Rebuilding the economy
After the pandemic ravaged the globe in 2020, the economy plummeted as global businesses suffered due to gaps in the supply chain and social distancing norms that suspended trade for a while. India had to bear the brunt of COVID-19 as many small businesses were shut, large conglomerates suffered heavy losses and taxpayers were flummoxed as these unprecedented events unfolded.
While the government introduced stimulus packages to induce relief to the suffering masses, the Union Budget 2021 will be marked as one of the monumental steps in rebuilding the economy disrupted by the pandemic. Our experts have compiled few pointers that capture certain industry aspects and sector-specific norms that government may consider taking action in the Union Budget 2021.
- Tax incentives for the Healthcare sector by lowering the tax rate or increasing deductions for expenses of pharma companies.
- Employment generation by extending the benefit of Section 80JJAA (Deduction in respect of employment of new employees).
- Revised threshold for deductions under ‘Income from Salaries'.
- Corporate tax incentives by allowing a deduction related to COVID-19 related CSR expenditure.
- Tax relief for individuals by increasing income not chargeable to tax or reducing tax rate.
- Announcement of incentive rates and applicability criteria under RoDTEP Scheme.
- Exemption in the Customs duty rate on the import of COVID-19 vaccines to ensure affordability.
- Safe Harbour Rules expected to be extra-safe.
- Relief measures towards the potential economic impact of the pandemic.
- Clarification on potential cascading effect of secondary adjustments.
- Specific guidance on Faceless Assessment Scheme for Transfer Pricing audits.
- Joint audit for multiple years to reduce cost and save time.
Mergers and Acquisition
- Allowability of carry forward of business losses in case of merger/amalgamation for companies other than those operating industrial undertakings
- Rationalization of the dividend tax between domestic and foreign investors
- Merger of LLPs into a company and vice versa.
- Rationalization of the deemed gift taxation provisions on shares and securities under section 56 – in terms of exemption for inter-group restructuring transactions, tolerance limit of 10% (as provided in the case of immovable properties); applicability of fair market value concept to shares, if lower than book value, recognition of different rights attached to shares.
- Exemption from the indirect transfer implications in the hands of non-residents pursuant to the merger of two foreign companies.
- Extending the various export incentive schemes such as SEIS, MEIS at least for the next 2 to 3 years.
- Import of life saving instruments attracts zero or minimum duty. A reduction in import duty of raw materials for manufacturing life saving instruments can promote Make in India.
- Introduce exemption for companies with one legal entity but multiple offices to cross charge common cost and account for GST, which creates additional compliance burden and exposes the company to audit risk.
- Cashing out TDS credits (in full) or allow companies to sell these TDS credits at a discount. This would help loss-making companies in unlocking the much-needed cash.
- Lower CIT rates, or introduce partial exemption – e.g. first INR XXX to be either exempt or taxed at reduced rates.
- Lower TDS rates under Section 194 on a professional service fee to 2%, to align with FTS, this will avoid unnecessary compliance issues with tax office, given the interpretation of FTS and professional service is not always clear. This makes it easier for the company to comply.
- In light of COVID-19, the government should commit to an increase in healthcare expenditure by at least 0.5% of GDP with an aim to reach 2.5% to 3% by FY 2024-25.
- Provide subsidized loans, land, and tax holidays for hospitals built in Tier II and Tier III cities to enhance the Ayushman Bharat scheme.
- Allow CSR funds to be utilized for building and maintaining hospitals/primary/secondary care centers and make this expenditure tax-deductible.
- Provide tax benefits for the export of medical devices to encourage domestic manufacturing.
- To encourage adoption of health insurance in the country:
- Enhance the tax rebate under Section 80D from the current value of INR 25,000 to INR 50,000 (and INR 75,000 for senior citizens).
- Reduce GST on health insurance policies from 18% to 5%.
- Introduce a new scheme to cover those not currently covered under the PMJAY scheme.
- Zero-rating of GST for healthcare services - While healthcare services remain tax-exempt, tax on inputs continues to add to the cost of healthcare services.
- GST levied on most Medical devices is 12% and should be brought down to 5%.
- Spare parts used for medical devices should be charged at the same customs and GST rate as the products in which they are used.
- To encourage healthcare-related R&D investments in the
- Reintroduce the 200% weighted deduction on R&D expenditure across the healthcare industry.
- Provide the healthcare industry with the same tax and incentives benefits as provided to SEZs earlier.
- Extend the current PLI schemes for two more years.
- Open public procurement for all companies investing in India.
Foreign Direct Investment
- Lower corporate income tax rate of 15% for MSMEs and select large units for new expansion/greenfield projects.
- Defined timelines and Single window centralized registrations/grants of permits for Greenfield Setups/Industrial Clearances.
- Centrally communicated timelines for companies applying for incentive proposals at a central and state level.
- Detailed layout of scheme covering applicability, conditions, etc., for selected sectors considered under centrally announced production linked incentives scheme (with an outlay of INR 1.45 trillion).
- Centrally mandated setting and publishing of timelines for local registrations and approvals from states.
- Defined implementation timeline for previously announced Labor Codes and National Logistics Policy.
Food Processing Sector
- Incentive for expanding or new setup for all types of food processing companies.
- Production Linked incentive subsidy for Food Processing Sector.
- Incentivize packaging companies to reduce cost for food processing companies or introduce export incentives for exporting food processing companies to make Indian companies globally competitive.
- GST exemption/concession to mass market products as were available under excise regime.
- Specific Incentive program for alternate agricultural method like Hydroponic, Aquaponic, etc.
- Improve the sustainability of low-margin businesses like restaurants by extending the benefit of complete ITC to combat COVID-19's impact.
The government has a huge task on its hands assessing the damage in the post-pandemic era. The citizens await the Hon'ble Finance Minister's announcement with optimism, eager to leave behind 2020 and emerge prudently in 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.