Finance Minister Nirmala Sitharaman has presented the Union Budget 2021-22 in Parliament. In significant changes to the taxation process, Sitharaman announced the scrapping of income tax for senior citizens under certain conditions, new rules for removal of double taxation for NRIs, and a reduction in the time period of tax assessments among other measures. Startups will get an extension in their tax holiday for an additional year. Sitharaman also announced that the advance tax liability on dividend income shall arise after declaration of payment of dividend. At the conclusion of her speech, Sensex was at 47451.62, up 1165.85 points.

Union Finance Minister Nirmala Sitharaman did not announce change in income tax slabs for individuals in the Union Budget 2021. The only change announced in regards to individuals' income tax was that senior citizens aged more than 75 years will now be exempted from filing Income Tax Returns.

In her Speech, Sitharaman announced that India’s fiscal deficit is set to jump to 9.5 per cent of Gross Domestic Product in 2020-21 as per Revised Estimates. This is sharply higher than 3.5 per cent of GDP that was projected in the Budget Estimates. A slump in government revenues amid the Covid-19 pandemic has led to a sharp rise in deficit and market borrowing.

In health care spending, Sitharaman announced a total spend of around Rs 2 lakh crore on healthcare with Rs 35,000 crore on Covid-19 vaccine development and innoculation.

Sitharaman, in her speech, announced a push to the textile industry, a hike in custom duty on cotton and raw silk, a new cess on agriculture development – Rs 2.5 per litre on petrol and Rs 4 per litre on diesel – a central university in Leh, a focus on sea-weed farming with a new facility in Tamil Nadu and a new vehicle scrapping policy that aims to provide the auto sector a boost among other announcements. Sitharaman also announced that an additional 1 crore families will now benefit under the Centre’s Ujjwala scheme. Four poll-bound states – Kerala, Tamil Nadu, Assam and West Bengal – will see significant spending on highway road expansion.

This was Sitharaman’s third budget under the National Democratic Alliance (NDA) government led by Prime Minister Narendra Modi. In a significant departure from the tradition, this year’s Budget was not printed and was only made available in a digital format.

In her Budget speech last year, Finance Minister Nirmala Sitharaman had introduced a new income tax regime under which tax rate were reduced. However, the reduced rates were applicable only for those who would forego their exemptions.

People who wished to include the exemptions were allowed to stick to the old tax regime.

The income tax changes announced last year were seen as an attempt to overhaul the income tax structure for individuals. Announcing the move, Nirmala Sitharaman had said it will "lower the income tax" a salaried individual pays.

However, there was a catch to the new scheme. Under the new income tax regime, which has so far been optional, you will not be able to avail of all of the deductions or exemptions that earlier allowed you to lower the amount of your salary that was taxed.

The income tax scheme last year included the following tax slabs:

• For incomes of up to Rs 5 lakh per year, there will be no income tax.

• For incomes between Rs 5 lakh and Rs 7.5 lakh per year, the income tax to be paid will be 10 per cent.

• For incomes between Rs 7.5 lakh and Rs 10 lakh per year, the income tax to be paid will be 15 per cent.

• For incomes between Rs 10 lakh and Rs 12.5 lakh per year, the income tax to be paid will be 20 per cent.

• For incomes between Rs 12.5 lakh and Rs 15 lakh per year, the income tax to be paid will be 25 per cent.

• For incomes above Rs 15 lakh per year, the income tax to be paid will be 30 per cent.

How was the new income tax regime different? 

Under the old income tax regime incomes between Rs 5 lakh and 10 lakh are taxed at 20 per cent while all incomes above Rs 10 lakh are taxed at 30 per cent.

People are free to either chose the old regime or opt for the new one. The old tax regime will include all rebates and exemptions that an income tax payer can use to reduce their overall tax paid. The new tax regime, however, does not include around 70 of those exepmptions.

In simple words, what the change meant was that if you choose to be part of the new income tax regime, you will pay lesser income tax but you won't be able to claim around 70 of the exemptions available earlier.

INCREASING FDI CAP IN INSURANCE SECTOR TO 74%

FM has proposed to increase foreign direct investment (FDI) limit in the insurance sector to 74 per cent, a move aimed at attracting overseas players.

In the first paperless Union Budget, Finance Minister Nirmala Sitharaman also said investor charter would be introduced as a right of all financial investors across all financial products.

Sitharaman proposed to amend the Insurance Act 1938 to "increase the permissible FDI limit from 49 per cent to 74 per cent in insurance companies and allow foreign ownership and control with safeguards".

"Under the new structure, the majority of directors on the board and key management persons would be resident Indians with at least 50 per cent of directors being independent directors and specified percentage of profits being retained as general reserve," Nirmala Sitharaman said while presenting the Budget 2021-22.

AGRICULTURE CREDIT TARGET UP TO RS 16.5 LAKH CRORE

Amidst the ongoing farm crisis with protests against the farm laws continuing for months, Finance Minister Nirmala Sitharaman said in her Budget 2021 speech that the government is increasing the agriculture credit target to Rs 16.5 lakh crore.

“Our government is committed to the welfare of farmers. The MSP regime has undergone a change to assure price that is at least 1.5 times the cost of production across all commodities,” said Sitharaman, in assurance to the farm sector.

Sitharaman further added in her Budget speech, “Procurement has also continued to increase at a steady pace. This has resulted in increase in payment to farmers substantially. In case of wheat, the total payment made to farmers in 2013-14 was Rs Rs 33,874 crore. In 2019-20 it was Rs 62,802 crore and in 2020-21, it was Rs 75,060 crore.”

“Cotton farmers saw stupendous increase in the amount that was paid to them in 2013-14, that was Rs 90 crore and it was increased to over Rs 25,000 crore in 2020-21,” said Sitharaman.

In her budget speech for the next fiscal, she said the procurement of crops like paddy, wheat, pulses and cotton has jumped manifold in the last six years. Nirmala Sitharaman said a total of 43.36 lakh farmers have benefited from these payments.

In Budget 2021, Sitharaman also proposed to increase agriculture credit target to Rs 16.5 lakh crore.

As the minister started highlighting the government's initiatives and achievements in the agriculture sector, opposition members started demanding repeal of three new farm laws.

Thousands of farmers, mainly from Punjab, Haryana and Western Uttar Pradesh, have been protesting at Delhi borders for more than two months seeking repeal of three laws and a legal guarantee of the MSP.

VOLUNTARY SCRAPING POLICY & FITNESS TEST AFTER 20 YEARS FOR PRIVATE VEHICLE

FM has announced the Voluntary scrapping policy while giving her Budget 2021 speech. The scrapping scheme will be based on the mandatory fitness test of vehicles which will undergo fitness test in automated fitness centres. The timeline fixed for fitness test is 20 years for personal vehicles and 15 years for the commercial vehicles. 

In the Voluntary vehicle scrapping policy, old and unfit vehicles will be phased out. In July last year, the Centre had proposed amendments to the motor vehicle rules to allow scrapping of vehicles older than 15 years. Further, in a draft notification, the government proposed renewal of fitness certificates for vehicles older than 15 years every six months instead of the current one year.

The policy is expected to encourage customers to go in for new purchases which will be backed up by government incentives in lieu of their old vehicles. Significantly, this move is considered to be the most vital element of any further package to prop-up the sector's growth.

Federation of Automobile Dealers Associations (FADA), apex national body of Automobile Retail Industry in India, ahead of the Budget session recommended an attractive incentive scheme for successful implementation of Vehicle Scrappage Policy across the country. 

FADA said - The government must design a robust Inspection & Certification (I & C) policy or End of Life Vehicles (ELV) policy for vehicles in the country. However, as both the above policies would take time to be effectively implemented, there is a need for an immediate scheme based on incentive for encouraging voluntary scrapping of old vehicles and replacing them with newer ones. The new vehicles are cleaner and meet stringent emission requirements.

SOME OF THE KEY HIGHLIGHTS:

• FM proposes tax exemption for aircraft leasing cos; tax exemption for notified affordable housing for migrant workers

• Rs 1.5 lakh deduction on payment of interest for affordable housing extended by 1 yr:

• Record GST collections in last few months; govt to take every possible measure to reduce anomalies

• Tax holiday for startups extended by 1 yr; exemption on capital gains on investment in startups extended by 1 yr

• Exemption duty on steel scrap up to March 2022; customs duty on naphtha cut to 2.5 pc: FM

• Rationalising customs duties on gold and silver, says FM in Budget for 2021-22

• Customs duty on cotton increased to 10%, silk to 15%

• Customs duty on solar lanterns cut to 5%

AGRI INFRA CESS OF 100 PC IMPOSED ON ALCOHOLIC BEVERAGES

• Agri infra Cess of 30% on kabuli chana, 10% on peas, 50% on bengal gram/chick peas, 20% on lentil (mosur); 5% on cotton imposed in Budget

• Agri infra Cess of 2.5% imposed on gold, silver and dore bars; 35% on apples; 5% on specified fertilizer; 1.5% on coal, lignite and peat

• Agri infra Cess of 100 pc imposed on alcoholic beverages

• Agri infra Cess of 17.5% on crude palm oil, 20% on crude soyabean, sunflower oil imposed

Finance Minister Nirmala Sitharaman concluded her Budget speech at 12.50 pm. In February 2020, FM Nirmala Sitharaman spoke for a record 162 minutes — two hours and 42 minutes — in Lok Sabha. FM Sitharaman only had two pages of her Budget speech unread, when she appeared uneasy and her Budget speech was cut short.

OPPOSITION CALLS IT AS DISAPPOINTING BUDGET

The FM could have been brave but chose to be timid. The nation needed a bold budget and more direct transfers to the weaker sections to revive demand, restart job creation," senior Congress leader and Deputy leader of Opposition in Rajya Sabha Anand Sharma tweeted The budget is "disappointing" and without a roadmap for accelerating growth and revival of consumer demand, he said.

Congress leader Shashi Tharoor slams Budget: “This BJP government reminds me of the garage mechanic who told his client, “I couldn’t fix your brakes, so I made your horn louder.” 

(With inputs from agencies)