By R Muralidharan, Nimish Choudhary, Chinmay Agrawal
Indian Union Budget 2021-22: The Union Budget 2021, first paperless Budget since independence, was presented by the finance minister, in one of a kind inimitable environment which the country has ever faced. The Indian economy was hit hard due to the pandemic and the resulting lockdown, which contracted the GDP by 7.7% during the financial year 2020-21. This was the first time when the Indian economy witnessed a de-growth, however December 2020 and January 2021 did bring in some optimism, through the highest GST collections after its implementation in 2017. Thus the Budget was expected to focus on growth.
From an indirect tax perspective, while significant changes in GST were not expected, the industry was looking at increase in customs duties on finished goods coupled with reduction in customs duty rates on raw materials. There was also an expectation of a scheme for one-time settlement of disputes under customs.
In this article, we discuss the key Budget proposals from an indirect tax standpoint.
From customs perspective, the Budget proposals are broadly in line with industry expectations, as various measures were announced for providing thrust to domestic manufacturing by rationalisation of duty rates and exemptions in major sectors like iron and steel, textiles and chemicals. The vehicle scrapping policy is expected to boost the demand for new vehicles and help the auto sector which is one of the sectors that is severely impacted by the pandemic.
In order to encourage domestic production of solar inverters and lanterns, customs duty has been increased on import of such items. In the electronics and mobile phone industry as well, exemptions have been withdrawn and duty is imposed on certain parts of mobiles and chargers to boost domestic manufacturing.
Further, the government intends to review more than 400 old exemptions in order to relook at the customs duty structure in the coming months. Additionally, the Customs Act is being amended to prescribe that all conditional exemptions subject to exceptions, shall come to an end on March 31. This would ensure a continuous review of the need for continuation of such exemptions at periodic intervals.
On the GST front, various legislative changes have been proposed based on the recommendations of the GST Council. The key ones include removal of the mandatory requirement of getting accounts separately audited by a professional and filing the reconciliation statements, and instead filing of annual return on self-certification basis. Also, it has been proposed that interest for delayed payment of GST shall be calculated on net cash liability, effective July 1, 2017, a much awaited relief.
With an intention to improve compliances, the Budget also provides for certain amendments which inter alia includes – (i) availment of input tax credit only when the details have been furnished by the supplier in the statement of outward supplies, (ii) benefit of zero rate of supplies to SEZ supplies only for authorised operations, (iii) benefit of zero-rating on payment of IGST to be available in specified cases, and (iv) linking refund for export of goods to receipt of foreign remittances. There has been an increased focus on arresting tax leakages.
The indirect tax proposals are clearly intended to boost manufacturing and it demonstrates the government’s intentions to revive the economy. The recently announced production linked incentives schemes in 13 sectors coupled with the aggressive expenditure proposed in the Budget on infrastructure is expected to facilitate growth. Needless to say that effective implementation of the Budget proposals will be key in achieving the stated objectives.
Muralidharan is Sr Director, Deloitte India, Choudhary and Agrawal are Directors, DHS LLP. Views expressed are personal