Union Budget 2021 Expectations: Discussing Businesses In The Manufacturing Sector, Individual Taxes, And Corporate Taxes

Key Highlights 

  • Businesses in the manufacturing sector could certainly do with a certain amount of tax relief, area-based exemptions, and other measures to boost the sector. 
  • Overall, it’s about understanding how economic recovery will be kickstarted by creating demand, which will come from more disposal income, which will in turn come via job creation. 
  • Taxes and changes in individual tax slabs as well as tax limits continue to remain a topic of interest, with the Budget expectations of salaried individuals banking on more lenient limits. 

With the impact of COVID-19 being the focus of the better part of 2020 and the start of 2021, some would say that economic recovery has now begun. However, for businesses across a multitude of sectors, there are still a few aspects which would perhaps require the Government’s attention in this year’s Budget and here are my expectations from the same: 

Orchestrating Economic Recovery And What We Expect From Union Budget 2021  

To make any form of business work, you need to boost demand. Once there is demand, it is only then that businesses/companies can actually look forward to restarting/resuming their operations by availing credit facilities in order to make sure the machinery is operational again. 

Now, the demand will only come once there is disposable income and disposable income will come when there are jobs. Therefore, it’s critical that job creation is another key area which needs to be focused on and such job creation can be enhanced with a boost to the manufacturing sector. 

Union Budget 2021 Expectations For The Manufacturing Sector 

The Government has been rolling out new provisions for the manufacturing sector, which was by way of rolling out a new tax rate of 15% for the manufacturing companies set up in India after October 1st, 2019, unlike 25-30% compared to the older rates. So, the intent of the Government is in the right direction but still, foreign companies which are setting up their manufacturing capacities India are facing problems on issues related to labor law, land acquisition, etc.  

For companies in the manufacturing sector, one of the important expenses is research and development. It is expected that the Government should encourage R&D and continue to provide enhanced benefits over the expenditure incurred by these manufacturing companies on R&D. Further, it is expected that the benefits extended to manufacturing companies located in remote areas and special economic zones should continue as well. 

The plan towards self-reliance had already been put into motion via the Aatmanirbhar Bharat Abhiyan last year but the real test is that how effectively do we follow the path created or the vision which was laid out by the Government. 

Taxation – The Old, The New, And The Expectations From Budget 2021 Due To COVID-Related Factors 

  • Individual Taxation 

In the last year’s budget, the Government introduced an optional scheme for taxation of salaried individuals who did not claim deductions and exemptions. However, that taxation regime did not provide benefit to employees living on rent and claiming house rent allowance earlier. I expect that leaving behind other allowances, the Government should provide house rent allowance and interest on housing loan benefit under the alternative taxation category for salaried individuals.  

With work from home being followed during the COVID period by most MNCs, the Government should look at giving some benefits in the form of increased standard deduction to the salaried employees. Alternatively, the government can allow some relief in the hands of employees towards expenses being incurred by them for building a work-like environment from home. There is noise of some kind of a COVID cess being introduced in the Union Budget 2021, but the expectation is not to cover salaried employees within its ambit.  

For NRIs/ Expats who were/are forced to work from India or stay in India due to COVID-enforced travel restrictions, it is expected that such forced stay in India should not be considered for determining their tax residency. The Government of India earlier issued a circular clarifying the residential status for the financial year (FY) 2019-20 which stated that if an individual who came to India on a visit before 22nd March 2020, then the duration of such extended stay in India due to the pandemic will not be included for determining tax residency. 

The said relaxation only extended up to 31st March 2020, because the circular related to the determination of tax residency for FY 2019-20. However, it is expected that a similar instruction or guidance will be brought for FY 2020-21 as well. 

Another expectation regarding expat employees from the Union Budget 2021 is to alleviate the challenges faced during the claiming of the refund of the PF contribution made by Indian companies for the said expat employees. 

  • Corporate Taxation 

When it comes to corporate tax, my expectation would discuss how the Government could help travel/tourism and hotel companies to kickstart their operations. During the COVID period, these companies had already burnt their working capital significantly, therefore it is expected that any incentive could bring some kind of a breather for them. 

Earlier, the Government gave an incentive in the form of tax relief (deduction from profit and gain of business) to hotels and convention centers, so on similar lines, it is expected that the Government could support these companies.  

To summarize, there are quite a lot of expectations from Union Budget 2021, but it has been a different – and rather difficult year for a lot of stakeholders within the economy. Therefore, here’s hoping the Union Budget 2021 brings in a ray of hope for the economy. 


Please note: Views presented in the article are of the author and not of the firm. 

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