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2021: EXPLANATION OF IMPORTANT KEY POINTS IN THE UNION BUDGET OF 2021

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Union Budget 2021

Firstly, I want to answer a few basic questions related to the Union budget 2021.

Q1. What is union Budget?

According to Article 112 of the Indian constitution, the union budget of a year, also referred to as the annual financial statement is the statement of the estimated receipts and expenditure of the government for that particular year.

In simple words, we can say that it is an annual statement that shows the estimated receipts and estimated expenditures of the government during a particular fiscal year.

Fiscal year: Starts from 1st April and end on 31st march.

Q2. Why making union budget is important?

Any government must ensure economic stability and growth. It also helps the government to find out the weak areas then proper strategies have been made to enhance or strengthen these areas by proper allocation of resources in a very useful and sustainable manner, Moreover helps to reduce employment and poverty levels in the country.

Q3. Who presents the union budget and where?

The Finance Minister of India presents the union budget in Parliament.

Q4. Which mode is used to draft a union budget printed or digital mode?

In India all the union budget Documents are printed on white paper with blank ink called”Swadeshi Bahi Khata ” therefore it is visible to all. And We are following this concept since Independence however in 2021 the first time the “Swadeshi bahi khata” is replaced with Tablet, and presented in paperless form for the very first time.

Q5. Why the” swadeshi bahi khata” was replaced with a tablet?

I don’t have any specific or correct answer to this question however I will explain according to my point of view.

As we all know this year is very challenging for all due to the reason for the Covid19 pandemic. Therefore to maintain social distancing the budget was frame digitally on Ipads.

Union budget includes capital budget and revenue budget:-

1.REVENUE BUDGET
REVENUE RECEIPTSIt includes all the income receipts from tax and Non-tax.
Neither it creates the assets nor reduces the liability of the Government both remain the same.
Example of tax receipts: Dividend and profit received, rent received, interest received, fees, fines, and penalties, etc.
Example of Tax Receipts: Income tax, Wealth tax, Goods and service tax (GST), Gift tax, Union Excise and customs and service tax, etc.



REVENUE EXPENDITUREIt includes all the expenditures that are accrued to regulate the day to day activities of government and the services offered to citizens
Neither it creates the assets nor reduces the liability of the Government both remain the same.
For example, Salaries are paid to government employees, Interest payments on loans taken by the government, pension payment, education, and health services expenses, etc.
2.Capital Budget
Capital receiptsCapital receipts are non-recurring cash flows it will include both non-debt and dept receipts
It increases the liability or decreases the assets of the government
For example – Loan from the public, RBI, foreign governments.
Capital Expenditure It is that part of the government expenditures that goes into the creation of assets like Schools, hospitals, roads, bridges, dams, airports, etc.
It creates assets or reduces the liability.
For example- Repayment of loan, investment in shares, expenditures incurred on construction of dams, roads.


financial year: Starts from 1st april and ends on 31st march.

I will try my best to make it more simple and easy to understand

1. Firstly Let’s see what are changes have been made in taxation policies and what are areas remain the same.

1. Major relief has been given to senior citizens who fulfilled the three conditions given below –

  • The senior citizen is a resident of India and Age above 75 years
  • The main source of income is pension and interest
  • The interest income they are earning must be from the same bank from where they are receiving their pension income.

All the senior citizens who fulfilled the above conditions will be exempted from filing the Income-tax returns.

The paying bank will automatically deduct the required tax on their income.

One thing which is very important to note that the senior citizens who are above the age of 75 years are not exempted from paying tax however only from the filing income tax returns.

The senior citizens who have multiple pension accounts in different banks and earning interest also would qualify for the exemption from filing the income tax returns.

However, if any senior citizen is fulfilling all the conditions but having interest income from the bank where is not having any pension income or account then he will not be exempted from filing the tax return.

It’s a very small amendment and will benefit a small group of people only.

2. No change in tax slab

INCOME TAX SLAB RATE-OPTION 1

FOR INDIVIDUALS (UPTO 60 YEARS OF AGE ) AND HUF

INCOME UPTOTAX%
UPTO 250000NIL
250001 TO 5000005%
500001 TO 100000020%
1000000 ABOVE30%

NOTE: REBATE UNDER SECTION U/S 87A ON TAXABLE INCOME UPTO RS.5OOOOO REBATE ON TAX RS.12500/- (MAXIMUM)

INCOME TAX SLAB RATE-OPTION 2

FOR INDIVIDUALS (UPTO 60 YEARS OF AGE ) AND HUF

INCOME UPTOTAX%
UPTO 250000NIL
250001 TO 5000005%
500001 TO 75000010%
750001 TO 100000015%
1000001 TO 125000020%
1250001 TO 150000025%
ABOVE 150000030%

NO CHANGE IN SLAB RATE FROM PREVIOUS BUDGET

All will be remaining same for the financial year 2021 to 2022

3. Change in ITR Forms

Firstly, I want to make you understand what is ITR form.

ITR is a form in which the taxpayers file their his income they earned and tax applicable to the income tax department. There are 7 types of ITR forms notified by the tax department.

Prefilled income tax returns(ITRs)forms will be made available to the taxpayers which will contain all the details of salary income, capital gains, bank interest, dividend income, interest from the post office.

Earlier only salary and tax deducted at source (TDS) were auto-filled in the forms.

This is a very good initiative that has been taken by the finance minister and it will save the time and energy of taxpayers because all the information will be auto-filled and there will be no need to calculate capital gains anymore. Overall it makes the process more efficient and effective.

It will also help the government to collect more taxes because earlier some people ignore filing their small incomes, which leads to tax evasion however this will not be possible anymore.

Lets move further.

4. TAX ON ULIP GAINS

First understand what is ulip?

ULIP full form is UNIT LINKED INSURANCE PLAN is a most advisable plan for investment to get the tax benefit. It is a product offered by an insurance company that unlike a pure insurance policy and it gives investors both investment and insurance opportunities under a single integrated plan.

ULIP= life insurance + investment (Equity + debt)

look at the change announced during budget presentation

  • No more tax exemption will be given to ulips with annual premium income above Rs2.5 lakh. There is no tax exemption for maturity proceeds of unit-linked insurance policy (ULIPS) with an annual premium above Rs2.5 lakh according to the budget provisions. Earlier it was tax-free under section 10(10d) of the income tax act, which will now be taxable.
  • If your investment exceeds one year then it will come under Long term capital gain and it will be taxable @10% if your returns exceed 1lakh per annum.
  • If your investment period is less than one year then it comes under short-term capital gain and the rate of tax applicable will be @15% if your returns exceed 1lakh per annum.

Moreover, This change will not apply to existing ULIPS holders, but applicable only to the new policies bought after the budget was announced.

5 TAX ON PROVIDEND FUND INTEREST

The interest earned by the provident fund will now be added to the taxable income if the interest amount exceeds INR 2.5 lakh a year. this change will only apply to the employee’s contribution and not that of the employer Earlier it was tax-free.

6. Tax incentives to start-ups

Some changes have been made now the tax holiday for start-ups has been extended by one more year up to 31st March 2022. The reason is to boost the startups in India because due to lockdown they had suffered a lot from the financial crisis.

The finance minister also said during the budget presentation that the government will impose agricultural and infrastructure, development cess on several goods including alcoholic beverages, gold, silver, cotton peas, Apple.

7. The list of few items on which customs duty is revised is as follows

  • Copper scrap- The duty is reduced from 5% to 2.5%
  • Solar inverters- The duty is increased from 5% to 20%
  • Solar lanterns – The duty is increased from 5% to 15%
  • Gold and silver – The duty is reduced from 12.5% to 7.5%
  • The department will rationalize custom duty on important areas textile, chemicals, and several other products.

8. Higher TDS and TCS on non-filers of income tax return

  • The Finance minister said during the budget presentation that the higher rate for TDS will apply to those people having Interest income, dividend income, annuity income, income from capital gains.
  • This higher tax will apply to a specific category of non-filers of ITR.
  • The rate will be twice the normal rate.

NOTE: TDS- TAX DEDUCTED AT SOURCE

2. HEALTHCARE AND WELLNESS SECTOR CHANGES

It is a very crucial sector for our economy as well as for our country nowadays.

  • Finance Minister has allocated INR 283000 crores to the healthcare and wellness sector. And this has been increased by up to 137% from last year.
  • To boost and encourage the primary healthcare system, a total of 30000 healthcare Centers will be set up in urban and rural areas. And 11000 laboratories for health and wellness sectors will be set up in the upcoming years.
  • Out of 283000, the finance minister has allocated 35000 crores towards the country ovid19 vaccine by committing to providing additional funds if required for the covid19 vaccine.
  • Finance Minister announced a new scheme called Pradhan Mantri Atmanirbhar swath Bharat Yojana and it will be running side by side with National health Mission and finance minister allocated INR 64,180 crores to the new scheme. Moreover, the government will set up around 15 health Emergency Center.
  • The vision of this scheme to improve the healthcare sector and to provides various health facilities across India, to strengthen national disease control.
  • She has allocated INR 2663 crores to the Department of Health and research for the fiscal year 2021-22. Exact 34.4 percent lower than INR 4062 the revised estimated health care outlay for 2021-22
  • The budget for the National Health Mission which is playing a very crucial role has been increased by 9.5% over the previous year from Rs. 33,400 crores to Rs. 36,575.5 crores in FY 2021-22.
  • However, in the union budget 2021, the National Urban health mission is to receive only 50 crores more than the previous year’s budget from INR 950 crores to INR 1000 crores.

A new policy called vehicle scrappage policy has been launched and It will come into effect from 1st April 2021

This new policy allows all the owners to scrap their 20- years old and unfit vehicles and they can benefit from new incentives on the purchase of new personal vehicles. After completing 20 years vehicles will go undergo a fitness test, conducted by Automated fitness centers, and then the center will declare whether the vehicle is fit for roads or not.

This policy will also apply to vehicles owned by the government department and Public Sector undertaking which are 15 years in age. And all the commercial vehicles that become 15 years old are eligible for fitness tests, conducted by Automated fitness centers, and then the center will declare whether the vehicle is fit for roads or not.

Benefits of this scrappage policy.

  • Firstly, it will boost the Indian economy and GDP because the demands for new vehicles will rise and it will lead to more production of vehicles.
  • Secondly, it will generate more employment opportunities for the people of India because the manufacturing of vehicles will be increased and automatically leads to more job opportunities.
  • It will give a good impact on the environment, the climate will be improved and becomes safer clean, and healthy for the people. As we know the older vehicles generate huge pollution, however, with the help of new policy all the old and unfit vehicles will be removed from the market.
  • The import of fuel and diesel will be reduced. Because the companies will be a focus on the latest technology means electronic vehicles.
  • It will give a boon to the Automobile industry because the demand for the production of new vehicles to be more in the future and it leads to better economies of scale and companies can earn huge profits so they will invest more in research and development.

3. Infrastructure key points

A very important sector that helps the economy to boost and finance minister always plan various proposals in the budget

  • The Finance minister said a bill will be going to introduce in upcoming years to set up DEVELOPMENT FINANCIAL INSTITUTION (FDI), this is already tried earlier but the previous results were not that good as might it hoped by the government. However with the hope of improvement finance minister again consider it, the main vision behind this bill is to enhance economic growth which would lead to capital flows and energies the capital market, and to provide long term credit enhancement for infrastructure and housing project, this will provide funds to 30 to 50 thousand crores low-capital projects which are badly struggling for arranging finance, therefore, it will be a boon to them an overall improves the economy. finance minister allocated INR 20000 crores for this bill and will aim to have a loan book of 5 lakh crore only in the upcoming 3 years.
  • finance minister aims to spend INR 1.97 lakh crore towards several PLI scheme and it will cover 13 sectors over the next 5 years, starting from this fiscal year, the main vision behind this scheme is to encourage local companies to expand their manufacturing units. And also invites foreign companies to set up their manufacturing units in India, therefore it will lead to huge production with achieving economies of scale and consequently, exports will increase and also makes India a global hub for manufacturing moreover it will also reduce dependence on other countries.
  • Profit linked scheme – It is a scheme that provides incentives on incremental sales from products manufactured in domestic units.
  • 7 textile will be set up under the scheme of Mega investment Textile parks over 3 years. The main aim behind this to boost the flagging competitiveness of Indian export vs Bangladesh and Vietnam. The parks will be set up over 1000 acres of land with glorious infrastructure. This scheme will lead to huge manufacturing and enhance exports to other countries and will make India a global export champion in the future.
  • The national infrastructure pipeline has been expanded to 744, projects. further, projects worth INR 1.1 lakh crore had been completed under the national infrastructure pipeline.
  • More than 13000 km of roads awarded under the Bharat Mala project for INR 3.3 lakh crore have already been awarded under this project out of which 3800 km have been conducted so far. This scheme aims to provide good quality roads, development of economic corridors, inter corridors and feeder roads national corridors efficient, Border and international connectivity roads, etc.
  • The government will implement the Jal Jeevan mission(URBAN) to bring safe water to 2.86 crore households through tap connection and the finance minister announced an outlay of INR 50,011 crores for this scheme.

4. Fiscal deficit

On a macro level country, the fiscal deficit is estimated as 9.5% of gross domestic product(GDP) for the fiscal year April 2020 to March 2021, this is very obvious during this year as we all know plenty of money has been invested in the covid19 vaccine research and development and providing food safety to the people and a lot of money, invested towards the health sector.

For FY22, the finance minister estimated the fiscal deficit of 6.8% of GDP with the setting projection of steadily reducing it to below 4.5% by FY2025- 26.

To bridge the massive gap of the fiscal deficit between revenue and expenditure the finance minister decided certain strategies.

  • The target for Disinvestment is 1.75 lakh crore for the FY22
  • Borrowing of 1200000 crores quite similar to the previous year
  • Divestment of 2 public sector banks and 1 General insurance company and IPO of LIC
  • Sale of Air India and Bharat petroleum corporation Ltd (BPCL), IDBI Bank, Shipping Corp, Container Corporation, Neelachal Ispat Nigam Ltd, Pawan Hans, Air India
  • The government will create new companies for disinvestment.
  • The life insurance corporation will be going for an Initial public offering in 2021-22
  • Sale of Non-core assets like surplus land available to the government.
  • These are some initiatives that will be taken into consideration for managing the fiscal deficit.

I explained all the important points please provide your valuable feedback at the end.

Thank you and God bless everyone.

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