Budget 2021: 10 Important Points You Need To Know

Union Minister of Finance, Nirmala Sitharaman announced the Union budget 2021 on 1 February 2021. In her opening note, she mentioned that the committee undertook the preparation of this Budget in circumstances like never before. “We knew of calamities that have affected a country or a region within a country. But what we have endured with COVID-19 through 2020 is sui generis.”

The Minister introduced the budget in two parts - A and B that rests on six pillars namely health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D, and minimum government and maximum governance. Part A focused major on individual sectors and further the "AtmaNirbhar Bharat" initiative. Part B focused on the tax reforms, both direct and indirect taxes.

Budget 2021: 10 Important Points You Need To Know

1. A boost to Indian startups

Budget 2021 will allow non-residents to incorporate One Person Companies to benefit startups. Further, it will reduce the residency limit from 182 days to 120 days. As a major boost to the startup culture, the Budget 2021 proposed to extend the eligibility for claiming tax holiday for startups and capital gains exemption for investment in startups by one more year - till 31st March 2022. Another measure directly benefits startups and innovators. FM Sitharaman proposed to incentivize the incorporation of 1% of companies, by allowing them to grow without any restrictions on paid-up capital and turn over.

“The budget is a very progressive one,” states Mr Mayank Singhania, Founder – CherishX. “The focus on startups and small companies will boost the job market and build confidence in small companies/startups. Also allowing 1% of companies/startups to grow without any restrictions like no restriction on paid-up capital and turnover is a significant step forward to boost upcoming and already exciting small startups. Increasing the threshold for capitalization to not exceeding Rs 50 lakh to not exceeding Rs 2 crore and turnover not exceeding Rs 2 crore to not exceeding Rs 20 crore this initiative will aid numerous startups as this is a great relaxation for the startup community.”

MSMEs

“We have taken several steps to support the MSME sector. In this Budget, I have provided Rs 15,700 crores to this sector, more than double of this year’s BE,” said the Finance Minister. “The Honourable Finance Minister included SMEs/MSMEs as one of the sectors of focus. SMEs are the backbone of the country and have been contributing a huge chunk to the national GDP. Redefining MSMEs and making the incorporation of start-ups easier while enabling one-person companies is a positive step to encourage start-ups as it provides tremendous flexibility for entrepreneurs. It is also encouraging to see the government has doubled its allocation towards the MSME sector by setting aside Rs 15,700 crore in FY22” says Adarsh Kumar, Co-founder, PagarBook.

2. Health and Wellbeing to take centre stage

The budget announced the launch of a new central scheme, PM AtmaNirbhar Swasth Bharat Yojana. With an outlay of about Rs 64,180 crores, the project in addition to the National Health Mission will span for a 6 years time period. This will develop capacities of primary, secondary, and tertiary care Health Systems, strengthen existing national institutions and create new institutions, to cater to detection and cure of new and emerging diseases. The Budget outlay for Health and Wellbeing is Rs 2,23,846 crores in BE 2021-22 as against this year’s BE of Rs 94,452 crores.

Talking about the boost, Mr Anmol Arora, CEO at DocVita states, “137% increase in the health budget and allotment of ₹64,180 cr towards PM Atmanirbhar Swasth Bharat Yojana will provide the much-needed boost to our country’s health infrastructure. With healthcare at the forefront, and health & wellness taking a centre stage, the 17000 rural & 11000 urban centres are expected to pave the way for a new era in preventive health for India. As a result of this investment, our country’s digital health ecosystem will leapfrog into the future. It will empower every Indian - whether living in rural or urban areas to access healthcare.”

Sitharaman also announced the voluntary scrapping policy based on the fitness test. That is 20 years in a personal vehicle and 15 years for the commercial vehicle. The Ministry will share more details soon.

3. A hike in Infrastructure investment

Tabling the Union Budget 2021-22, Sitharaman said the total financial impact of all AtmaNirbharBharat packages, including measures taken by RBI, was estimated to be about Rs 27.1 lakh crore, with an amount of more than 13 per cent of GDP. For the infrastructural and the financial structure she proposed further budgets. She stated that the budget will pass a Bill to set up a Development Financial Institution. “I have provided a sum of Rs 20,000 crores to capitalise this institution. The ambition is to have a lending portfolio of at least Rs 5 lakh crores for this DFI in three years,” she said.

In terms of Infrastructure, Finance Minister Nirmala Sitharaman stated that NIP was launched with 6835 projects. The project has now expanded to 7400 projects. She added, “More than Rs 2 lakh crore will be provided to states and autonomous bodies for their capital expenditure.”

“To boost the manufacturing sector, the government has contributed Rs 1.97 lakh over 5 years starting this year; for Production Linked Incentive Schemes to create manufacturing global champions for an Aatma Nirbhar Bharat. The initiative will nurture size and scale and create jobs for youth, she also added.

Further, the Budget 2021 proposed to extend the Ujjwala Scheme to cover 1 cr more beneficiaries and add 100 more districts to city gas distribution network. It will offer 7 port projects in private-public partnership mode. It also allocated Rs 1,000 cr to Solar Energy Corporation of India. Further, to allow depositors of stressed banks to access up to Rs 5 lakh as per DICGC, the budget proposed a hike for small companies threshold for paid-up capital upto Rs 2 crore. It also introduced Rs 1.07 lakh crore for capital expenditure of Indian Railways.

4. Agriculture and allied sectors

Under this section, the Budget 2021 covered Agriculture and allied sector. It also pertains to migrants and rural workers. In the budget 2021. Nirmala Sitharam emphasised that to provide adequate credit to our farmers, she has enhanced the agricultural credit target to Ra16.5 lakh crores in FY22. “We will focus on ensuring increased credit flows to animal husbandry, dairy, and fisheries. We are enhancing the allocation to the Rural Infrastructure Development Fund from Rs 30,000 crores to Rs 40,000 crores.”

“The Micro Irrigation Fund, with a corpus of Rs 5,000 crores has been created under NABARD. I propose to double it by augmenting it by another Rs 5,000 crores. To boost value addition in agriculture and allied products and their exports, the scope of ‘Operation Green Scheme’ that is presently applicable to tomatoes, onions, and potatoes, will be enlarged to include 22 perishable products,” she further added. Further, Sitharaman state that 'One Nation One Ration Card plan' will soon be apart of every Indian.

Prasanna Rao, Co-founder & CEO, Arya states, “It is a good budget which continues to keep the pace of reforms going and looks at increasing capital expenditure to keep the economy growing without meddling with Direct tax or adding any COVID related cess or tax. The focus on Agri and Rural Infra through enhancement of the Rural Infrastructure scheme are encouraging. The extension of AIF to APMCs is a step in the right direction and allows them to strengthen themselves to attract farmers and new private buyers.”

5. Strengthening the Education Sector

Talking about the National Education Policy, FM Sitharaman proposed that more than 15,000 schools will be qualitatively strengthened to include all components of the National Education Policy. “They shall emerge as exemplar schools in their regions; handholding and mentoring other schools to achieve the ideals of the Policy,” she said. Further, the Budget 2021 also proposed the setting up of 100 new Sainik Schools. This will be in partnership with NGOs, private schools and states. Additionally, Sitharaman has proposed the setting up of Central University in Leh.

Other important investments will include - the set up of 750 Eklavya model residential schools in tribal areas; increase the unit cost of tribal school from Rs 20 crores to Rs 38 to Rs 48 crores; allotting Rs 35,219 crores for 6 years to benefit 4 crores SC students under the Post Matric Scholarship Scheme; allocation of Rs 3000 crore in National Apprenticeship Training Scheme.

“Improving employment opportunities at the higher educational level by allocating INR 3000 crore in National Apprenticeship Training Scheme is a palpable consideration in the Union Budget 2020-21; for students from both non-science and technology streams. This will ensure that skilling is prioritised and enable students to be future-ready, in the domain of their choice and stay relevant in a dynamic market environment,” states Mr Rameswar Mandali, Founder & CEO, SKILL MONKS.

6. Innovation and R&D and Governance

For R&D and Innovation, these are some noteworthy announcements from the Budget 2021 - allocation of Rs 15000 crores to the National Research Foundation for 5 years; a Deep Ocean Mission with a budget outlay of more than Rs 4,000 crores, over 5 years; introduction of formal umbrella structures in 9 cities; and Glue Grant.

Nirmala Sitharaman, in the conclusion of her Part A of the Budget 2021 said, “The forthcoming Census could be the first digital census in the history of India. For this monumental and milestone-marking task, I have allocated Rs3,768 crores in the year 2021-2022.”

On Goa's 50 years' celebration, the Budget 2021 has granted Rs 300 crores to the Government of Goa. Further, the Budget 2021 proposed to provide Rs 1,000 crores for the welfare of Tea workers; especially women and their children in Assam and West Bengal.

7. Increasing FDI in Insurance Sector

Budget 2021 proposes to amend the Insurance Act, 1938. It aims to increase the permissible FDI limit from 49% to 74% in Insurance Companies. It will also 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. Further, at least 50% should be Independent Directors, and the company must retain a percentage of profits as a general reserve.

Some experts, though, doubt the move. Mrs Kanika Agarrwal, Chief Investment Officer, Upside AI states, “Disinvesting and privatizing PSUs and insurance companies is the correct move. While the intention to privatize and disinvest has been there nearly every budget, given the difficulty the government has had with this target in the past, we remain cautious on how the centre will balance its books and manage the committed deficit.”

8. Digitisation

Lastly, the Minister also provided a boost to the Digital Payment sector with Budget 2021. She proposed a scheme of Rs 1,500 crores to will provide financial incentive to promote digital modes of payment. As a further boost to payment digitisation, she said, “In the February 2020 Budget, I had increased the limit for tax audit to Rs5 crore for those who carry out 95% of their transactions digitally. To further incentivise digital transactions and reduce compliance burden, I propose to increase this limit for tax audit for such persons from Rs 5 crore to Rs 10 crore.”

This is one of the most welcome changes in the budget.  “The Finance Minister has given major incentive to MSMEs who carry out 95% of their transactions digitally. This will not only encourage MSMEs to adopt digital platforms for a business transaction but also will boost the overall digital payment ecosystem,” said Mr Mahesh Ramamoorthy, MD - Banking Solutions, FIS India. On a similar note, Sashank Rishyasringa, Co-founder & MD, Capital Float said, “The Union Budget 2021 is a positive one. It focuses on rebuilding the Indian economy and a demonstration of a strong commitment to a digital future.”

9. Direct taxes

Finance Minister Nirmala Sitharaman has announced several proposals for the benefit of depositors, investors and taxpayers. Sitharaman said that the tax system should put a minimum burden on the taxpayers. The Finance minister surprised taxpayers by not announcing any change in income tax slab rates. But, Sitharaman announced some relief in filing ITR for senior citizens above 75 and NRIs. The Finance Minister proposed that senior citizens (above 75) earning only pension and interest income from deposits need not file Income Tax Return. The government has proposed to allow tax exemption on the maturity of ULIP having annual premium up to Rs 2.5 lakh. EPF interest income above Rs 2.5 lakh will be taxable.

10. Indirect taxes

FM Nirmala Sitharamsn asserted that there have been recorded GST collections in the past few months. Thus, in Budget 2021, she announced the removal of 400 old exemptions and take every possible measure to reduce anomalies. “A proposal will be brought to remove 400 old exemptions this year. From October 1, 2021, a revised customs duty structure free of distortions will be there,” she added. She also said that the Budget has revised the definition of small companies. It has raised the capital base to Rs 2 crore from the current limit of Rs 50 lakh.

You can access here, the entire Budget Speech 2021.