What to expect from Budget 2021?
Every year, the Budget is released. But this year, a "post-pandemic" Budget will be released, and we can't keep calm. We've listed a few things than you can expect from this new-decade Budget. ReadOn!
It’s an all-new season starting the 1st of February 2021.
Our Finance Minister, Ms. Nirmala Sitharaman, gave us a trailer before the big picture is released on Monday, saying that this is going to be “a budget like never before”. This time, the world’s waiting. She even mentioned that “hundred years of India wouldn't have seen a budget being made post a pandemic like this” and honestly, that has got us excited.
Unprecedented times, unprecedented budget.
And so, we decided to jot down a few budget surprises so that when budget hits home, you’d not be so surprised.
Work From Home Deduction
The pandemic, besides being a pain in the ass-et, has also weighed down an extra tax burden in the pockets of salaried employees. In the age of WFH, there’s little distinction between rooms for sleeping and meetings. Employees had to install a work-like setting in their homes with work-like expenditure of WiFi, desks, chairs, laptop, the works. Some (un)lucky ones got reimbursed for these expenses from their employers and are now responsible to pay tax on that. Yep, such reimbursements are considered as benefits to employees and hence, are taxable in their hands. But of course, we know that other allowances do form part of an employee's CTC. Conveyance Allowance, House Rent Allowance, Uniform Allowance, Travel Allowance, Meal Coupons/Vouchers, are all taxable if not spent. And courtesy of WFH, there are no expenses towards conveyance, travel, meal and rent. When you can’t claim a benefit, you are taxed for it. Simple equation, higher taxable income = higher tax burden.
Which is why, the government this year, may declare WFH deduction. Or something of that sort to provide poor (pun intended) employees with some tax relief. Countries like Canada and Australia have already declared such WFH deduction in their budget. Will India take a clue?
The Budget of New Regulations and Clarity
We live in a digital world and e-commerce has become an integral part of our lives. And yet, there are hardly any laws to regulate them.
In this budget, we may finally see some policies around the internet, clarity on tax in e-commerce marketplaces and about data privacy. God knows we need them. (cough, Zuck, cough)
Shedding some light (or darkness) on Crypto:
After the Supreme Court lifted the ban on cryptocurrencies placed by the RBI, we’ve seen a drastic increase in the number of traders and investors dealing in crypto-exchanges in India. About 17 lakh Indians are now trading in these digital assets! And yet, the status of cryptocurrencies (and their taxation) is still pretty ambiguous.
In this budget, we may see some (necessary) regulations to guide cryptocurrency (well, bitcoin) transactions.
Recently, the Central Economic Intelligence Bureau (CEIB), an arm of the union finance ministry, has put forward a proposal to impose 18% GST on bitcoin transactions and to treat them as ‘intangible assets’. The CEIB said that the government could potentially gain Rs 7,200 crores annually from taxes on bitcoin trading. Wow.
But wait! Here’s the latest twist in the market: the government is about to introduce ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ which seeks to ban all (private) cryptocurrencies in India.
A complete shock to all investors, startups and (now rich) intelligent people who have been waiting to coin those bits. The bill also provides a framework for creating a new currency in India, it’s own official digital currency, which will be by our central bank, RBI. (More on which you will soon hear from us, it’s exciting!).
A Brand New Tax
Fiscal deficit has skyrocketed this year. Less revenue and more expenditure, it was kind of expected. On top of that though, there's this vaccination drive that the government is funding, and the fund of course, is large. So it goes without saying that the government needs to create more avenues for revenue this year.
So, yes, it is likely they may introduce a new tax in this budget. We’re dreading the following (just pray that we are wrong here, will you?):
A Covid Cess:
A cess is a tax. Period. It is collected for a specific purpose and is allowed to be used for that specific purpose only. It's different from surcharge as the amount collected from surcharge can be utilized by the government, whenever, wherever.
This year, the government may impose a Covid cess to fund the cost of vaccination.
Inheritance Tax / Death Duty:
A tax imposed on residents who inherit assets from the estate of a deceased person. It is also known as ‘the last twist of the taxman's knife’. (Not funny how tax won’t leave you even after death). The rationale behind this tax is for the government to have a share of the deceased person’s wealth to channel it for the country’s betterment (or as we like to call it: benefit the living from the wealth of the dead).
However, introducing a new tax may not be a viable option.
It will result in lesser income left in the hands of people and thus, generate lesser demand. And honestly, the key task of this budget will (and should) be the revival of demand, because demand and only demand, can trigger the cycle of supply-production-employment-income, thereby injecting the economy with a recovery vaccine. So, if this were to be introduced, it would be best if its prospect remains the higher income group, aka, the rich, aka India becomes Robinhood (not).
Overall, the best option available to the government for funding large expenditures this year will be big disinvestments.
What’s disinvestment? It’s the government’s sale of stakes in Public Sector Units (PSUs). However, the government should set up realistic and achievable disinvestment targets in the budget this year, because well, this is how the last two years looked like:
(Source - ET)
This year, so far, only 7.35% of the target has been achieved. Even in the last budget, the government had proposed the sale of stakes in some large PSUs like BPCL and AirIndia and announced the IPO of LIC. But nothing was really achieved (maybe because of the pandemic, maybe not).
We’re hoping that the government will set realistic and achievable targets, just like we do (ahem). Yay for SMART Goals, India!
New Institutions
We’re expecting news on some new institutions, like the Development Financial Institution (DFI), a national bank for infrastructure financing and developing an infra supporting ecosystem.
A robust infrastructure is the foundation of the economic growth that all of us are trying to build. (PM Modi envisions a $5 trillion economy). But India is still on the blueprint of its dreams.
As per the Global Competitiveness Index, India ranks 70th on the infrastructure pillar, the tail end of where we want to be. So, to push forward, the government is getting a new bill to set DFI, which our Finance Minister is likely to announce in her budget speech.
Another insightful institution that’s ringing the doorbell is the Bank Investment Company (BIC) (which has nothing to do with Investment Banking, just FYI). It was proposed back in 2014 by the PJ Nayak Committee, but it’s not been implemented yet. We’re hoping that BIC will make an entrance in this year’s budget.
What happens with BIC?
In this model, the government will transfer all its equity stakes in the Public Sector Banks (PSBs) to the BIC, which will become the parent company of all these nationalised banks. But, why is there a need for this?
Setting up of BIC will reduce the government’s burden of recapitalizing PSBs from time to time. This will further reduce the expenditure of providing these banks with the required autonomy to make bold and quick decisions for efficient operations and more profits. Wait, this may not be ultra-easy-to-understand, so we’re penning a whole new piece on BIC (coming soon-ish).
Among other things, we may see some innovative (much-needed) policies related to Hospitality, Aviation, and Automobile sectors which have struggled a lot this year (thanks, Covid).
It’s no news that this budget is going to be very crucial, for all of us.
It’s not just going to impact this financial year but will set the course of major (life) decisions in the next couple of years.
Because, the objective in this budget isn’t to recover from the slump in the economy, but ground-in roots that bless the economy with phoolo phalo beta.
That’s it for now folks. Enough surprises to look out for in the Budget of 2021. What are your thoughts? What proposals would you give if you were in charge? (which you are, btw, as a valued citizen of India)
But no matter what the budget brings, rest assured, we’d be here to break it down for ya. Till then, have fun speculating, and ReadOn!
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