Budget 2021 is a big boost to development

By Dinesh Kanabar

Indian Union Budget 2021-22: As the FM rose to present the Budget, there was an air of uncertainty, particularly with regard to from where will she raise the resources. A two percent Covid cess was almost a forgone conclusion. There was a debate on why wealth tax should not be levied. The markets were hesitant and down almost the whole of the last week.

What the FM has done is quite remarkable by focusing on the disinvestment route to raise resources. A very substantial amount is proposed to be raised through a combination of sale of PSUs, issue of REIT and InVit and a company is being set up to monitor and provide impetus to the disinvestment programme. In that light, taxes have not been tinkered with, which is very welcome, obviously with a hope that the disinvestment programme goes through. Not levying new taxes or enhancing the current ones is the biggest plus point of the Budget.

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The tax proposals are directionally towards Ease of Doing Business. The reduction in the number of years for which an assessment can be reopened has been reduced from six years to three years. Very welcome. It addresses a very major concern of the taxpayers that in India there is no finality to assessments. Similarly, the reduction in the time for completing the assessment is welcome. The proposal that small taxpayers, with income of less than `50 lakhs, having a variation of income of income of upto Rs 10 lakhs can go for mediation instead of litigation is a step in the right direction. I hope that in due course this gets extended to other taxpayers too.

The decision to do away with TDS on REIT and InVit will help ensure that funds are not needlessly locked up. Similarly, the decision to not tax interest on specified securities at 20% but at tax treaty rates will help these transactions and obviate the difficulty arising from a contrary Supreme Court judgement. These timely interventions show the responsiveness of the government.

There are, as always, some not so welcome changes. The doing away of the Authority for Advance Rulings and substituting it with a Board headed by revenue officials will kill this forum which needed better implementation rather than a burial. The provisions on non-grant of depreciation on goodwill will be a deterrent to M&A and restructuring of corporates.

The impetus provided to Gift City is welcome. These provisions have been on the statute books for several years but were not effective because the tax regime was not conducive. We now have specific provisions permitting relocation of funds, exempting income from aircraft leasing and making relocation of fund managers practical. We also have changes to provisions which exempt income of Sovereign Wealth Funds and Pension Funds which loosens the exemption regime and enables them to make investments in infrastructure.

All on all, very welcome changes. As has been demonstrated by the GST collections, we need economic growth and higher taxes to be a consequence of that. If implemented well, the Budget proposals will spear growth and higher taxes will be a consequence.

The author is CEO, Dhruva Advisors