India Budget 2021-22 - Financial Review

Are you looking for the effects of new taxation and financial reforms introduced in the budget 2021-22? Here's the analysis.

The theme for the Indian budget of 2021-22 was AtmaNirbhar Bharat - The six pillars of the economy, and the six pillars are -

  • Health and well being

  • Physical and capital infrastructure

  • Inclusive development for aspirational India

  • Re-invigorating human capital

  • Innovation and Research & Development

  • Minimum government and maximum governance


Financial and Fiscal Reforms-

1. Time reduction for Income Tax proceedings:

Before this budget, the Income Tax department could reopen cases of mishaps in Income Tax assessment or frauds, for a period of 6 years. For example, if the department finds in 2021 about a fraud happened in 2015, then it can give notice to the assessee for reconsideration of his fraud case.

But now after this budget, this time limit has now been trimmed to 3 years. Now only cases upto 2018 can be reopened according to the example. But cases which are of amounts of more than Rs 50 lakhs can still be reconsidered for 10 years.

This can be in way conspicuous as in the frauds or misstatements that would have happened at the crucial time of demonetization in 2016 are now out of scope for reconsideration.

2. National Faceless Income Tax Appellate Tribunal Centre:

This budget marks the inauguration of the new platform, which will handle tax disputes, queries and problems, without any physical interaction with the client. All processes will be simulated in online mode via the platform's website. This step will surely increase convenience for the general public who don't have much knowledge about the Income Tax Act of India.

3. Relaxation in norms for small company:

Small companies, according to section 2(85) of The Companies Act, 2013, is a company whose total paid up share capital doesn't exceeds Rs 50 lakhs and annual turnover is not more than Rs 2 Crore. But the recent budget has proposed the limit of paid up share capital to Rs 2 Crore and that of annual turnover to Rs 10 Crore. This will act as an incentive for the boost of business sector. More and more companies can be incorporated as small company and can avail the reliefs available to the small companies, like they don't have to comply to the rotation of auditors, no requirement for preparation of cash flow statements etc.

4. Enhanced Tax Audit limit:

There's a provision w.e.f. FY 2020-21, that if the sales, turnover or gross receipts of a business exceed Rs 5 Crore, then the entity is subject to tax audit, i.e. it has to get his tax assessment audited. This limit has now been increased to Rs 10 Crore, but only if the business is 95% digitized. If an entity is working in fully digital mode, then it is subject to tax audit only if its turnover crosses Rs 10 Crore, which again is a step which will reduce compliance to regulations, making ease of business in the country easier. At the same time, it can also lead to creation of some loopholes, which can be exploited by the tax evaders.

5. Reduced compliance burden for senior citizen:

Individuals, who are more than 75 years of age, will not be required to file their income tax return, if they only have income in the form of pension and interest. Individuals who have income differing from these two sources, like Income from House Property, Profits or Gains from Business or Profession, or Capital Gains will not be covered in this incentive. This again is quiet a caring step taken by the government in order to reduce the compliance burden from the super senior citizens. This will also not have much effect on the tax revenue of the government.

6. Alteration in OPC incorporation rules:

According to The Companies Act, 2013, a One Person Company can only be incorporated by a resident individual of India. This budget of FY 2021-22 proposed to allow Non-Resident Individuals(NRI) also to incorporate a One Person Company in India. This will be meritorious for the country as now individuals all over the world will be able to implement their business ideas in India, with the creation of an OPC. An OPC enjoys certain benefits over a private or public company, like the signature of CS is not required for the filing of annual returns, no minimum share capital etc.

7. Relaxation for being a resident of India:

According the the Income Tax Act, 1961, one of the conditions for being a resident of India is that the person needs to be in India for at least 182 days in the previous assessment year. Nirmala Sitharaman, the Finance Minister proposed to reduce this figure to 120 days. This makes it easier for an assessee to become a resident of India and enjoy the fruits of certain deductions, rebates and exemptions that are allowed only to residents of India, like the rebate u/s 87A of The Income Tax Act, 1961.

8. Increase in FDI limit:

This budget has increased the Foreign Direct Investment(FDI) limit in the Insurance Sector. Earlier FDI in insurance sector was restricted to the upper limit of 49%, according to the Insurance Act, 1938. But now it has rose by massive 25% to the upper limit of 74%. Now foreign companies can have upto 74% share in Insurance companies, which will allow foreign ownership and control with safeguards. This will lead to huge foreign capital inflow in the Indian economy as the foreign sector can penetrate even more. However, it will not be a cause for the Indian Investors as there will be certain safeguards available to them and certain limits for the foreign investors beyind which they will not be able to act.

If we go on to analyze the crux of this Indian Budget of FY 2021-22, we come to a conclusion that the government has taken measures that align India to become a Business Giant across the world. Indirectly, the government is inviting foreign as well as local investors to invest in Indian markets and assist the economy rise.

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