Highlights of Union Budget 2021

Created on 02 Feb 2021

Wraps up in 8 Min

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Picking up in the aftermath of a once-in-a-century pandemic, the country waited with bated breath for the annual budget presentation on February 1. This budget was poised to be India's formal response to the COVID-19 crisis.

India had several alarming concerns going into the budget - increasing unemployment, rising levels of child malnutrition, gender-gap widening, abysmal quality in education, increasing poverty, a somewhat hollowed out healthcare system, and not to mention the recent siege of the national capital by the protestors of the farm laws, to list a few.

Did the Union budget meet those expectations? What are the budgetary highlights? What are the new tax rates and concessions? In this article, we discuss the highlights of the Union Budget. 

But before scrolling down, get acquainted with the technical terms of the budget here.

Let's get started.

The Union Budget 2021-22

The Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman, presented the first-ever digital budget for 2021-22 on February 1, 2021. Made with a vision of AtmaNirbhar Bharat, the budget proposals strengthen:

  • The Sankalp of Nation First
  • Doubling of farmers' income
  • Strong infrastructure
  • Healthy India
  • Good governance
  • Opportunities for youth
  • Education for all
  • Women empowerment
  • Inclusive development

The Finance Minister declared that the Budget 2021-22 stands on 6 pillars:

1. Health & WellBeing

2. Physical & Financial Capital and Infrastructure

3. Inclusive Development for Aspirational India

4. Reinvigorating Human Capital

5. Innovation and R&D

6. Minimum Government and Maximum Governance

Budget 2021: Highlights

Pillar 1 - Health and Wellbeing:

  • A substantial increase in the investment in health infrastructure and well being has been proposed in the budget for Rs. 2,23,846 crores as against Rs. 94,452 crores last year which is a 137% increase.
  • A new centrally sponsored scheme called Pradhan Mantri AtmaNirbhar Swasth Bharat Yojna will be launched with an outflow of Rs. 64,180 crores over 6 years.
  • Provisions have been made to the tune of Rs. 35,000 crores for COVID-19 vaccines.
  • The government will merge the Supplementary Nutrition Program and the Poshan Abhiyan and launch a Mission Poshan 2.0 to strengthen the nutritional content, delivery, outreach, and outcome.
  • With a proposed outlay of Rs. 2,87,000 crores over 5 years, the Jal Jeevan Mission (Urban) will be launched for universal water supply in 4,378 urban local bodies.   
  • A voluntary vehicle scrapping policy to phase out old and unfit vehicles was announced.

Pillar 2 - Physical and Financial Capital and Infrastructure:

  • AtmaNirbhar Bharat Production Linked Incentive (PIL) Scheme has been announced for 13 sectors with a capital outlay of Rs. 1.97 lakh crores in the next 5 years starting from FY 2021-22. The scheme aims to bring scale and size in key sectors, create nurture and. Provide jobs to the youth.
  • A scheme of Mega Investment Textile Parks (MITRA) will be launched in addition to the above PIL scheme to make the textile industry globally competitive, attract large investments and create employment. The scheme aims to establish 7 Textile parks in 3 years.
  • The National Infrastructure Pipeline (NIP) announced in December 2019 with 6,835 projects has now expanded to 7,400 projects with around 217 projects worth Rs. 1.10 lakh crore under key infrastructure ministries completed.
  • A professionally managed Development Financial Institution (DFI) is proposed to be constituted for the purpose of infrastructure financing. A sum of Rs. 20,000 crores has been set aside to capitalize the DFI. The DFI establishment will be made with the aim of having a lending portfolio of at least Rs. 5 lakh crore in 3 years' time.
  • A National Monetization Pipeline of potential infrastructure assets will be launched with the development of an Asset Monetization Dashboard for tracking the progress and providing visibility to investors. 
  • It was announced that under the Bharatmala Pariyojana project, more than 13,000 km length of roads has been awarded at the cost of Rs. 3.3 lakh crore of which 3,800 km have been constructed.
  • The government aims to award a further 8,500 km length of roads and complete an additional 11,000 km of national highways by March 2022.
  • The Ministry of Road Transport and Highways received an enhanced outlay of Rs. 1,18,101 crores of which Rs. 1,08,230 crores is for capital (the highest ever).
  • Indian Railways have proposed a National Rail Plan for India 2030 - to create a future-ready Railway network. The Western Dedicated Freight Corridor (DFC) and the Eastern DFC will be commissioned by June 2022.
  • Measures for passenger convenience and safety were proposed.
  • With the view of raising the share of public transport through metro rail and city bus service in urban cities, the government proposed the next few phases of the metro projects will be taken up in metro cities. 
  • 'MetroLite' and 'MetroNeo' - two new metro rail technologies will be deployed in tier 1 and tier 2 cities.
  • The budget also reflected on the launch of a revamped reforms-based result-linked power distribution sector scheme with an outlay of Rs. 3,05,984 crore over 5 years. The proposed scheme will assist the DISCOMS for infrastructure development tied to financial improvements.
  • A proposal has been made to merge various allied laws of the securities market to the Securities Market Code.
  • An announcement was made that SEBI will be notified to regulate the setting up and development of the commodity market system in India.
  • The finance minister also proposed to increase the permissible FDI limit from 49% to 74% and permit foreign ownership and control with safeguards.
  • Following divestment transactions are proposed to be completed in 2021-22 - BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, and Neelachal Ispat Nigam Limited.
  • The government also plans on bringing out an IPO of LIC in 2021-22 for which appropriate amendments will be made in the Session itself.
  • The Finance minister confirmed the governmental approval on the policy of strategic divestment of public sector enterprises which was announced in the AtmaNirbhar package.

Pillar 3 - Inclusive Development for Aspirational India:

  • Emphasizing the government's commitment to the welfare of the farmers, the Finance minister declared that the MSP regime had undergone significant changes to ensure that the price is at least 1.5 times the cost of production across all commodities.
  • The agricultural credit target has been enhanced to Rs. 16.5 lakh crore in FY 2022 by the government to provide sufficient and adequate credit to the farmers.
  • The allocation to the Rural Infrastructure Development Fund has been increased from Rs. 30,000 crores to Rs. 40,000 crores.
  • The Micro Irrigation Fund has been created under NABARD with a corpus of Rs. 5,000 crore would be doubled, augmenting it by an additional Rs. 5,000 crore. 
  • Earlier only applicable to tomatoes, onions and potatoes, the Operation Green Scheme will be enlarged to include 22 perishable products.
  • A proposed 1,000 mandis will be integrated with the e-NAM, which already has around 1.68 crore registered farmers.
  • The fishing harbours Kochi, Chennai, Visakhapatnam, Paradip and Petuaghat have been proposed to be developed as hubs of economic activity.
  • The government announced the One Nation One Ration Card Scheme which would allow the beneficiaries to claim rations anywhere in the country.
  • Under the scheme of Stand Up India for SCs, STs and women, margin money requirements have been reduced from 25% to 15% to facilitate credit flow.
  • The government has provided Rs. 15,700 crores to support the MSME sector, which is double the last year's provision. 

Pillar 4 - Reinvigorating Human Capital:

  • The finance minister announced that the reception towards the National Education Policy (NEP) has been largely positive. The budget proposed the addition of more than 15,000 schools to incorporate the elements of the NEP.
  • The budget also proposed the setting up of 100 new Sainik Schools in partnerships with NGOs/private schools/states.
  • The Finance Minister also announced the establishment of a Higher Education Commission of India having 4 separate arms for standard-setting, accreditation, regulation and funding.
  • The government has proposed the establishment of 750 Eklavya model residential schools in tribal, hilly and difficult areas.
  • The central assistance provided under the revamped Post Matric Scholarship Scheme has been enhanced to Rs. 35,219 crores for 6 years till 2025-2026. This will benefit about 4 crore SC students.

Pillar 5 - Innovation and R&D:

  • The government will undertake a new initiative - the National Language Translation Mission (NTM), which aims to bring the government and policy information on the internet to the masses in major Indian Languages.
  • The PSU under the Department of Space, the New Space India Limited (NSIL) will carry out the PSLV-CS51 launch carrying the Amazonia satellite from Brazil along with other smaller Indian satellites.
  • 4 Indian astronauts are being trained in Russia as a part of the Gaganyaan mission activities. The first unmanned launch is expected to be executed in December 2021.

Pillar 6 - Minimum Government, Maximum Governance:

  • The budget proposed to make a number of reforms in the Tribunals for speedy assessments and delivery of justice.
  • The finance minister announced that the upcoming census drive would be the first-ever digital census in the history of India. The budget allocated Rs. 3,768 crore in 2021-22 for the exercise.
  • The fiscal deficit for 2021-22 is estimated to be 6.8% of the GDP as against the revised estimate of 9.5% of the GDP in 2020-21.
  • The government plans to bring down the fiscal deficit below 4.5% of the GDP by 2025-26.
  • The government is permitting the normal ceiling of net borrowing for the states at 4% of the GDP for 2021-22 based on the views of the 15th Finance Commission.

Direct Tax Proposals in the Budget:

  • The Union Budget leaves the direct taxes largely unchanged. The budget provides incentives to ease tax-compliance for the taxpayers. 
  • The finance minister announced that the income tax return filers increased to 6.48 crore in 2020 from 3.31 crore in 2014.
  • Individuals over the age of 75 years, who are pensioners, need not file an income tax return (ITR).
  • The establishment of a dispute resolution committee for small taxpayers and a faceless dispute resolution committee for individuals is under works. Anyone with an income of up to Rs. 50 lakh (disputed income of Rs. 10 lakh) will be eligible to approach the dispute resolution committee.
  • The liability to pay advance tax on dividend income will be attracted only after the payment of dividend.
  • Pre-filled tax forms with details like salary income, tax payment and TDS have been proposed.
  • In a bid to provide relief to taxpayers, the reduction has been proposed in the re-opening of the past assessments from 6 years to 3 years.
  • In order to boost the NRIs, the government will notify rules and regulations to eliminate double taxation for NRI on foreign retirement funds.
  • The interest earned by Provident Fund contributions in excess of Rs. 2.5 lakhs will be chargeable to tax at normal rates. This provision applies only to the employee's contribution and not that of the employers.
  • To incentivize startups, the budget extends the eligibility requirements for claiming the tax holiday by 1 year till March 31, 2022. To further incentivize the startups, Capital Gains exemption has been extended by 1 year till March 31, 2022.
  • The budget proposes to make dividend payments to REIT/InvIT exempt from TDS provisions.
  • The government has proposed to extend the eligibility of the erstwhile tax sop on home loans till FY 2022.
  • In order to ease the compliance burden on charitable trust running educational institutions and hospitals, the government has increased the limit of annual receipts from Rs. 1 crore to Rs. 5 crores for non-applicability of compliances.
  • The budget provides for tax exemptions for the relocation of funds to IFSC.

Indirect Tax Proposals in the Budget:

  • The finance minister proposed to review 400 old exemptions in the customs duty structure this year.
  • A revised customs duty structure free from distortions is proposed to be put forth from October 1, 2021 after extensive consultations.
  • The budget proposed reducing the customs duty uniformly to 7.5% on products of alloy, non-alloy and stainless steel.
  • The budget also exempted the customs duty on steel scrap till March 2022.
  • The budget reduced the customs duty on copper scrap from 5% to 2.5%.
  • An agri-infra cess of Rs. 2.50 on petrol and Rs. 4 on diesel has been imposed.
  • The budget imposed a 100% cess on alcohol.

Closing remarks:

The Union Budget 2021-22 is expansionary. It pushes for infrastructure and healthcare spending with a target to reduce the fiscal deposit without ostensibly raising the tax burden. 

So, are we headed to the promised AtmaNirbharta? Is the budget really fair? 

Well, only time will tell.

Stay Positive, Test Negative!

Happy Investing.

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