Key Highlights of the Indian Budget 2021-2022

The Finance Minister of India presented the Union Budget for the financial year 2021-2022 on 1 February 2021 (Budget). 

The Budget is geared towards a hopeful reset of the Indian economy amidst the Covid-19 crisis and seeks to facilitate strategic disinvestment, and bolster several sectors such as infrastructure, roads and highways, insurance, healthcare, textiles, e-governance, and education.

The Budget also proposes several tax reforms, including to senior citizens, and non-resident Indians, efficient tax-related dispute resolution mechanisms and tax-incentives for affordable housing.

Some of the key proposals in the Budget are:

  • Consolidation of provisions of Securities and Exchange Board of India Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2006 into a single Securities Market Code.
  • To augment funds for infrastructure and real estate sectors, facilitating of debt financing of Infrastructure Investment Trusts (InVITs) and Real Estate Investment Trusts (REITs) by Foreign Portfolio Investors (FPIs).
  • Operational services for major ports will be given to private partners and 7 projects worth more than INR 20 Billion (approx. USD 275 Million) will be offered by the major ports on Public-Private Partnership mode in the forthcoming financial year.
  • Monetizing operating public infrastructure assets such as national highways, dedicated freight corridor assets, airports for new infrastructure construction under an asset monetisation programme.
  • Development Financial Institution (DFI) to be established to act as a provider, enabler and catalyst for infrastructure financing.
  • A permanent institutional framework to be set up to purchase investment grade debt securities both in stressed and normal times to aid in the development of a corporate bond market.
  • An investor charter is proposed for investor protection for all financial investors across all financial products.
  • The minimum loan size eligibility for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is proposed to be reduced from INR 5 Million (approx. USD 68,000) to INR 2 Million (approx. USD. 27,000) for non-banking financial institutions with minimum asset size of INR 1 Billion (approx. USD 14 Million).
  • In furtherance to the exercise of decriminalisation of certain offences under the Companies Act, 2013, the decriminalization of the offences under Limited Liability Partnership Act, 2008 is also proposed.
  • To reduce compliance requirements for several companies, the definition of small companies is proposed to be revised by increasing their thresholds for paid up capital (to INR 20 Million; approx. USD 274,000) and turnover (to INR 200 Million; approx. USD 2.75 Million).
  • To benefit start-ups, it is proposed for One-Person Companies (OPCs) to:

  1. grow without any restrictions on paid up capital and turnover;
  2. allow conversion into any other type of company at any time;
  3. reduce the residency limit for an Indian citizen to set up OPCs from 182 days to 120 days; and
  4. allow Non Resident Indians to incorporate OPCs in India.
  • For faster resolution of cases before National Company Law Tribunals, alternate methods of debt resolution and special framework for Micro Small and Medium Enterprises (MSMEs) will be introduced.
  • Incorporation of an Asset Reconstruction Company and Asset Management Company to take over stressed assets and dispose of to Alternate Investment Funds and other potential investors for eventual value realisation.
  • To further e-governance by the Ministry of Corporate Affairs, MCA21 Version 3.0 is proposed to be launched incorporating data analytics, artificial intelligence with additional modules for e-scrutiny, e-adjudication, e-consultation and compliance management.
  • In order to create new investment space for the private sector, a strategic disinvestment policy in Central Public Sector Enterprises (CPSEs) is proposed where:

  1. Sectors will be classified as strategic and non-strategic areas;
  2. Strategic areas such as atomic energy, space and defence, transport and telecommunications will have a minimum presence of CPSEs; and
  3. CPSEs in non-strategic sectors will be privatised or closed.
  • A revised mechanism for timely closure of sick or loss making CPSEs.
  • With the enactment of the Labour Codes, security benefits will extend to gig and platform workers and employers will benefit from single registration, licensing, and online returns.
  • Health, housing, skill, insurance, credit, and food schemes to be formulated for migrant workers.
  • An increase in the permissible Foreign Direct Investment (FDI) limit is proposed from 49% to 74% in Insurance Companies and allow foreign ownership and control with safeguards.
  • To instil confidence in private investors, a conciliation mechanism for speedy resolution of contractual disputes between private investors/ contractors and the government to be established.
  • Exemption from filing income tax returns to senior citizens aged 75 years and above who have only pension and interest income.
  • Reduction in time limit for re-opening of tax assessment for income tax proceedings from 6 years to 3 years.
  • Reopening of assessment in serious tax evasion cases up to 10 years, only where there is evidence of concealment of income of INR 5 Million (approx. USD 68,000) or more, in a year and pursuant to the approval of the Principal Chief Commissioner.
  • To reduce litigation for small taxpayers, the constitution of a faceless dispute resolution committee is proposed, which may be approached by anyone with taxable income up to INR 5 million (approx. USD 68,000) and disputed income up to INR 1 million (approx. USD 14,000).
  • Establishing a faceless Income Tax Appellate Tribunal Centre, where all communication between the Tribunal and the appellant shall be electronic and hearings shall be conducted through video-conferencing.
  • Notification of rules to address issues arising from double taxation of accrued incomes of returning non-resident Indians.
  • To further incentivise digital transactions, raising the threshold for tax audits for persons who carry out 95% of their transactions digitally from INR 50 Million (approx. USD 685,000) to INR 100 Million (approx. USD 1.4 Million).
  • Exempting dividend payment to REITs/InvITs from TDS (tax deducted at source).
  • Deduction of tax on dividend income for FPIs at lower treaty rate.
  • Advance tax liability on dividend income to arise only after declaration/ the payment of dividend.
  • To facilitate investment from sovereign wealth funds and pension funds in India, relaxation of conditions relating to prohibition of private funding, restriction on commercial activities and direct investment in infrastructure.
  • Additional tax incentives for entities located in International Financial Services Centre in GIFT City.

Extension of tax holiday for start-ups and capital gains exemption for investment in start-ups till 31 March 2022.

The full Budget can be accessed through the following link: