INDIA 2021 - Verendra Kalra & Co, Chartered ...
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2019
INDIA
budget
statement
2021
CONTENTS
Foreword 1
Foreword
Budget at a glance 4
Budget Financials 6 Budget 2021 had to bear the and the government has given Well-being) and increasing its
Economic Indicators 7 burden of huge expectations clear signals that it aims to bring allocation by 137 per cent is
Economic Survey 12 to put India back on a recovery this down gradually to below 4.5% undoubtedly a much-needed
Direct Taxes 20 path following a deep recession by 2025-26. shot in the arm. This year’s
Indirect Taxes 58 induced by the pandemic and Budget strongly acknowledges
Sector Wise Impact Union Finance minister Nirmala
the consequent lockdowns. The the importance of a clean
Health Sector 78 Sitharaman presented the Union
budget proposals were presented environment, and clean water
Infrastructure Sector 78 Budget 2021 with focus on 6
in the dismal backdrop that and sanitation as a prerequisite
Financial Sector 79 pillars to energize the economy
witnessed massive contraction to achieving universal health.
Industrial and Corporate Sector 79 which has been battered by the
in the GDP by 23.9% in the first Taking that into consideration, the
Agriculture Sector 80 Covid-19 pandemic. The six
quarter and a contraction of Jal Jeevan Mission (Urban) will
Education Sector 81 pillars are: Health and Well-Being,
7.5% in the second quarter of be implemented over the next 5
Other Sectors 81 Physical and Financial capital
FY 2020-21. As expected, the years with an estimated outlay
Glossary 82 and infrastructure, Inclusive
revised estimate of fiscal deficit of more than INR 2.87 lac crore
Development or Aspirational India,
for 2020-21 is estimated at an (INR 2.87 Trillion). All these steps
Reinvigorating Human Capital,
unprecedented 9.5% of GDP. Due are important to build a strong
Innovation and R&D, Minimum
to the three Atmanirbhar Bharat economy through a healthy
Government and Maximum
packages and the RBI measures nation.
Governance.
to resurrect the moribund
One needs to also look at
economy, there was already an It is no surprise that health
the proposals for physical
expectation that under such infrastructure comes as a priority
and financial capital and
exceptional circumstances, the for the Government during the
infrastructure. Under various
fiscal discipline, which had already pandemic year, as the H’ble
heads, the Budget proposes
taken a big hit, will need to be put FM announces an outlay of
a sharp increase in capital
in the back burner for some more INR 64,180 crore (INR 641.8
expenditure having provided INR
years to address the more urgent Billion) for the Pradhan Mantri
5.54 lac crore (INR 5.54 Trillion),
task in hand of reviving growth. Atmanirbhar Swasth Bharat
34.5% more than the BE of last
Not surprisingly, the government Yojana. A holistic approach
year. This will help firm-level
chose to opt for the former. The to health (by strengthening
bottom-lines and macroeconomic
budget estimate of the same has Preventive, Curative, and
growth. Additionally, it is also
been pegged at 6.8% in 2021-22,
1
expected to create short and even better. FDI cap in insurance investors and taxpayers. The Additionally, the proposal to address ease compliance, and areas, this apparently will not a
medium-term employment, has been raised to 74% from 49 budget has put emphasis on extend the eligibility for claiming yet make it difficult to evade tax. herculean task.
thereby helping the cause of % earlier. This will help deepen a stable tax regime and not tax holiday for start-ups by one It appears that the government’s
Given that the Budget 2021
boosting domestic consumption insurance penetration in India, introduced any new tax or any more year and incentivising the efforts to continuously calibrate
attempts to address the
demand. promote better competition major change in the taxation incorporation of a one-person the GST regime have now started
Sustainable Development Goals
among the local players and structure. Few reforms for ease company to enable them to grow paying results, as the collection in
Setting up of a new Development and growth needs in an attempted
provide long term gestation funds of doing business in India have will give a further fillip to the the last few months have touched
Financial Institution, Multiple integrated framework, it seems
too. No TDS on dividend payment also been announced which will burgeoning start-up culture in the 1.2 lac crore, despite the fact
Infrastructure Investment Trusts, that the Indian policy making is
to REIT/InvIT and lower treaty be an added opportunity to attract country. that the economy is till struggling
and national monetization pipeline now transcending the contours of
rates on dividends to FPI’s will interest from foreign investors. to recover from the pandemic
will help draw in foreign investors The FM has also proposed myopic growth-driven economic
also encourage investments. impact.
to bring in long term funds for the Measures like exempting senior faceless proceedings at the ITAT vision to a holistic development-
country’s infrastructural needs. Allocation of funds for citizens (75 years and above) who so as to bring more transparency Budget 2021 is an out and out centric approach. The naysayers
capitalization of banks is much only have pension and interest in disposal of appeals at the spending based budget, designed may have their doubts, but with
The most critical developmental
below than what was expected. income from filing income ITAT and also achieve equitable to stimulate growth now, and the all-round visible improvement
statement has emerged under
However, other reforms such tax returns, the time limit for distribution of work amongst rein in fiscal deficit later through in the execution capability built
Aspirational India where various
as a proposal to set up an ARC reopening I-T assessment cases different benches of ITAT through buoyancy in tax collections up in the country over the years,
elements of welfare state in the
to takeover existing stressed halved to 3 years from 6 years, dynamic jurisdiction allocation. riding on such growth. This will it looks like that India and Bharat
Indian context, namely, Agriculture
bank loans and sell to AIF’s will increase in limit for tax audit for require accelerated and targeted can together convert today’s
and Allied sectors, farmers’ On the indirect tax side, the FM
help bank to focus on their core persons who carry out 95% of administrative reforms to improve crisis into tomorrow’s opportunity.
welfare and rural India, migrant has proposed to rationalize the
activities. their transactions digitally, and compliance. Monetization Amen!!!
workers and labour, and financial duty structures and remove
additional deduction for loans of assets and ambitious
inclusion, have been given major On the direct tax front, Finance anomalies by reviewing over 400
taken up till March 2022 for disinvestments are the other
allocations. Minister Nirmala Sitharaman archaic exemptions this year.
purchase of affordable housing prime revenues sources which the Verendra Kalra
announced several proposals Other welcome amendments in
For foreign investors, the India are all steps in the much- government is eyeing. Keeping in Managing Partner
for the benefit of depositors, the legal provisions are aimed to
story is promised to be made promised ease of living reforms. view the past track record in these
3
Budget at a glance
Where the money comes from Where the money goes
States’ share of taxes & duties 16%
Borrowing and other liabilities 36% Interest Payments 20%
Corporate Tax 13% Central Sector Scheme 13%
Income Tax 14% Other expenditure 10%
GST and other taxes 15% Finance Commission &
Non-tax revenues 6% Other Transfers 10%
Excise 8% Centrally Sponsored Scheme 9%
Customs 3% Defence 8%
Non-debt capital receipts 5% Subsidies 9%
Pensions 5%
5
Economic Indicators
Budget Financials
(Amount in INR Billion)
GDP Growth (at constant Market prices)
Particulars 2019-20 2020-21 2020-21 2021-22
Actuals BE RE BE
1 Revenue Receipts (2+3) 16,841 20,209 15,552 17,884
2 Tax Revenue(Net to Centre) 13,569 16,359 13,445 15,454
3 Non-tax revenue 3,272 3,850 2,107 2,430
4 Capital Receipts(5+6+7) 10,023 10,213 18,952 16,948
5 Recoveries of loans 183 150 145 130
6 Other receipts 503 2,100 320 1,750
7 Borrowings & other liabilities 9,337 7,963 18,487 15,068
8 Total Receipts (1+4) 26,863 30,422 34,503 34,832
9 Total Expenditure (10+13) 26,863 30,422 34,503 34,832
10 On Revenue account 23,506 26,301 30,111 29,290
11 Interest Payments 6,121 7,082 6,929 8,097
12 Grants in aid for creation of capital assets 1,856 2,065 2,304 2,191
13 On Capital account 3,357 4,121 4,392 5,542 Year %
14 Revenue deficit (10-1) 6,665 6,092 14,560 11,406 2017-18 7.00
(3.3) (2.7) (7.5) (5.1)
2018-19 6.10
15 Effective Revenue deficit (14-12) 4,809 4,027 12,256 9,215
2019-20 (PE) 4.20
(2.4) (1.8) (6.3) (4.1)
2020-21 (AE) (7.70)
16 Fiscal deficit {9-(1+5+6)} 9,337 7,963 18,487 15,068
(4.6) (3.5) (9.5) (6.8)
17 Primary deficit (16-11) 3,216 881 11,558 6,971
(1.6) (0.4) (5.9) (3.1)
Capital receipts = (Recoveries of loans + Other receipts + Borrowings GDP for BE 2021-2022 has been projected at INR 2,22,87,379 crore
and other liabilities) (INR 222,873.79 Billion) assuming 14.4% growth over the estimated
Revenue Deficit = (Revenue Expenditure - Revenue Receipts) GDP of INR 1,94,81,975 crore (INR 194,818.75 Billion) for 2020-2021
Effective Revenue Deficit = (Revenue deficit – Grant in aid for (RE)
creation of capital assets) Individual items in this document may not sum up to the totals due
Fiscal deficit = (Total Expenditure – [Revenue receipts + Recoveries to rounding off
of loan + Other receipts) Figures in parenthesis are as a percentage of GDP
Primary Deficit = (Fiscal Deficit – Interest Payments)
7
Economic Indicators
Inflation CPI and WPI
[Average]%
Growth in GVA
at constant Market prices
Year Inflation CPI Inflation WPI
[Combined] [Average] [Average]
2017-18 3.6 3.0
2018-19 3.4 4.3
2019-20 4.8 1.7
Agriculture &
2020-21 (AE) 6.6 (0.1)
Services
Industry
Allied
Year
GVA
2017-18 5.0 5.9 8.1 6.6
2018-19 2.9 6.9 7.5 6.0
2019-20 (PE) 4.0 0.9 5.6 3.9
2020-21 (1st AE) 3.4 (9.6) (8.8) (7.2)
9
Economic Indicators
Growth in Foreign Trade [Average]% Deficit Trends (% of GDP)
(As per the new classification of expenditure)
Year Exports Growth Imports Growth
2017-18 9.8 19.6
2018-19 9.1 9.0
2019-20 (4.8) (9.1)
2020-21* (19.0) (36.3)
*April to Oct 2020
Year Fiscal Deficit Primary Deficit Revenue Deficit
2017-18 3.5 0.4 2.6
Forex Reserves 2018-19 3.4 0.4 2.4
Year In USD Billion 2019-20* 4.6 1.6 3.3
2017-18 424.5 2020-21(BE) 3.5 0.4 2.7
2018-19 411.9 *Provisional Actuals
2019-20 475.6
2020-21* 586.1 Foreign Investment Year Equity Debt
(FPI/FII Net investment in USD Billion) 2017-18 3.96 18.50
*As on January 8, 2021 2018-19 0.12 (6.13)
2019-20 1.29 (6.43)
2020-21** 32.56 (4.97)
Exchange Rate ** upto 29 Jan 2021
Year Exchange Rate (INR per USD)
2016-17 67.07
2017-18 64.45
2018-19 69.92
2019-20 70.90
2020-21* 74.64
*End of December 2020
11
ECONOMIC SURVEY regulations being ineffective even with relatively good compliance with to bare necessities is the highest
process. The next chapter argues that the root cause of the problem of in the States such as Kerala,
Economic Survey 2020-21 is an ardent tribute to the immortal human The next chapter explains over-regulation is an approach that attempts to account for every possible Punjab, Haryana and Gujarat
spirit of grit and compassion encapsulated by the tireless battle against that the relationship between outcome. This is illustrated by a study of the time and procedures needed while it is the lowest in Odisha,
the pandemic by our frontline COVID-19 warriors. In the midst of the most inequality and socio-economic to voluntarily close a company in India, even when there is no outstanding Jharkhand, West Bengal and
unfathomable global health emergency experienced in modern history, the outcomes, on the one hand, and dispute or litigation Tripura.
resolve of each Indian helped find its way from the darkness of ‘lives vs economic growth and socio-
livelihoods’ to the glow of ‘#SavingLives&Livelihoods’. As described in the economic outcomes, on the Both economic theory and evidence shows that in an uncertain and Improved access to “the bare
first chapter of the survey, the foresight of collective vision to battle this other hand, is different in India complex world, it is not possible to write regulations that account for necessities” correlates with future
pandemic became evident when policy insights and implementation at the from that observed in advanced all possible outcomes. This makes discretion unavoidable in decision- improvements in education
Centre, State and local level converged to initiate a V-shaped economic economies. Given India’s stage of making. The attempt to reduce discretion by having ever more complex indicators. Thrust should be given
recovery. India’s response stemmed from the humane principle that while development, India must continue regulations, however, results in even more non-transparent discretion. The to reduce variation in the access
GDP growth will recover from the temporary shock caused by an intense to focus on economic growth solution is to simplify regulations and invest in greater supervision which, to bare necessities across states,
lockdown, human lives that are lost cannot be brought back. This strategy to lift the poor out of poverty by definition, implies willingness to allow some discretion. between rural and urban and
was also tailored to India’s unique vulnerabilities to the pandemic. While by expanding the overall pie. between income groups, on bare
During the Global Financial Crisis, forbearance helped borrowers’ tide over
the lockdown resulted in a 23.9% contraction in GDP in Q1, the recovery Redistribution is only feasible in a necessities. The improvements
temporary hardship caused due to the crisis and helped prevent a large
has been a V-shaped one as seen in the 7.5% decline in Q2 and the developing economy if the size of are widespread as they span each
contagion. However, the forbearance continued long after the economic
recovery across all key economic indicators. the economic pie grows. of the five dimensions viz., access
recovery, resulting in unintended and detrimental consequences for banks,
to water, housing, sanitation,
The second chapter of the Survey establishes that growth leads to debt The recent COVID-19 pandemic firms, and the economy.
micro-environment and other
sustainability in the Indian context this is because the interest rate on has emphasised the importance facilities. Inter-State disparities
For India to become an innovation leader, it needs greater thrust on
debt paid by the Indian government has been less than India’s growth rate of healthcare sector and its inter- in the access to “the bare
innovation. India’s aspiration must be to compete on innovation with
by norm, not by exception. If the interest rate paid by the government is linkages with other key sectors necessities” have declined in 2018
the top ten economies. India’s GERD is lowest amongst other largest
less than the growth rate, then the intertemporal budget constraint facing of the economy. The ongoing when compared to 2012 across
economies. The government sector contributes a disproportionate large
the government no longer binds. This phenomenon highlights that debt pandemic has showcased rural and urban areas.
share in total GERD at three times the average of other largest economies.
sustainability depends on the IRGD, i.e. the difference between the interest how a healthcare crisis can get
However, the business sector’s contribution to GERD is amongst the
rate and the growth rate in an economy. The phenomenon of a negative transformed into an economic
lowest. The business sector’s contribution to total R&D personnel and
IRGD in India – not due to lower interest rates but much higher growth and social crisis. Healthcare
researchers also lags behind that in other large economies. This situation
rates must prompt a debate on the saliency of fiscal policy, especially policy must not become
has prevailed despite the tax incentives for innovation having been more
during growth slowdowns and economic crises. beholden to “saliency bias”, where
liberal than other economies. India’s innovation ranking is much lower than
policy over-weights a recent
India Sovereign credit rating does not reflect its fundamentals, this is what expected for its level of access to equity capital. This points towards the
phenomenon. To enable India to
the third chapter of Survey details. Credit ratings map the probability of need for India’s business sector to significantly ramp up investments in
respond to pandemics, the health
default and therefore reflect the willingness and ability of borrower to meet R&D.
infrastructure must be agile.
its obligations. India’s willingness to pay is unquestionably demonstrated
The next chapter demonstrates strong positive effects on healthcare
through its zero sovereign default history. Despite ratings not reflecting It is not possible to have complete
outcomes of the PM-JAY – the ambitious program launched by
fundamentals, they can however be pro-cyclical and can affect equity and regulations in a world which has
Government of India in 2018 to provide healthcare access to the most
debt FPI flows of developing countries, causing damage and worsening uncertainty as it is not possible
vulnerable sections. This is despite the short time since the introduction of
crisis. It is therefore imperative that sovereign credit ratings methodology to account for all possible
the program.
be made more transparent, less subjective and better attuned to reflect outcomes. The evidence, however,
economies’ fundamentals. shows that India over-regulates The last chapter explains that compared to 2012, access to “the bare
the economy. This results in necessities” has improved across all States in the country in 2018. Access
13
Economic Survey
GDP AND GVA AT A GLANCE: a robust recovery in the services contract by 12.4%, Manufacturing Government for the development in September-2020 since the FY 2020-21, while the contraction
sector. Together, prospects for by 9.4% and construction by of allied sectors including animal lockdown. The subsequent narrowed to 11.4% in the second
The year 2020 witnessed
robust growth in consumption 12.6%. The utilities sector has husbandry, dairying and fisheries months have seen consistent quarter. This pace of recovery
unrivalled turmoil with the
and investment have been shown a sharp recovery and is set exhibit its resolve towards tapping improvement and the sub- is broadly aligned with high
novel COVID-19 virus and the
rekindled with the estimated real to register a positive growth of the potential of allied sectors to components of the IIP have frequency indicators that point to
resultant pandemic emerging as
GDP growth for FY 2021-22 at 2.7% in 2020-21. Within Services further enhance farm welfare. gradually inched towards their a pick in economic momentum
the biggest threat to economic
11%. Sector, trade, hotels, transport & pre-COVID levels, a reflection of with the measured opening up of
growth in a century.
communication are estimated to the beginning of the revival of the the economy from June 2020.
On the supply side, GVA growth
India’s GDP is estimated to contract by 21.4%. INDUSTRY AND economy.
is pegged at -7.2% in 2020-21 as India’s services sector activity,
contract by 7.7% in FY2020- INFRASTRUCTURE
against 3.9% in 2019-20. Only which had contracted for five
21, composed of a sharp
Agriculture contributed to positive As per the latest estimates on consecutive months since March
15.7% decline in first half and a AGRICULTURE SERVICES SECTOR
growth while Service and Industry GVA, the industrial sector is as the Covid-19 pandemic dented
modest 0.1% fall in the second
contributed to the contraction in The resilience of India’s expected to record a growth The first half of FY 2020-21 saw demand, has started to pick up
half. Sector-wise, agriculture
GDP. Agriculture is set to cushion agriculture sector can be seen of-9.6% with an overall Services Sector contract by since September 2020. The IHS
has remained the silver lining
the shock of the COVID-19 from the fact that despite contribution in GVA of 25.8% almost 16%. This decline was led Markit India Services Business
while contact-based services,
pandemic on the Indian economy the COVID-19 pandemic, its in 2020-21. The contribution of by a sharp contraction in all sub- Activity Index also known as
manufacturing, construction
in 2020-21 with a growth of 3.4% performance in output was the industrial sector has been sectors particularly ‘Trade, hotels, Services Purchasing Managers’
were hit hardest, and have been
– resulting in an increase in its strong. About 54.6% of the constantly declining since 2011- transport, communication & Index (PMI), which was at an 85
recovering steadily. Government
share in GDP to 19.9% in 2020-21 total workforce in the country 12. The fall in share is across services related to broadcasting’, month high of 57.5 in February,
consumption and net exports
from 17.8% in 2019-20. is still engaged in agricultural the board except in case of which contracted by 31.5% in first 2020, fell to its lowest level of 5.4
have cushioned the growth from
and allied sector activities ‘Electricity, gas, water supply half of FY 2020-21. in April, 2020.
diving further down. The V-shaped Industry and Services are
(Census 2011) which accounts & other utility services’ whose
economic recovery is supported estimated to contract by 9.6% As per the first AE, GVA of As mobility restrictions were lifted
for approximately 17.8% of the share in GVA has increased from
by the initiation of a mega and 8.8% during the year. Within services sector is estimated to and business resumed, Services
country’s GVA for the year 2019- 2.3 % in FY12 to 2.7% in 2020-21.
vaccination drive with hopes of Industry, Mining is estimated to contract by 8.8% in 2020-21, PMI recovered sharply to 54.1 in
20 (at current prices). While the
On 24 March 2020, when the whereas it grew by 5.5% in 2019- October 2020. The index softened
difficulties created by COVID
21-day national lockdown 20. to 52.3 in December 2020,
induced lockdowns adversely
was imposed to prevent the although a print above 50 still
affected the performance of Sub-sectors ‘Trade, hotels,
proliferation of COVID-19, it was means expansion.
the non-agricultural sectors, the transport, communication
expected that the economic
agriculture sector came up with & broadcasting services’,
activities would freeze except for
a robust growth rate of 3.4% at ‘Financial, real estate &
some essential services. The IIP
constant prices during 2020-21 professional services’, and
growth started contracting
(first AE). ‘Public administration, defence &
immediately after the lockdown
other services’ are estimated to
The sector has got renewed reaching its historical low in
contract by 21.41%, 3.68 % and
thrust due to various measures April- 2020. The calibrated and
0.82 % respectively.
on credit, market reforms and gradual unlocking process led
food processing under the Atma to the resumption of economic It is pertinent to note that while
Nirbhar Bharat announcements. activities translating into positive the services sector contracted
Various interventions of the growth in IIP for the first time by over 20% in the first quarter of
15
Economic Survey
Growth in Gross Value Added at constant (2011-12) Basic Prices (%): mainly driven by rise in food EXTERNAL SECTOR April-November, 2019, making
inflation, which increased from it the second largest exported
India’s exports and imports saw a
Industry 2016-17 2017-18 2018-19 2019-20 2020-21 0.1% in 2018-19 to 6.7% in 2019- commodity among the top 10
sharp contraction in line with the
(2nd RE) (1st RE) (PE) (1st AE) 20 and further to 9.1 % in 2020-21 export commodities. This shows
contraction in global trade. The
Agriculture, forestry 7.3 5.8 1.0 3.9 0.9 (Apr-Dec), owing to build up in that India has the potential to be
decline in imports outweighed
& fishing, mining and vegetable prices. the ‘pharmacy of the world’.
that in exports – leading to
quarrying smaller trade deficit of USD Iron and Steel is another
Manufacturing, 7.5 6.5 6.0 0.7 -9.3 9.8 Billion as compared to USD commodity whose share has
construction, electricity, WPI inflation declined from 4.3%
49.2 Billion in Q1 last year. India increased from 3.0 % to 4.4 %
gas and water supply in 2018-19 to 1.7% in 2019-20 and
registered a trade surplus in the in the said period However, the
Trade, hotels, transport & 7.7 7.6 7.7 3.6 -21.4 further to -0.1 % in 2020-21 (Apr-
month of June, 2020 after a gap pandemic-related disruptions
communication Dec). It remained negative from
of 18 years. With the unlocking of led to sharp fall in exports of
Financing, insurance, 8.6 4.7 6.8 4.6 -0.8 April to July 2020 and stood at 1.2
the economy from June onwards, Motor Vehicles/ Cars as it no
real estate and business % in December 2020.
a gradual revival in India’s longer figures among the top 10
services The decline in WPI inflation in the merchandise trade got underway. exported commodities in April-
Community social & 9.3 9.9 9.4 10 -3.7 current year is mainly on account The trade deficit during the April- November, 2020.
personal services services of fuel & power. Persistent December, 2020-21 was USD 57.5
Crude Petroleum continues
Gross value added at basic 8 6.6 6 3.9 -7.2 volatility in the global crude oil Billion as compared to USD 125.9
to be the highest imported
prices prices during the year led to fall in Billion in the corresponding period
commodity in April-November,
inflation of major fuel products. last year. India’s merchandise
2020, accounting for 14.3%
trade balance for major countries
Source: Central Statistics Office WPI fuel & power inflation share vis-à-vis 21.0% in April-
for the period of 2020-21 (April-
dropped sharply from 11.6% in November, 2019. The share of
November) as compared to 2019-
2018-19 to -1.8% in 2019-20 and gold imports reduced to 5.6% in
20 (April-November).
further to -12.2 % in 2020-21 (Apr-
Dec). India had the most favorable trade
balance with USA followed
by Bangladesh and Nepal. The
WPI food inflation declined
PRICES AND INFLATION during 2020-21 (Apr-Dec). highest trade deficit is with China
from 6.9% in 2019-20 to 4.2% in
Inflation dynamics have The average CPI-C inflation, followed by Iraq and Saudi Arabia
2020-21 (Apr-Dec) and WPI core
changed considerably in 2020. which was 5.9% in 2014-15, fell during April-November, 2020-21
inflation increased to 0.8 % in
Overall, headline CPI inflation continuously to 3.4% in 2018-19 and April-November, 2019-20.
2020-21 (Apr-Dec) as compared
remained high during the and recorded 4.8 % in 2019-20. to -0.4 % in 2019-20. Drug formulations, biologicals
COVID-19 induced lockdown It however increased to 6.6% in have consistently registered
period and subsequently, due to 2020-21 (Apr-Dec) before easing positive growth and highest
the persistence of supply side to a 15-month low of 4.6% in increase in absolute terms in
disruptions. The rise in inflation December 2020. Within various recent months. This led to rise
was mostly driven by food groups of CPI-C, the increase in in its share to 7.1 % in April-
inflation, which increased to 9.1% inflation in the current year was November, 2020 from 5.0 % in
17April-November, 2020 from 6.3% on vulnerable people, small un-locking of the economy, the Owing to the recovery of the
in corresponding period a year businesses, and the economy focus of the fiscal stimulus economy over the past few
ago, slipping to third position from in general, created immense has been widened with various months, the monthly revenue
second earlier. pressure on the available limited measures taken to boost the collections have witnessed
fiscal resources. domestic demand such as a revival. GST collection has
Computer hardware and
ramping up of capital expenditure, crossed the 1 lac crore (1 Trillion)
peripherals is one of the new India did not waste precious
Production Linked Incentives mark consecutively for the last 3
additions in the list of top 10 fiscal resources in trying to pump
and other schemes to revive months. Monthly GST revenues
import commodities in April- up discretionary consumption.
consumption demand. for the month of December 2020
November, 2020, accounting for Instead, the policy focused on
stood at INR 1.15 lac crore (INR
3.0 % of total imports driven by ensuring that all essentials were With the easing of movement and
1.15 Trillion), after registering a
increased demand due to more taken care of, which included health-related restrictions in the
12% growth in the GST revenues
people working from homes. direct benefit transfers to the third quarter, the pace of
over December 2019. This has
vulnerable sections, emergency
The impact on trade also varied government expenditure has been the highest monthly GST
credit to the small businesses,
significantly across different picked up sharply the Government collection since the introduction
and the world’s largest food
types of goods. While trade in has placed maximum priority of GST.
subsidy programme targeting
agricultural products fell less on productive domestic capital
80.96 crore beneficiaries.
than the world average in the expenditure which has a high
second quarter of 2020 (-5 % multiplier effect on the economy.
versus -21%), it fell precipitously The capital expenditure for
The fiscal policy response of
for fuels and mining products April to December 2020 stood
the Government of India to The fiscal deficit of the Central
(‑38%) as prices collapsed. at INR 3.17 lac crore (INR 3.17
the pandemic was distinct Government at end November
Further, the trade in automotive Trillion), 24% higher than the
from other countries. Unlike 2020 stood at 135.1% of the BE
products recorded the biggest capital expenditure during
many other countries that compared to 114.8 % during the
decline, though, it rose for the corresponding period in
chose a front-loaded grand same period in 2019-20. Given
telecommunication equipment the previous year. The total
stimulus package for revival of the enormity of the situation
(which includes smartphones), expenditure also recorded a YoY
the economy, Government of faced by the pandemic, most
electronics (to facilitate growth of 11%, increasing from
India adopted a step-by-step of the countries including India
working from home), and INR 21.1 lac crore (INR 21.1
approach. The approach was have been fiscally strained, which
pharmaceuticals. Trillion) during April to December
to provide a cushion for the reflected in the deficit figures. In
2019 to INR 23.4 lac crore (INR
poor and vulnerable section order to cater to the increased
23.4 Trillion) during April to
of society and to the business demand for resources required
FISCAL DEVELOPMENTS December 2020.
sector (especially the MSMEs) by the Government, the target
The year 2020-21 has been in the initial phase of lockdown. for gross market borrowings
challenging for the Indian This included the world’s largest of the Central Government for
economy owing to the food programme, direct transfers the financial year 2020-21 was
interruption in economic activity to Jan Dhan accounts, as well revised from the Budget estimate
and the additional expenditure as government guarantees for of INR 7.8 lac crore (INR 7.8
requirements to mitigate credit, postponement of financial Trillion) to INR 12 lac crore (INR
the fallout of the pandemic deadlines etc. With the gradual 12 Trillion).
19Direct Taxes A. RATES OF INCOME TAX As proposed by the government in income of up to INR 0.50
Finance Budget 2020, a salaried Million in a financial year will
Individual Income Tax Rates
individual has to choose between be able to avail tax rebate of
No changes in income tax slab the old and new tax regimes. INR 12,500 under section 87A
rates have been proposed in the This new tax system has been in both the existing/old and
budget. made optional and continues new concessional tax regimes.
to co-exist with the old/existing Effectively, individual taxpayers
With no change in the basic
one which comprises three tax with net taxable income of up
exemption limit, income tax slabs
rates and various tax exemptions to INR 0.50 Million will continue
and rates, an individual tax payer
and deductions available to a to pay zero tax in both the tax
will continue to pay the tax at the
taxpayer. regimes.
same rates applicable in FY 2020-
21. Individuals with a net taxable
Slab rate applicable to an Individual and HUF going for new scheme as same as those specified for AY 2021-22.
Total Income Rate
Up to INR 2,50,000 (INR 0.25 Million) Nil
INR 2,50,001 to INR 5,00,000 (INR 0.25 Million to INR 0.50 Million) 05%
INR 5,00,001 to INR 7,50,000 (INR 0.50 Million to INR 0.75 Million) 10%
INR 7,50,001 to INR 10,00,000 (INR 0.75 Million to INR 1.00 Million) 15%
INR 10,00,001 to INR 12,50,000 (INR 1.00 Million to INR 1.25 Million) 20%
INR 12,50,001 to INR 15,00,000 (INR 1.25 Million to INR 1.50 Million) 25%
Above INR 15,00,000 (INR 1.50 Million & above) 30%
Slab rate applicable for the individual going in the existing scheme is same as was specified in the AY 2021-22.
Total Income Rate
Up to INR 2.50 lac (INR 0.25 Million) Nil
INR 2.50 lac to INR 5.00 lac (INR 0.25 to INR 0.50 Million) if TI < 5 lac 0%
INR 2.50 lac to INR 5.00 lac (INR 0.25 to INR 0.50 Million) 05%
INR 5.00 lac to INR 10.00 lac (INR 0.50 to INR 1 Million) 20%
Above INR 10.00 lac (INR 1 Million) 30%
21Direct Taxes
Rates of Surcharge TAX INCENTIVES inter alia, be as under: October 12, 2020 and ending
on March 31, 2021;
No change in the applicable rates of surcharge, applicable for individual, HUF, AOP, BOI, AJP (including non- Exemption for LTC Cash Scheme • The employee exercises an
residents). They remain unchanged. option for the deemed LTC • The amount of exemption
In view of the COVID-19
Total Income Rate Effective% fare in lieu of the applicable shall not exceed INR 36,000
pandemic, in order to provide tax
LTC in the Block year 2018-21; per person or one-third
Exceeding INR 50 lac (INR 5 Million) to INR 1 crore (INR 10 Million) 10% 34.32% exemption to cash allowance
of specified expenditure,
Exceeding INR 1 crore (INR 10 Million) to INR 2 crore (INR 20 Million) 15% 35.88% in lieu of LTC, it is proposed to • Specified expenditure means
whichever is less;
insert second proviso in clause expenditure incurred by
Exceeding INR 2 crore (INR 20 Million) to INR 5 crore (INR 50 Million) 25% 39.00%
5 of section 10, so as to provide an individual or a member • The payment to GST
Exceeding INR 5 crore (INR 50 Million) 37% 42.74% that, for the AY beginning on of his family during the registered vendor/service
the April 1, 2021, the value in specified period on goods provider is made by an
Co-operative societies/ Firms/ Local authorities lieu of any travel concession or or services which are liable account payee cheque
assistance received by, or due to tax at an aggregate rate drawn on a bank or account
The rates of tax continue to be the same as that specified for AY 2021-22. to, an individual shall also be of 12% or above under payee bank draft, or use of
Companies exempt under this clause subject various GST laws and goods electronic clearing system
to fulfilment of conditions to be are purchased or services through a bank account or
The rates of tax continue to be same as that specified for AY 2021-22. prescribed. It is also proposed to procured from GST registered through such other electronic
clarify by way of an Explanation vendors/service providers; mode as prescribed under
that where an individual claims Rule 6ABBA and tax invoice is
Type of Company TI < INR 1 crore TI INR 1 to 10 crore TI> INR 10 crore • Specified period means the
and is allowed exemption under obtained from such vendor/
(10 million) (INR 10 to 100 million) (INR 100 million) period commencing from
the second proviso in connection service provider;
with prescribed expenditure,
Section 115BAB Company 17.16% no exemption shall be allowed
under this clause in respect of
Section 115BAC Company 25.17% same prescribed expenditure
to any other individual. The
Domestic Company (Turnover not 26.00% 27.82% 29.12%
conditions for this purpose shall
exceeding INR 400 crores (INR 4 billion)
be prescribed in the Income Tax
Domestic Company (Compliant with 26.00% 27.82% 29.12% Rules in due course and shall,
conditions of section 115BA)
Domestic Company (Others) 31.20% 33.38% 34.94%
Foreign Company 41.60% 42.43% 43.68%
23Direct Taxes
• If the amount received by, or the business of developing and Tax incentives for units located this clause shall also be of non-deliverable forward capital gains on such shares
due to an individual as per building affordable housing in International Financial available in case of any contracts entered into with were not chargeable to tax
the terms of his employment, project, there shall, subject to Services Centre (IFSC) income accrued or arisen to, an offshore banking unit had that relocation not taken
from his employer in relation certain conditions specified or received to the investment of International Financial place.
Government has establishment
to himself and his family, for therein, be allowed a deduction division of offshore banking Services Centre which
a world class financial services For the purpose of the section,
the LTC is more than what of an amount equal to 100% of unit to the extent attributable commenced operations
centre. Units located in IFSC terms “Original Fund”, “Relocation”
is allowable to such person the profits and gains derived to it and computed in the on or before the March 31,
enjoy some concession. In & “Resultant Fund” have been
under the above discussed from such business. One of the prescribed manner. 2024 and fulfils prescribed
order to make location in IFSC separately defined.
provisions, the exemption conditions is that the project conditions.
more attractive, it is proposed to • It is also proposed to amend
under the proposed is approved by the competent It is also proposed to amend
provide the following additional the expression “specified • It is also proposed to
amendment would be authority after the June 1, 2016 section 47 of the Act to insert
incentives: fund” to include under the insert new clause (4F) in of
available only to the extent of but on or before the March 31, new clauses in the said section
purview the investment section 10 of the Act so as
exemption admissible under 2021. • It is proposed to amend so as to provide that any transfer,
division of offshore banking to exempt any income of a
above listed provisions. section 9A of the Act to in relocation, of a capital asset by
To help migrant labourers and unit which has been non-resident by way of royalty
provide that the Central the original fund to the resultant
This amendment will take effect to promote affordable rental, it granted a category III AIF on account of lease of an
Government may, by fund shall not be considered
from April 1, 2021 and will, apply is proposed to allow deduction registration and fulfils other aircraft in a PY paid by a unit
notification in the Official as transfer for capital gain tax
in relation to the AY 2021-2022 under section 80-IBA of the conditions to be prescribed of an International Financial
Gazette, specify that any one purpose. It is also proposed to
only. Act also to such rental housing including the condition of Services Centre, if the unit is
or more of the conditions provide another clause to provide
project which is notified by maintaining separate books eligible for deduction under
VKC Insight specified in clauses(a) to (m) that any transfer by a shareholder
the Central Government in the for its investment division. section 80LA for that PY and
of sub-section(3) or clauses or unit holder or interest holder,
The LTC cash incentive scheme Official Gazette and fulfils such The investment division has commenced operation on
(a) to (d) of sub-section (4) in a relocation, of a capital asset
allows tax-free payout on conditions as specified in the said of offshore banking unit or before March 31, 2024.
of section 9A of the Act being a share or unit or interest
purchase of goods and services in notification. is proposed to be defined
shall not apply (or apply with • It is also proposed to insert held by him in the original fund in
lieu of holiday travel which could as an investment division
Further, it is also proposed that modification) to an eligible new clause (23FF) in of consideration for the share or unit
not be undertaken owing to the of a banking unit of a non-
the outer time limit for March investment fund or its eligible section 10 of the Act so as or interest in the resultant fund
COVID-19 pandemic situation. resident located in an IFSC
31, 2021 in this section for fund manager, if the fund to exempt any income of shall not be treated as transfer
and which has commenced
getting the affordable housing manager is located in an the nature of capital gains, for the purpose of capital gains.
operation on or before the
project approved be extended to IFSC and has commenced arising or received by a non- Consequential amendments shall
Incentives for affordable rental March 31, 2024.
March 31, 2022 and same outer operations on or before the resident, which is on account be proposed in section 49, 56 and
housing
time limit be also provided for March 31, 2024. • It is also proposed to insert of transfer of share of a 79 of the Act on account of such
The existing provision of the the proposed affordable rental new clause (4E) in of section company resident in India relocation.
• It is also proposed to amend
section 80-IBA of the Act provides housing project. 10 of the Act so as to exempt by the resultant fund and
clause (4D) of section 10 It is also proposed to amend the
that where the gross total income any income accrued or arisen such shares were transferred
of the Act so as to provide section 80LA of the Act to:
of an assessee includes any to, or received by a non- from the original fund to the
that the exemption under
profits and gains derived from resident as a result of transfer resultant fund in relocation, if • Provide that deduction
25under said section is also Issuance of zero-coupon bond by Tax neutral conversion of Urban accordingly apply to the AY 2021- consecutive AYs out of ten years Further, it has been provided that
available to a unit of IFSC infrastructure debt fund Cooperative Bank into Banking 22 and subsequent AYs. at the option of the assessee. This benefit is available only when the
if it is registered under Company is subject to the condition that the residential property is transferred
Clause (48) of section 2 of the
the International Financial total turnover of its business does on or before March 31, 2021. Now
Act provides for definition of zero- The Bill proposes to expand the
Services Centre Authority Act, Extension of date of sanction of not exceed INR 100 crore (INR the same has been extended to
coupon bond, as a bond issued scope of business reorganization
2019 and thereby removing loan for affordable residential 1 Billion). The eligible start-up is March 31, 2022.
by any infrastructure capital to include conversion of a primary
the earlier requirement of house property required to be incorporated on or
company or infrastructure capital co-operative bank to a banking These amendments will take
obtaining permission under after April 1, 2016 but before April
fund or public sector company company and the deductions Section 80EEA provides tax effect from April 1, 2021.
any other relevant law. 1, 2021.
or scheduled bank and in respect available under section 44DB benefits up to INR 1.50 lac (0.15
• Provide that the income of which no payment and benefit of the Act shall also be made Million) on the interest paid on It is proposed to grant relief to
arising from transfer of an is received or receivable before applicable in relation to such loans taken for Residential House the start-up by extending the VKC Insight:
asset, being an aircraft or maturity or redemption. These conversion of primary co- Property for affordable housing. tax holiday by one year i.e. upto
This is a much-needed post-
aircraft engine which was are required to be notified by the operative bank to the banking The benefit is over and above the March 31, 2022.
pandemic boost. With this new
leased by a unit referred to in Central Government in the Official company. Further it is also tax benefit of INR 2 lac available
Accordingly, the capital gain proposal the government aims
clause (c) of sub-section (2) Gazette. proposed that transfer of a capital under section 24(B) of the Income
exemption for investment has to incentivise setting-up of more
of said section to a domestic asset by the primary co-operative Tax Act on interest on Housing
In order to enable infrastructure also been extended by one year. start-ups in the country.
company engaged in the bank to the banking company as Loan on both self-occupied and
debt fund [which are notified by The existing provisions of the
business of operation of a result of conversion shall not be rented properties.
the Central Government in the section 54GB of the Act, inter
aircraft before such transfer treated as transfer under section
Official Gazette under clause (47) It is proposed to extend the time alia, provide for exemption of REMOVING DIFFICULTIES FACED
shall also be eligible for 47 of the Act. Consequently,
of section 10 of the Act] to issue period for taking loans to buy capital gain which arises from BY TAXPAYERS
100% deduction subject to the allotment of shares of the
zero coupon bond necessary such houses from March 31, 2021 the transfer of a long-term capital
condition that the unit has converted banking company Increase in safe harbour limit of
amendments are proposed in to March 31, 2022. asset, being a residential property
commenced operation on or to the shareholders of the 10% for home buyers and real
clause (48) of section 2 of the (a house or a plot of land),
before the March 31, 2024. predecessor primary co-operative estate developers selling such
Act. Rules 2F and 8B of Income owned by the eligible assessee.
bank shall not be treated as residential units
• To provide that in case the Tax Rules shall be amendment Extension of date of The assessee is required to
transfer under the said section of
unit is registered under subsequently after the Finance incorporation for eligible start up utilise the net consideration for In order to boost the demand
the Act.
the International Financial Bill 2021 is enacted. for exemption and for investment subscription in the equity shares in the real-estate sector and to
Services Centre Authority Necessary amendments to this in eligible start-up of an eligible start-up, before the enable the real-estate developers
Consequential amendment has
Act, 2019 then the copy of effect have been proposed in due date of furnishing of return to liquidate their unsold inventory
also been proposed in clause (x) The existing provisions of the
permission shall mean a copy section 44DB and in clause (vica) of income under sub-section (1) at a lower rate to home buyers,
of sub-section (3) of section 194A section 80-IAC of the Act, inter
of the registration obtained and clause (vicb) of section 47 of of section 139 of the Act. The it is proposed to increase the
of the Act which will take effect alia, provides for a deduction
under the International the Act. eligible start-up is required to safe harbour threshold from
from April 1, 2021 of an amount equal to hundred
Financial Services Centre utilise this amount for purchase existing 10% to 20% under section
These amendments will take percent of the profits and gains
Authority Act, 2019. of new asset within one year 43CA of the Act, if the following
effect from April 1, 2021 and will derived from an eligible business
from the date of subscription in conditions are satisfied:
by an eligible start-up for three
equity shares by the assessee.
27• The transfer of residential unit takes place during the period from section 87A of the Act, for the some of the conditions, the followings amendments are proposed in the • Loan or borrowings by SWF/
November 12, 2020 to June 30, 2021. relevant AY and deduct income Bill: Pension Fund
tax on the basis of rates in force. Presently, SWF/PFs are
• The transfer is by way of first-time allotment of the residential unit to • Allowing Alternate Investment Fund (AIF) to invest up to 50% in non-
Once this is done, there will not not allowed to have loans
any person. eligible investments
be any requirement of furnishing or borrowings or deposit
• The consideration received or accruing as a result of such transfer return of income by such senior or investments as there is
Presently SWF/PFs may invest in a Category-I or Category-II Alternative
does not exceed two crore rupees. citizen for this AY. a condition that no benefit
Investment Fund, having 100% investment in eligible infrastructure
should ensure to private
Further it is proposed to provide the consequential relief to buyers of these This amendment will take effect company. It is proposed to:
person. It is proposed to
residential units by way of amendment in clause (x) of sub-section (2) of from April 1, 2021. * Relax the condition of 100% to 50%. provide that there should
section 56 of the Act by increasing the safe harbour from 10% to 20%. not be any loan or borrowing
Accordingly, for these transactions, circle rate shall be deemed as sale/ * Allow the investment by Category-I or Category-II AIF in an for the purpose of making
purchase consideration only if the variation between the agreement value Rationalisation of provisions Infrastructure Investment Trust (InvIT). investment in India. It is also
and the circle rate is more than 20%. related to Sovereign Wealth Fund proposed to provide that the
* Exemption under this clause shall be calculated proportionately, in
condition regarding no benefit
(SWF) and Pension Fund (PF) case if aggregate investment of AIF in infrastructure company or
These amendments will take effect from April 1, 2021 and will accordingly to private person and assets
apply to the AY 2021-22 and subsequent AYs. Clause (23FE) of section 10 of the companies or in InvIT is less than 100%. going to government on
Act provides for the exemption dissolution would not apply
• Investment through holding company
to specified persons from the to any payment made to
Presently, SWF/PFs are not allowed to invest through holding
Relaxation for certain category of senior citizen from filing return of income in the nature of dividend, creditor or depositor for loan
company. It is proposed to allow the same subject to the following
Income Tax interest or long-term capital gains taken or borrowing other than
conditions:
for the purpose of making
arising from an investment made
In order to provide relief to senior citizens who are of the age of 75 year * Holding company should be a domestic company. investment in India.
by it in India. Specified persons
or above and to reduce compliance for them, it is proposed to insert a
are SWF or PF which fulfils * It should be set up and registered on or after April 1, 2021. • Commercial activity
new section to provide a relaxation from filing the return of income, if the
conditions prescribed therein and Presently, SWF/PFs are not
following conditions are satisfied: * It should have minimum 75% investments in one or more
are specified for this purpose by allowed to undertake any
• The senior citizen is resident in India and of the age of 75 or more the Central Government through infrastructure companies. commercial activity. This
during the PY; notification in the Official Gazette. condition is proposed to
* Exemption under this clause shall be calculated proportionately, in
This provision was introduced be removed and replaced
• He has pension income and no other income. However, in addition to case if aggregate investment of holding company in infrastructure
through the Finance Act, 2020 with a condition that SWF/
such pension income he may have also have interest income from the company or companies is less than 100%
to encourage investments of PFs shall not participate
same bank in which he is receiving his pension income; • Investment in NBFC- IDF/IFC (non-banking finance company-
SWF and PF into infrastructure in day to day operation of
• This bank is a specified bank. The Government will be notifying a few sector of India. Subsequent to infrastructure debt fund/Infrastructure finance company) investee. However, appointing
banks, which are banking company, to be the specified bank; and enactment, a notification was Presently, SWF/PFs are not allowed to invest in NBFC-IFC/IDF. It is director and executive
also issued to enlarge the scope proposed to allow the same subject to the following conditions: director for monitoring
• He shall be required to furnish a declaration to the specified bank.
of infrastructure activities eligible the investment would not
The declaration shall be containing such particulars, in such form and * NBFC-IDF/IFC should have minimum 90% lending to one or more
for investments. One SWF has amount to participation in
verified in such manner, as may be prescribed. infrastructure entities.
already been notified under this day to day operation. The
Once the declaration is furnished, the specified bank would be required provision. In order to rationalise * Exemption under this clause shall be calculated proportionately, term “investee” is proposed
to compute the income of such senior citizen after giving effect to the the provision of this clause and to in case if aggregate lending of NBFC-IDF or NBFC-IFC in to define to mean a business
deduction allowable under Chapter VI-A and rebate allowable under remove the difficulties in meeting infrastructure company or companies is less than 100%. trust or a company or an
29enterprise or an entity or a category I or II Alternative Investment Fund at the time of withdrawal or received by a foreign company on • To provide similar treatment This amendment will take effect
or an Infrastructure Investment Trust or a domestic company or an redemption. “Notified country” is its investment in India is required to dividend as already there from April 1, 2021 and will
Infrastructure Finance Company or an Infrastructure Debt Fund, in proposed to be defined to mean to be excluded for the purposes of for capital gains on transfer of accordingly apply to the AY 2021-
which the SWF or PF, as the case may be, has made the investment, a country notified by the Central calculation of book profit in case securities, interest, royalty and 22 and subsequent AYs.
directly or indirectly, under the provisions of this clause. Government for the purposes of the tax payable on such dividend Fee for Technical Services
this section in the Official Gazette. income is less than MAT liability (FTS) in calculating book
• Liable to Tax
on account of concessional profit for the purposes of Exemption of deduction of tax at
Presently, some PFs are liable to tax in their country though given
tax rate provided in the Double section 115JB of the Act, so source on payment of Dividend
exemption subsequently. It is proposed to amend this sub-clause
Rationalisation of provisions of Taxation Avoidance Agreement that both specified dividend to business trust in whose hand
to provide that if pension fund is liable to tax but exemption from
Minimum Alternate Tax (MAT) (DTAA). Hence it is proposed to: income and the expense dividend is exempt
taxation for all its income has been provided by the foreign country
claimed in respect thereof
under whose laws it is created or established, then such pension fund Section 115JB of the Act provides • Provide that in cases where Section 194 of the Act provides
are reduced and added back,
shall also be eligible. for MAT at the rate of 15% of past year income is included for deduction of tax at source
while computing book profit
its book profit, in case tax on in books of account during (TDS) on payment of dividends
• Rules to prescribe the method of calculation in case of foreign companies
the total income of a company the PY on account of an APA to a resident. The second proviso
It is also proposed to provide that the Central Government may where such income is taxed
computed under the provisions or a secondary adjustment, to this section provides that
prescribe the method of calculation of 50% or 75% or 90%referred at lower than MAT rate due to
of the Act is less than the 15% of the Assessing Officer shall, on the provisions of this section
above. DTAA.
book profit. Book profit for this an application made to him in shall not apply to such income
This amendment will take effect from April 1, 2021 and will accordingly purpose is computed by making this behalf by the assessee, credited or paid to certain
apply to the AY 2021-22 and subsequent AYs. certain adjustments to the profit recompute the book profit insurance companies or insurers.
disclosed in the profit and loss of the past year(s) and tax It is proposed to amend second
account prepared by the company payable, if any, during the PY, proviso to section 194 of the
Addressing mismatch in taxation of income from notified overseas in accordance with the provisions in the prescribed manner. Act to further provide that the
retirement fund of the Companies Act, 2013. Further, the provision of provisions of this section shall
section 154 of the Act shall
Representations have been received that there is mismatch in the year Representations were received
apply so far as possible
of taxability of withdrawal from retirement funds by residents who had that the computation of book
and the period of four years
opened such fund when they were non-resident in India and resident in profit under section 115JB does
specified in sub-section (7) of
foreign countries. At present the withdrawal from such funds may be not provide for any adjustment
section 154 shall be reckoned
taxed on receipt basis in such foreign countries, while on accrual basis in on account of additional income
from the end of the FY in
India. of past year(s) included in
which the said application
books of account of current
In order to address this mismatch and remove this genuine hardship, is received by the Assessing
year on account of secondary
it is proposed to insert a new section 89A to the Act to provide that the Officer.
adjustment under section 92CE
income of a specified person from specified account shall be taxed in
or on account of an Advance
the manner and in the year as prescribed by the Central Government. It
Pricing Agreement (APA) entered
is also proposed to define the expression “specified person”, as a person
with the taxpayer under section
resident in India who opened a specified account in a notified country
92CC. Representation has also
while being non-resident in India and resident in that country. “Specified
been received that since dividend
account” is proposed to be defined as an account maintained in a notified
income is now taxable in the
country which is maintained for retirement benefits and the income from
hand of shareholders, dividend
such account is not taxable on accrual basis and is taxed by such country
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