India Budget 2021 News and Discussion

[andy B]

To prevent R&D over the defence budget later on....

Revised capital(actual) spend last year was 23% over planned capital

This year planned capital budget is 19% over last year. If there is buying spree and see a similar revised capital, in 2 years, the capital budget would have increased 50%!

IN capital budget is now close to IA (33k to 36K). IAF is getting 50K+ 2 years in a row. The media jokers got the percentage increase right, but instead of capital budget, they thought it was the entire budget!

Capital budget is what matters.. Not interested in Opex & pensions.

Nam saar does the above actual spend include the ca. INR 20k that was spent on expedited emergency purchases for equipment.

I think we continue to see this trend where in further emergency purchases in small batches will continue. Payloads vs platforms if we can continue to improve the payloads of existing platforms (and I am certainly looking at a proper Indian upgrade of the 270 mki fleet here) it would go a long way! Similarly the purchases of SIG rifles etc will continue IMHO.

[nam]

Nam saar does the above actual spend include the ca. INR 20k that was spent on expedited emergency purchases for equipment.

I think we continue to see this trend where in further emergency purchases in small batches will continue. Payloads vs platforms if we can continue to improve the payloads of existing platforms (and I am certainly looking at a proper Indian upgrade of the 270 mki fleet here) it would go a long way! Similarly the purchases of SIG rifles etc will continue IMHO.

Yes, the actual includes all the real spending. The budgeting process is ALWAYS planned expenditure(existing & 2020 signed contracts or plan to sign in 2021 contracts). It is never a random allocation.

I keep saying there is no point screaming for 20 or 30% budget increase. It will not be spend unless contracts are on the verge of signing like LCH. We need get our trails and contract negotiations skills streamlined, along with going for local kit, before screaming for more budget.

A 19% increase means, there are more, potentially bigger contract signing planned in 2021. IAF has 53K allocated. Something is getting signed this year.

[srin]

I vaguely remember that the government had said (around 6 months ago) that it'd put indigenous military acquisition under a different head. Any info on that ?

[Karan M]

To prevent R&D over the defence budget later on....

Capital budget is what matters.. Not interested in Opex & pensions.

Not the right thread for this, but this is a common misconception. The opex ie revenue budget matters. Its where the services put the expenditure for training and yearly spares, POL etc. If the revenue budget is squeezed, it means their training is affected as key exercises etc are deferred.

Anyways, there is a Rs20K crore difference in capex in 2020 due to the PRC factor. Most went to IAF, IN, very little (600 odd Crore) to IA. Capex for 2021 also shows a healthy increase over 2020, but our needs are vast.

[Aditya_V]

I think Tejas MK1A is part of this year RE, IAF probably getting more Rafales

[dsreedhar]

3rd pillar of atma-nirbhar
1. Agriculture. MSP regime is 1.5x time of production across all commodities. Major Rona-dhona from opposition
2. 2013-2014 ~37000 crorers. 2020-2021 75000 crores as wheat MSP. 43.36 lakhs farmers benefitted compared to 37.5 lakhs prior year
3. 2013-2014 - 64000 crores. 2019-2020 1.42 lakh crores, 2020-2021 Est. 1.72 lakh crores for paddy. Farmers benefitted from 1.24 crores to 1.54 crores
4. Pulses - 2013-2014 236 crores, 2019-2020 @9000 crores, 2021 10530 crores. 40 times increase from 2014.

Any source link for this? Need to share.

[yensoy]

Please stop using this thread to complain that you didn't get an IT cut. This is simply recurring noise in every budget and has no productive discussion value, amounting to little more than angry namecalling of public personalities, with one or more posters getting warned or banned in the process.

That, together with "we need to increase defence budget by 50%" just doesn't compute

[ramana]

3rd pillar of atma-nirbhar
1. Agriculture. MSP regime is 1.5x time of production across all commodities. Major Rona-dhona from opposition
2. 2013-2014 ~37000 crorers. 2020-2021 75000 crores as wheat MSP. 43.36 lakhs farmers benefitted compared to 37.5 lakhs prior year
3. 2013-2014 - 64000 crores. 2019-2020 1.42 lakh crores, 2020-2021 Est. 1.72 lakh crores for paddy. Farmers benefitted from 1.24 crores to 1.54 crores
4. Pulses - 2013-2014 236 crores, 2019-2020 @9000 crores, 2021 10530 crores. 40 times increase from 2014.

This is summary for our lazy folks.
You can get the 64 page pdf of FM budget speech.
BTW don't waste time trying to convince fools. I gave up long ago.

Any source link for this? Need to share.

[ramana]

https://thecommunemag.com/indian-milita ... -15-years/

[ramana]

IAF will get Tejas and LCH.
And second tranche of Rafale likely.

IA will get the second Arjun MK1A.

DRDO increase means more products in pipeline.

The cut in Navy could be due not resolving the tug of war between carrier and subs.
Meantime surface ships also lose out.

[disha]

The stock market responded positively. And here is what Jaggi has to say*:

https://swarajyamag.com/economy/jai-sit ... s-best-yet

Jai Sitha Raman. Why Finance Minister’s Third Budget Is Perhaps The Modi Government’s Best Yet
R Jagannathan-Feb 1, 2021 04:12 AM

*Nirmala Sitharaman has broken the government’s tendency towards fiscal conservatism.

Here are some of the big takeouts of this budget.

Many things will be said about Nirmala Sitharaman’s third budget, a budget to revive the post-Covid economy. But the one thing it clearly testifies to is this: she has broken the Narendra Modi government’s tendency towards fiscal conservatism.

PS: I do not agree or disagree with Jaggi. I do think he has a saner head on his shoulders compared to anyone out there.

Modi government was never fiscally conservative or liberal. Modi is fiscally pragmatic and tends towards thrifty. Just like any middle-class person in an Indian household.

When 10 years of MMS+Sonia stagflation caused a big hole, Modi government had to spend 6 years filling up that hole. Now with capital costs being low and may remain low till the foreseeable future (2021 and maybe 2022), and the worst to the economy being over, with a cushion under Modi government can go fiscally liberal. The budget proves that.

I do like the new budget. More or less on the lines of more infrastructure and more infrastructure.

[Suraj]

Markets have reacted strongly to budget. Sensex up over 2300 points (+5%) and Nifty up 4.75%.

The heavy emphasis on infrastructure and capex is the right thing to do to push up the V shaped economic recovery and bring back commercial activity and employment. I like the particular focus on gig workers and construction folks who otherwise operate in a less organized environment.

[Suraj]

Please stop using this thread to complain that you didn't get an IT cut. This is simply recurring noise in every budget and has no productive discussion value, amounting to little more than angry namecalling of public personalities, with one or more posters getting warned or banned in the process.

That, together with "we need to increase defence budget by 50%" just doesn't compute

Doesn't defense have a multiyear budgeting mechanism in place already ? I recall a mention of this some years ago.

[AkshaySG]

IAF will get Tejas and LCH.
And second tranche of Rafale likely.

IA will get the second Arjun MK1A.

DRDO increase means more products in pipeline.

The cut in Navy could be due not resolving the tug of war between carrier and subs.
Meantime surface ships also lose out.

Also help's that most of IAF's big aquisitions were basically at the ready to sign stage ..Tejas, Extra Mig's,Sukhois , C295, LCH, trainers etc

whereas Navy has no clear plan and immediate order of priority .. Do they first want more Scorpenes or more surface ships or IAC 3 or another carrier borne fighter for Viky and iAC-2 or Naval LUH ... Its all a bit jumbled up and will need some sorting out

Good decision by the govt to prioritize the budget where the capital expenditure situation is more clear

[ramana]

Please circulate

Top 100 Highlights of Budget 2021 by FM:

1. No tax returns for Senior Citizens, age 75 years and above who have pension and interest income
2. Income Tax returns will have prefilled data from capital gains etc. To ease compliance for taxpayers, details of salary income, tax payment and TDS are prefilled currently
3. Faceless Income tax Appellate Tribunals National faceless ITAT centre to be set up
4. Reduce time limit for reopening of tax assessments to 3 years. Reduction in Time for Income Tax Proceedings – Presently an assessment can be opened in 6 years, and in serious tax fraud cases for up to 10 years. FM proposes to revise this limit for reopening of assessments to 3 years from the present 6 years
5. Tax Audit threshold of turnover further increased for digital transactions to 10 crores
6. Dispute Resolution Panel for small taxpayers
7. Advance tax on dividend to accrue only after it is declared.
8. Affordable housing is a priority area Rs1.5 lakh for loans to purchase affordable house is now extended by one more year
9. To further extend efforts towards unorganised labour force, I propose to launch a portal to collect relevant information on workers, building/construction workers among others
10. To enable deduction of tax on dividend income at lower treaty rates for FPIs
11. India FY21 budget deficit is said to be 9.5% of GDP. FY’21 fiscal deficit (Revised Estimate) pegged at 9.5% of GDP; fiscal deficit seen at 6.8% for FY22
12. India is said to estimate FY22 expenditure at about Rs 35 lakh crore.
13. 11,000 kms of national Highway to be Completed
14. Divestment target for FY22 at Rs 1.75 lakh cr. Asking Niti Aayog to work on the next list of PSU cos that could be taken up for divestment. Other than IDBI Bank, two other PSBs and one general insurance company to be divested in FY22
15. Introduce Investor Charter as a right of all investors across financial instruments.
16. 100% Electrification of Rail Routes by DEC 2023.
17. Decriminalisation under LLP Act Small Company definition changed, One Person Company revamped will be Big Boost to Startups
18. NRIs to be allowed to set up One Person Companies
19. The total estimate of all relief measures announced by govt & RBI so far is Rs 27.1 lakh cr (13% of GDP) in Covd19
20. Forthcoming census will be a digital census, allocating Rs 3768 crores for the exercise
21. The National Statistical Office has projected a 7.7% contraction in GDP in 2020-21.
22. Through the past year, the Finance Minister announced a Rs 30-lakh-crore plan, in ‘mini-budgets’ to beat Covid
23. Aim to double farmers income. The total financial impact of all AatmaNirbhar packages including measures taken by RBI was estimated to be about Rs 27.1 lakh crores
24. A portion of the agricultural fund will be allocated to APMC for furthering their infrastructure
25. New scheme called PM Aatmanirbhar Swastha Bharat to be launched, outlay of `64,180cr over 6 yrs
26. Announcing a voluntary scrapping policy to phase out polluting vehicles. Vehicles to undergo fitness tests after 20 years for personal vehicles and 15 years for CVs
27. Jal Jeevan Mission Urban to be launched at outlay of Rs 2.87 lakh crore.
28. 17,000 rural and 11,000 urban health and wellness centres to be set up.
29. India has two COVID-19 vaccines available and we expect two more vaccines soon
30. A vision for Atmanirbhar Bharat in part of Sitharaman’s first part.
31. FY22 budget proposals based on six pillars namely Health & Well-being, Inclusive Development Human Capital, Innovation and R&D, Physical & Financial capital and infrastructure, Minimum government, maximum governance
32. FY22 outlay (budget estimate) for health & well-being up 138%, is Rs 2,23,846 cr.
33. Scheme of mega invt textile park will be launched in addition to PLI scheme, 7 textiles parks to be unveiled over 3 years. Rs5 lakh cr will be lent by DFI in 3 years time
34. Professionally managed development financial institution (DFI) will be introduced.
35. Asset monetisation dashboard will be created to provide clarity to investor Monetization of gas pipeline of GAIL, HPCL planned
36. A scheme of Mega Investments Textile Park will be launched in addition to PLI Scheme which will create world class infrastructure with plug & play facilities to enable global champions in exports
37. To tackle the problem of air pollution, propose, Rs 2200 crore for 42 urban centres; also announcing a vehicle scrapping policy towards reducing vehicular pollution
38. Rs. 2.86 Cr. Household tap connection to be established.
39. For 2021-22; capital expenditure seen at Rs 5.54 lakh cr, +34.5% increase YOY
40. 3500 km of national highway work being planned in Tamil Nadu at an investment of Rs 1.3 lakh cr
41. FY21 capital expenditure seen at Rs 4.39 lakh crore
42. Rs 44,000 crore under capital expenditure to be given to Department of Economic Affairs in FY22
43. Over and above this, Rs 2 lakh crore will be provided to states and autonomous bodies to nudge their expenditure.
44. Rs 1.03 lakh for highway project for Tamil Nadu
45. FY 22 allocation for Railways at Rs 1,10,055cr
46. Highway works proposed: 3500kms corridor in TN 1,100km in Kerala at investment of Rs 65,000 cr 675km in West Bengal at cost of Rs 95,000 cr 1300 kms in Assam in coming 3 years
47. Over 13,000 km length of roads at a cost of Rs 3.3 lakh cr has already been awarded under Rs 5.35 lakh cr Bharatmala project of which 3,800 kms have been constructed
48. Main interventions under PM Aatmanirbhar Swasth BharatYojana include Support for Health and Wellness Centres, Setting up Integrated Public Health labs in all districts, Critical care hospital blocks, Strengthening of NCDC
49. National Monetisation Pipeline of potential brownfield infra projects to be launched. Details a few road and power assets to be transferred to NHAI, PGCIL InvITs.
50. Scheme to assist Discoms will be launched with an outlay of over Rs 3 lakh cr
51. Railway to monetise dedicated freight corridors,
52. Four Acts converged into Securities Market Code, Investor Charter Introduced to Protect Investors, Insurance Act Amended to introduce FDI and AMC to be set up to take over stressed debts of Banks
53. Propose to amend the Insurance Act, propose to hike FDI limit to 74 percent from 49 percent. Also to allow foreign ownership & control with safeguards
54. Proposes to consolidate provisions of SEBI Act, Depositories Act, Securities Contracts Regulation Act, Government Securities Act
55. Decriminalisation under LLP Act Small Company definition changed, One Person Company revamped will be Big Boost to Startups
56. Proposes to change the definition of a small company under the Companies Act 2013 by increasing their threshold for paid-up capital, from not exceeding Rs 50 lakhs, to not exceeding Rs 2 crores and Turnover from not exceeding Rs 2 crores to not exceeding 20 crores
57. Scheme for promoting flagging of merchant ships in India will be launched by providing subsidy support
58. Privatisation of one General Insurance PSU and IPO of LIC proposed
59. PM Swastha Bharat Yojana with an outlay of over Rs64000 cr
60. Govt to announce a policy for the privatisation of state-run cos & to create new list of companies for Divestment
61. Ujjwala Scheme to Cover 1 Crore more Beneficiaries
62. 100 more Dist. to be added under city Gas Expansion
63. In case of wheat, the amount paid to farmers in 2019-2020 was ₹62,802 crore and in 2020-2021 it was further increased to ₹75,060 crore
64. To provide Rs 20,000 crore in FY22 for recapitalisation of public sector banks.
65. 1.54 crore farmers benefited from MSP in paddy and what in FY21 vs 1.24 crore YoY
66. Asset reconstruction and management company to be set up for stressed assets of banks:
67. Ujjwala scheme will be expanded to over 1 crore more beneficiaries. We will add 100 more districts in the next three years to the city gas distribution network. A gas pipeline project will be taken up in Jammu and Kashmir
68. The MSP regime has undergone a change to assure price that is at least 1. 5 times the cost of production across all commodities:
69. National Infrastructure Pipeline was launched with 6835 projects
70. Propose PSU Bank RECAP worth Rs. 20,000 Cr. FY 22.
71. Government sets agriculture credit target of Rs 16.5 lakh crore for FY22.
72. One-nation, one-ration plan under implementation by 32 states and union territories
73. Five major fishing harbours to be developed as hubs for economic activity
74. Micro irrigation corpus doubled to Rs 10,000 cr. Agriculture infra fund will be made available to APMCs
75. 100 new sainik schools will be set up in partnership with NGOs. There are other ‘umbrella’ structures to be created for higher education
76. For further setting up of Higher Education in Ladakh under NEP 2020, I propose to set up a central university in place
77. Provided Rs. 15,700 crore to MSME sector. MSME allocation to be doubled. Government to set aside Rs 15,700 crore in FY22. Government also proposes to reduce margin money requirement from 25% to 15% for startups.
78. Propose Rs 40000 Crore outlay for FY22 Rural Infra Fund
79. After achieving target of 8 crore LPG connections, Pradhan Mantri Ujjwala Yojana to cover another additional 1 crore beneficiaries.
80. Green scheme to be expanded to 22 perishable vegetable products
81. More than 15,000 schools in the country will be qualitatively strengthened to include all components of the National Education Policy:
82. On the recommendations of the 15th Finance Commission, a detailed exercise has been undertaken to rationalize and bring down the number of Centrally Sponsored Schemes. This will enable consolidation of outlays, for better impact
83. Enhanced outlay of ₹ 1,18,101 crore for Roads
84. 1,000 more mandis will be integrated with electronic national market
85. A scheme for tea farmers will be introduced for the welfare of women and Children in Assam
86. Proposing substantial investments in the development of modern fishing harbours & fish landing centres. 5 major fishing harbours – Kochi, Chennai, Visakhapatnam, Paradip and Petuaghat will be developed as hubs for economic activities:
87. Record sum of ₹ 1,10,055 crore to be provided for Indian Railways, out of which ₹ 1,07,100 is for capital expenditure only
88. New scheme at a cost of ₹ 18,000 crore for augmentation of public bus transport services
89. Will facilitate deployment of innovative PPP models enabling private players to finance, acquire, operate and maintain over 20,000 buses
90. Y’22 Gross borrowing target at Rs 12 lakh crore; Need another Rs 80,000cr in next 2 months, will approach market to raise it
91. Govt proposes portal to collect info on gig-workers, building and construction workers, among others
92. Govt proposes to amend apprenticeship law to enhance opportunities for youth
93. Contingency Fund of India corpus to be raised to Rs 30,000 crore.
94. Normal ceiling for net borrowing for states at 4% of GSDP as per Finance Commission recommendations
95. Rs 1,500 cr earmarked for scheme to incentivise digital payments:
96. FM says government committed to bringing down fiscal deficit below 4.5 pc of GDP by 2025-26
97. Big boost for startups. Incorporation of one person companies to incentivize innovation in startups. Reducing residency limit for Indian citizen to set up 1 person company from 182 to 120 days
98. Govt proposes national language translation initiative
99. States to get 41 pc share of taxes as per 15th Finance Commission recommendation; govt has accepted the recommendation
100. proposes to review 400 old exemptions in Customs duties in FY22.

[VKumar]

Sea Vegetables farming promoted but FSSAI has no standards for sea vegetables.

[Atmavik]

anything for edible oil? we are the largest importer of edible oil.

Good point. I did not hear or missed it.

maybe i am beating a dead horse here but looks like excise has been increased on the import of edible oil. hope our farmers shift from paddy to edible oil. the total import per year is $ 12 Billion.

[disha]

This is a huge budget. One of the best in decades.

I do not think people understand Modi and his team correctly. When people are practicing for an overnight T20 game, Modi and his team goes and plays a 5-match test series.

No doubt opposition is always underwhelmed and reduced to, at times dangerous, flea circus!

Here is the quote from Jaggi's article linked above:

Third, the government has indirectly accepted that there is not going to be any revival of the investment cycle unless the government itself puts its shoulder to the wheel. This is why capital spending is rising 34 percent next year to Rs 5.54 lakh crore, with another Rs 2 lakh crore being given to states and autonomous bodies.

Add the sops for affordable housing, and the planned asset monetization of ports, airports, pipelines, power transmission lines and completed road and railway projects, and the country’s infrastructure pipelines will no longer run dry for want of funds. The thinking is that growth now depends on turning around the investment cycle, and this will have to be led by the public sector.

The earlier strategy was driven by a belief that government borrowings will crowd out private investment; now, there is the opposite belief, that government spending on infrastructure, partly funded by its own asset monetization plans, will crowd in private investment. Way to go.

For the last bolded part, I am actually not surprised. With interest rates remaining low and in the very short to short term remaining low, it makes sense to borrow from the market to fund infrastructure that removes supply-side bottlenecks leading to more growth and a benign interest rate regime. Modi government is reading the economy correctly. Very correctly.

In the pandemic, GOI did not go with putting out more money. They realized that demand is there and creating more demand with supply-side bottled up will lead to inflation. Creating more demand is a developed economy problem. Creating more supply is a developing economy like India's problem. And hence for a pandemic, they relied on buttressing the pain for the population. Like 80 Cr were given access to food grains at free or very nominal cost. Introduction of pan-India ration helped and will be continued. So much that migrant workers can get part of rations at their place of work while their family will get the remaining in a remote place!

And what is the best way to remove the supply-side bottlenecks? Create infrastructure. More infrastructure. Roads, Rails, Electricity, Water, Ports, Toilets, Gas, Solar, Sludge and waste management.

This leads to more demand generation. For example, the swatch bharat mission led to creation of "Toilet Economy". People have been talking about a geyser and a toilet attached to their home or to their rooms. That means more demands for toilets leading to more jobs. Leading to better health outcome, leading to more money in peoples pockets, leading to more demand. Remember Pappu making jokes on toilets. I would like him to make those jokes now.

[Atmavik]

https://swarajyamag.com/news-brief/boos ... chana-peas

Boost to ‘Atmanirbharta’ In Agriculture: Nirmala Sitharaman Proposes Import Cess On Crude Edible Oils, Chana, Peas

AIDC proposed on crude palm oil is 17.5 per cent, while on crude soybean and sunflower oils it is 20 per cent.

For apples, the cess proposed is 35 per cent, 40 per cent for peas, 30 per cent for Kabuli chana, 50 per cent for Bengal gram, and 20 per cent for lentils.

The cess on edible oils such as crude palm, sunflower and soybean oils will help oilseeds farmers fetch better prices for their produce as rising imports have had prices on leash.

India imports over 15 million tonnes of edible oil with palm oil accounting for two-thirds of it.

[Atmavik]

the poor should have ration cards. the middle class will feel the pinch but there is no way around it. our entire agriculture policy was first based on food security and later on stopping food inflation (ABV learnt the hard way). the time has come to make the shift. hope the farmers grab this opportunity.

[Suraj]

The budget is getting wide support from multiple places. Both Jaggi and Karan Bhasin on SwarajyaMag are in support. Financial Express likens it to the 1991 budget. Hindu BusinessLine calls it 'growth oriented and bold'. Business Standard calls it 'bets big on growth'.

The budget reflects what the government explained in the economic survey - that the focus on growth will fix poverty and inequality, not a focus on inequality. If the administration can close out its current term with successive years of double digit growth, it will have done very well indeed.

The economic survey basically openly trashed the ratings agencies. There's an entire chapter dedicated to giving them the finger. The government simply stated '2 decades of effort to maintain fiscal prudence has yielded no gain in ratings at all. So who cares about your ratings, we're going all in for growth. Show us your guts to downgrade us , which mean your own funds stay out of this growth'.

[arshyam]

Hmm, this is going to get a lot of brickbats, including from moi...

Budget 2021: Political hot potato Employees Provident Fund now taxable - TNIE

NEW DELHI: Hidden in the fine print of the budget is a shocker for salaried people – interest on employees contribution to provident fund beyond Rs 2.5 lakh a year or a tad more than Rs 20,000 a month will no longer be tax free.

Most people prefer to save through contributions to the Employees Provident Fund Organisation as this was EEE or Exempt, Exempt, Exempt, a system where the money one saves is exempt of taxes at all three stages — when saved, when interest is accumulated on it and when withdrawn.

“It is proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of Rs 2.5 lakh. This restriction shall be applicable only for the contribution made on or after April 1, 2021,” the budget document said.

Some 12% of an employee’s basic salary and performance wages is deducted as provident fund, while the employer contributes another 12%.

It means anyone who earns more than Rs 20.83 lakh a year will see his or her interest on EPF contribution being taxed.

“This means the EPF is no longer an EEE scheme but a ETE or exempt when putting in, taxed when earning an income and exempt when withdrawing scheme,” said Sudhakar Sethuraman, partner, Deloitte India.

“We have also to see the impact of the new labour code, which some calculate may result in at least 66% of the total remuneration being turned into basic salary,” he added.

This will also restrict the government's ability to borrow cheap money, since people will try to reduce their contributions and seek other investment opportunities. Not sure why this govt has consistently shown an inclination to touch EPF (one of Jaitley's budgets had taxed the withdrawal, only to withdraw after a huge hue and cry). I hope it is some babu sneaking in some clause in the bill, which would get removed, for I can see a lot of middle class folks getting agitated by this, especially since ₹20lakh p.a. salaries are not that uncommon anymore..

[arshyam]

Amazon, Flipkart hit as budget slaps digital tax burden on non-resident e-com operators - By Bismah Malik, TNIE

BENGALURU: In a move that may upset e-tailers like Amazon, Flipkart, the government has introduced an amendment in the Finance Act 2016 under which non-resident e-commerce operators will have to pay a 2% equalization levy on the online sale of goods/provision of services.

The provisions under the amendment state that the equalization levy will be applicable to a) acceptance of offer for sale; or (b) placing of the purchase order; or (c) acceptance of the purchase order; or (d) payment of consideration as well as d) supply of goods or provision of services partly or wholly.

The tax will be levied irrespective of whether the e-commerce operator owns goods/ services it is supplying to any user in India. The equalization levy will apply to both B2B as well as B2C transactions. Unlike the earlier equalization levy where the resident payer had the responsibility to deduct and pay the levy to the Government of India, the compliance obligation in the new levy is to be discharged by e-commerce operators (non-resident) on a quarterly basis along-with an annual return.

E-comerce firms like Amazon, Flipkart do have subsidiary entities based out of India, and the new tax levy will, according to experts, increase the cost of doing business, with no benefit of credit.

"Given that India is engaged in the Organisation for Economic Co-operation and Development-led discussion to arrive at global consensus on the approach to tax digital economy, unilateral measures like equalization levy lead to multiple layers of taxation for the same income with no benefit of credit, thus increasing the cost of doing businesses. The new EL provisions have raised several concerns and interpretational challenges for the E-commerce industry. These concerns and challenges have made it difficult for the industry to comply with the provisions. Without appropriate clarifications, it is also difficult for the industry to make requisite changes to the billing/IT systems and terms of contract with the third parties," Nasscom had said in a representation made before the finance ministry.

Amazon, Flipkart when contacted didn't reply to queries at the time of publishing the story.

Expect some rona-dhona from these e-commerce giants...

[vijayk]

^^ awesome move

[Suraj]

That seems odd indeed - a monkey let loose with a typewriter unsupervised ? Tax interest on contributions but presumably not on unrealized capital gains ? ETE is a strange creature. Why tax the middle and not the contribution or mature value ?

Presumably this will lead people to invest in ETFs that are tax efficient and do not yield annual interest but only unrealized capital gains.

[Philip]

Looking from purely the defence angle, yet again a poor understanding of the enormity of the challenge and threat that confronts us. The PRC is effectively running the Paki military, is putting down the Baluchi freedom fighters with ruthless actions using Paki troops like mercenaries and now possesses the world's largest navy! A few years long before the Ladakh clashes I
had argued the need for light tanks,identifying the Sprut as ideal ,in the aftermath of the Doklam crisis. PLAN T-15 tanks now brazenly threaten us in areas where our heavier T-series MBTs cannot traverse. The huge PLA buildup across all sectors is putting huge stress upon the IA which needs both weapin systems and accelerated infra to deal with the same. It is only now that our land-lubbers in the MOD realise the immense counter-threat cenarios that the IN can bear upon the PRC's maritime interests,but that window of opportunity is fast closing with the PRC's huge naval expansion,IOR base facilities especially at Gwadar and the needfor a huge boost to the IN's warfighting capability.

Our wish list is huge for all 3 forces and strat. command. This requires a one-time threat assessment and govt. to take critical G-2-G decisions and loosen its purse strings to remedy the situation.

[Dumal]

Hmm, this is going to get a lot of brickbats, including from moi...

Budget 2021: Political hot potato Employees Provident Fund now taxable - TNIE

NEW DELHI: Hidden in the fine print of the budget is a shocker for salaried people – interest on employees contribution to provident fund beyond Rs 2.5 lakh a year or a tad more than Rs 20,000 a month will no longer be tax free.
.....
“This means the EPF is no longer an EEE scheme but a ETE or exempt when putting in, taxed when earning an income and exempt when withdrawing scheme,” said Sudhakar Sethuraman, partner, Deloitte India.

This will also restrict the government's ability to borrow cheap money, since people will try to reduce their contributions and seek other investment opportunities. Not sure why this govt has consistently shown an inclination to touch EPF (one of Jaitley's budgets had taxed the withdrawal, only to withdraw after a huge hue and cry). I hope it is some babu sneaking in some clause in the bill, which would get removed, for I can see a lot of middle class folks getting agitated by this, especially since ₹20lakh p.a. salaries are not that uncommon anymore..

I don't remember all the details but there is also the element of 100% lump-sum withdrawal without taxes (as I think EPF offers) Vs a smaller % limit on lump-sum distribution from NPS, motivating people to use annuities giving periodic returns over a longer period. There was an attempt by Jaitley in 2015 to change EPF to be more similar to NPS but which was taken back due to the outrage that it caused the middle class.

The issue is how do we continue to pay risk free 8%+ interest on increasingly higher quantum of EPF savings from the growing middle class and those above, while the right approach is to use the market-facing self-managed NPS option that can potentially give greater returns at corresponding risk levels.

I think this must be a carefully thought out plan to induce people to think about moving to NPS for all the retirement funds that go beyond the 2.5L annually.

[James]

Hmm, this is going to get a lot of brickbats, including from moi...



This will also restrict the government's ability to borrow cheap money, since people will try to reduce their contributions and seek other investment opportunities. Not sure why this govt has consistently shown an inclination to touch EPF (one of Jaitley's budgets had taxed the withdrawal, only to withdraw after a huge hue and cry). I hope it is some babu sneaking in some clause in the bill, which would get removed, for I can see a lot of middle class folks getting agitated by this, especially since ₹20lakh p.a. salaries are not that uncommon anymore..

This is not exactly cheap money. GOI is paying 8.5% interest on PF borrowings whereas they are able to borrow around 6% on 10 year gilts. And when you factor in the taxability angle (8.5% is not taxable, whereas 6% is taxable in the hands of the recipient), then this difference increases further.

[nash]

https://twitter.com/CNBCTV18Live/status ... 8936884224



It may need restructuring of FRBM act, will it be possible to create this non-lapsable fund this year, any chances of delay?

[saumitra_j]

Hmm, this is going to get a lot of brickbats, including from moi...
This will also restrict the government's ability to borrow cheap money, since people will try to reduce their contributions and seek other investment opportunities. Not sure why this govt has consistently shown an inclination to touch EPF (one of Jaitley's budgets had taxed the withdrawal, only to withdraw after a huge hue and cry). I hope it is some babu sneaking in some clause in the bill, which would get removed, for I can see a lot of middle class folks getting agitated by this, especially since ₹20lakh p.a. salaries are not that uncommon anymore..

As far as I understand, the tax free limit is for those who earn up to INR 173611 per month as basic salary.. If that is basic salary, you can imagine the full salary to be about 3.4 Lakhs per month (assuming Net Salary is 2 times the basic). This means only those who earn more than 40 lakhs per annum will be affected. The only caveat is that it is not very clear if the contribution being above 2.5 Lakhs is employee contribution or also includes employer contribution - in which case you will get to the 20 Lakhs PA salary that you mentioned.

From this link, the proposed amendment states :

256Clause (12) of the said section provides for exemption with respect to the accumulated balance due and becoming payable to an employee participating in a recognised provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule. It is proposed to insert a proviso to such of the aforesaid clauses so as to provide that the provisions of these clauses shall not apply to the income by way of interest accrued during the previous year in the account of a person to the extent it relates to the amount or the aggregate of amounts of contribution made by that person exceeding two lakh and fifty thousand rupees in any previous year in that fund, on or after the 1st day of April, 2021 and computed in such manner as may be provided by rules.

Classic Babu language here but to me it talks about employee contribution and not employer contribution but I could be wrong! Let's wait for the rules.

Also, what will be taxed is the interest on amount exceeding 2.5 Lakhs - which I reckon would not be a huge amount. I think this move is to slowly wean away folks from EPF towards NPS as EPF is too good to be true (Triple Exempt). Also, quite likely it is being used to avoid paying taxes, especially in certain firms where folks could tweak high salaries into EPF/VPF to reduce the tax burden. I think a bigger leak is being plugged in ULIPs where a lot of future taxable income was being converted into potential tax free income in the future.

If you think about it, to get to that kind of salary, you are probably already in the 40s and have a decent corpus with fewer years to build it so you should be ok. I think the worst affected would be those who are just starting or have just started and have very high salary jobs. I reckon that number would not be too high.

All in all, I see this as a plug for future tax leaks but despite the bad press, it is unlikely to do much damage to most affected people.

[RajaRudra]

Hmm, this is going to get a lot of brickbats, including from moi...

Budget 2021: Political hot potato Employees Provident Fund now taxable - TNIE

NEW DELHI: Hidden in the fine print of the budget is a shocker for salaried people – interest on employees contribution to provident fund beyond Rs 2.5 lakh a year or a tad more than Rs 20,000 a month will no longer be tax free.

This will also restrict the government's ability to borrow cheap money, since people will try to reduce their contributions and seek other investment opportunities. Not sure why this govt has consistently shown an inclination to touch EPF (one of Jaitley's budgets had taxed the withdrawal, only to withdraw after a huge hue and cry). I hope it is some babu sneaking in some clause in the bill, which would get removed, for I can see a lot of middle class folks getting agitated by this, especially since ₹20lakh p.a. salaries are not that uncommon anymore..

I am not clear in this and still worried. There are two components here, Employee Part and Employer Part.
This restriction is only to the Employee part or total. If its only Employee part(and VPF), i will be feeling good..

[Bart S]

I hope it is some babu sneaking in some clause in the bill, which would get removed, for I can see a lot of middle class folks getting agitated by this, especially since ₹20lakh p.a. salaries are not that uncommon anymore..

I don't know about govt jobs, but practically speaking most private companies use 15,000 per month as the salary reported for the purposes of PF, irrespective of the actual salary, in which case the combined PF outgo is barely above 2K pm. So somebody earning 20L typically won't be directly affected by this, at least not by default. Who will be affected are those actively using VPF (with their own contributions) fully towards a retirement fund (i.e those who contribute 20K pm and higher voluntarily to PF) and and even from that limited angle it does not seem to be a positive measure. The justification given by FM was that 'some people' are parking large amounts of money in PF, I don't see what is wrong with that - it is good financial practice for the individual and helps the govt and nation by increasing long-term deposits! Seems like some babu or politician decided to be too cheap in an area where savings are generally encouraged.

I have no issue with ULIPs being discouraged, those were a bit of a scam anyway.

[Suraj]

The problem with such loopholes is that some babu will try to close it with a sledgehammer. Generally it's best if tax policy is transparent and simple. Having a predictable statutory basis makes things much more manageable. Instead they have strange savings systems like ETE being proposed by this law, which are essentially non-intuitive. Taxation at the contribution or withdrawal point makes some intuitive sense but taxation of annual compounding interest seems devised by some joker who doesn't understand that unrestricted compounded growth is what makes those portfolios grow in the long term.

[fanne]

Let me go one step forward. This proposal of taxing interest gain (even when they are not withdrawn - someone has to come up with cash from somewhere else to pay for this tax...a hypothetical person who has just these savings and nothing else is screwed, he has to liquidate his saving to pay for taxes).
This kind of proposal is being proposed off and on and a gullible BJP govt is the perfect vehicle for it. How best to piss off your voter base.
I believe there is some BIF group of babus or a very jealous IAS officer who cannot stomach anyone but himself getting rich is proposing this over the year. As a side advantage BJP gets shafted from a voting angle.
What is the solution? Which is the world over - tax it at the withdrawal. One will get the same money, just in the future, BUT for people withdrawing now, you get to tax a whole lot of it. Total taxes over the years would be the same (all else being equal), in fact, it could be higher as one can hit a higher bracket if the gain is realized in 1 year rather than over many years. Hopefully, this is amended. Disclaimer - no horse in the race, except see the right side winning the election again.

[Ambar]

Isn't this similar to how TDS works on FDs and RDs ? That is you are paying a tax on the interest accrual yearly and not just at the time of liquidating and withdrawing your deposit.

[Ambar]

How will reducing the excise tax but increasing the cess on fuel play out ? The finance minister said it is to keep the fuel prices where it is today but many are saying with the reduction in excise tax the states will get a smaller cut in the tax revenue, so they will increase the state tax to make up for the fall and further increase the fuel price. While increase in retail prices of essentials like fuel and food is the surest way to invite ire of the middle class, here's something from my personal notebook -

On May 30,2012, a litre of petrol was Rs 81.27 in Karnataka. The USD to INR was around Rs 55 in mid-2012. So a litre of petrol was $1.47.
Today the price for a litre of petrol Rs 89.91 in Karnataka. The USD to INR is around Rs 73. So a litre of petrol is $1.21.
EDIT : One more from my notebook - On May 28,2008, a litre of petrol was Rs 67.10 in Karnataka. The USD to INR was around Rs 42.30 in mid-2012. So a litre of petrol was $1.58


In dollar terms the price of fuel has gone down in the last 9 yrs, but because the rupee has depreciated by 35% in the same period, in rupee terms it has increased by around 10%. Ofcourse, the recent increase is amplified because the price of fuel had dropped to high 60s in 2017 and progressively increased from there onwards decoupling from the falling crude prices in the international markets.

[Suraj]

Yes this is similar to taxation on annual realized interest income from FDs. However, the problem is the structure of this. ETE is an awkward structure. You get to contribute pre-tax (the first E), then the annual interest is subject to tax - but apparently not the capital gains (the T) and upon maturity you can take it out tax free (the second E). This is strange.

Normal taxable accounts are TTT - you have no tax benefit at contribution, annual interest is taxed, and final value gets taxed on gain. Tax beneficial accounts are better off if they front or back load the taxation. For example, traditional IRA is EET - contribute tax advantaged, grow tax advantaged, taxed at withdrawal. Roth IRA is TEE - contribute after tax, grow and withdraw tax free. Non deductible IRAs are TET - no benefit at contribution, taxed at withdrawal but tax free growth. Having the middle E is crucial - it enables compounded growth over the long term, which is critical to achieving a large final amount.

For those working and contributing to EPF for decades, there's more to lose from annual taxation than tax on withdrawals. Taxation on withdrawals should just be aligned with income tax rules for seniors / post superannuation. Government should depend upon general tax receipts rather than implementing an awkward taxation clause into an existing tax advantaged public savings platform.

[arshyam]

After some more thought, I am thinking maybe this could be a vehicle to reduce the interest outgo by the govt? As others have posted, 8% p.a. interest is not sustainable beyond a point, and by taxing this interest, they get to reduce the interest rates without actually do so. So with some money moving from one pocket to another, the effective interest rate comes down to 70% of 8% = 5.6%. But announcing an actual interest rate cut would cause a bigger uproar, and such a cut would target all contributors to the fund. Whereas this plan would only reduce the interest rate for those in the top tax slab, which is still a much smaller number.

Not that I am justifying this move, since I am one of those impacted and not happy about this. But trying to see if there is any logic behind this.

[Ambar]

Why can't they print their way out ? Its not like the interest on the PF is paid in euros or dollars that we have to borrow externally, can't the govt expand the monetary base when the debt is in local currency ?

[arshyam]

Not an expert by any stretch, but won't printing more money cause higher inflation, reducing the actual value of the deposit?