On February 1st, the Finance Minister of India, Nirmala Sitharaman announced the 2021 annual financial report of India, also known as the Union Budget. The 2021 expansionary Union Budget seeks to assist industries hit hard by the COVID-19 pandemic, and at the same time direct the country towards long-term economic recovery and growth. The government’s borrowing is expected to reach USD 164 billion and the fiscal deficit target of 6.8% of GDP has been set for the fiscal year 2021 – 2022. Furthermore, by the fiscal year 2025 – 2026 India aims to reduce the fiscal deficit to 4.5% of GDP.

The 2021 Union Budget notice has proposed to amend the definition of small companies to reduce their tax and compliance burdens. Companies with paid-up capital less than INR 20 million (USD 274,000) and turnover less than INR 200 million (USD 2.74 million) now qualify as small companies. This change is expected to add more than 200,000 companies to this category in India. Furthermore, one person companies (OPC) can now be incorporated without restrictions on the amount of paid-up capital or turnover. 

As for infrastructure spending, several major capital expenditures in the urban and rural healthcare sector, railways and other infrastructure projects have been specified. India is also expected to implement a number of reforms in such areas as power, oil, gas, and aviation. In total, USD 27 billion will finance these sectors to provide sufficient opportunities for growth, facilitate employment, and ensure that India takes an important place in the global supply chain. 

Among other fiscal measures, start-ups can continue to enjoy a tax holiday for an additional year until March 31st, 2022. The government also intends to eliminate double taxation for non-resident Indians and foreign retirement funds. Finally, the tax liability on income derived from dividends, shall only occur upon the actual payment of the dividend. Previously, the government has eliminated the dividend distribution tax for companies and essentially made the dividends taxable on a shareholder level. 

The 2021 Union Budget has laid down a path to steady economic revival with increased government spending and a focus on investment in key industries. If you would like to know more about India’s 2021 budget, feel free to contact us at info@phcadvisory.com.