING SECTOR
  1. Transformations in Banking Sector as a whole, re-enforcing asset valuation to reduce NPAs, privatization of some of the banks, and redefining the role of banks as a strategic rather mere infrastructure would bring much capital for the government to invest in next generation infrastructure.
AUTOMATION
  1. Increase mandatory domestic sourcing for all the public sector spending to give an enhanced opportunity for domestic technology companies and start-ups to participate in automation.
SUMMARY

In Summary, it's difficult to satisfy all parts of the society when the tax collection is low and generally mood of the economy is not so great due to COVID-19 Pandemic.

Budget 2021 may focus on efforts keep more money in the hands of the people to the spur demand, with a theme of "Self-Reliance".


New Vs Old Personal Income Tax Regime


Top three observations from the analysis were

  1. New Tax Regime is Good if you want higher take home salary
  2. Higher Deductions Higher Tax Savings with Old Tax Regime
  3. To switch to New Tax Regime, you need to work with your employer

Pictorial analysis on New Vs Old Personal Income Tax Regime

Comparison of Old Personal Income Tax Regime with New one from budget 2020
Top three observations on Old vs New Tax Regime presented in Budget 2020
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