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Union Budget 2021 became India’s first digital budget as finance minister Nirmala Sitharaman switched the old bahikhata for a ‘Made in India’ tablet. The minister proposed an array of measures to jump-start the covid-hit Indian economy.

This year’s budget proposals primarily rest on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and minimum government and maximum governance.

While acknowledging the hard work put in by her colleagues in the goods and services tax (GST) council, the minister highlighted numerous measures undertaken by the council for removing difficulties from the relatively nascent GST regime.

Union Budget 2021 showed a clear policy focus on ensuring ease of compliance for small taxpayers and technology-based initiatives for larger players to streamline compliance.

For this, the government is ensuring capacity augmentation of information technology infrastructure for undertaking electronic compliances such as pre-filled GST returns, e-invoicing by taxpayers (with turnover above `100 crore and expected inclusion of taxpayers with turnover above `5 crore from 1 April 2021.

The finance minister also gave a firm warning to all tax evaders, fake billers, and wrongdoers by informing the Parliament of deployment of artificial intelligence and Big Data analysis techniques by the tax department.

It was categorically mentioned that her ministry has made record collections by conducting numerous raids using these modern technologies.

With the GST Council, headed by the Union finance minister, being the sole authority to make changes in the GST law, the Finance Bill 2021 provided a flavour of changes which are likely to be implemented at a later stage.

The major amendment proposed under the Bill was removal of mandatory audit of annual accounts maintained under GST by a chartered accountant or a cost accountant. While this amendment reduces compliance cost and burden for businesses, it would put larger responsibility on taxpayers as they will be required to self-certify the same.

Provisions related to zero-rated supplies is sought to be amended by the Finance Bill 2021 so as to restrict the zero-rated supply on payment of GST only to a notified class of taxpayers or notified supply of goods and/or services. Further, it is proposed to link the foreign exchange remittance in case of export of goods with refund of GST. This would make non-receipt of export proceeds within the period specified under the Foreign Exchange Management Act, 1999, a non-compliance leading to repayment of refund amount so sanctioned, along with applicable interest.

Further, an additional condition is proposed to be introduced for availment of input tax credit (ITC) by a recipient of goods and/or services. Under the proposed provision, ITC on an invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note. This would make claiming the ITC much more stringent, in comparison to the current situation.

Other key GST changes proposed under the budget include:

— Interest on delayed payment of taxes to be paid on net basis (retrospectively from 1 July 2017)

— Zero-rated supplies made to Special Economic Zone (SEZ) restricted to supplies made for authorized operations

— Seizure and confiscation of goods in transit to be treated as separate proceeding from recovery of tax

— Mandatory pre-deposit of 25% of penalty amount for filing appeal against any order passed in seizure of goods in transit

— Minimum amount of penalty in case of detention/confiscation of goods or conveyance increased to 200% and 100%, respectively.

On the customs front, with an aim to promote domestic manufacturing and to provide a level playing field to Indian manufacturers, tax rates under customs law have been rationalized, providing a push to the ‘Make in India’ initiative of the government. Further, the government has announced that all conditional exemption notifications issued under the customs law shall now automatically expire on 31 March falling two years after the date of exemption unless otherwise stated or rescinded earlier, which clearly shows the intent of a minimal exemption-based customs tax regime.

As anticipated, continuing with the government’s focus on Make in India, customs duty has been increased on import of certain goods, such as electrical appliances and household items, to de-incentivize their imports. The government has also strengthened safeguard duty provisions to protect domestic industry from an injury against the possible surge in imports. Additionally, the provisions for checking dumping of goods and import of subsidized goods has also been strengthened for providing a level playing field for domestic manufacturing.

The minister also proposed to define timelines to complete any enquiry or investigation under the customs law, culminating into issuance of notice within two years or within extended period of another year, from the date of initiation of such audit, search, seizure or summons. This will ensure timely completion of investigations leading to further ‘Ease of Doing Business’ in India.

For financing and supporting agriculture infrastructure and other development expenditure by the government, a new cess called agriculture infrastructure and development cess (AIDC) is proposed to be levied as a duty of customs and central excise. The said cess would be leviable on certain items such as alcoholic beverages, crude palm oil and apples. Further, to ensure that imposition of cess on import of specified items does not lead to additional burden on the consumer, basic customs duty (BCD) and central excise duty (CED) on these items have been lowered/neutralized.

Apart from the above legislative amendments, the Union Budget 2021 was silent on some key expectations of India Inc. The Indian healthcare sector has been quite hopeful to get into the ITC-net with its supplies either getting zero-rated or taxable at a nominal rate of 5% but there was no mention on this front.

Further, while the government has sanctioned a massive amount of `35,000 crore with a promise of additional funds for covid vaccine if need be, no additional incentives and/or exemptions were announced for pharmaceutical companies involved in developing and manufacturing such vaccines.

Additionally, the severely affected Indian tourism and hospitality industry has been looking for some support from the government to get back on track. It was expected that the government, taking cues from countries like Malaysia and United Kingdom, would provide some relief to this industry by introducing measures like GST exemption on hotel accommodation for a limited period, or ‘Eat Out to Help Out’ scheme introduced by the UK. However, no such measure was announced in the Union Budget 2021 and the industry at large is now looking at GST Council to address some of these demands.

The Budget has tried to provide the necessary boost to pandemic-hit Indian economy with the government focusing more on capital expenditure and developing the country’s infrastructure, which in turn would lead to employment generation. Further, the focus has been to plug loopholes and ease the compliance burden. Overall, a bold reformist budget and an important milestone in India’s journey towards $5 trillion economy.

Karan Kakkar and Pragya Sharma contributed to this article

Vikas Vasal is national leader, tax, Grant Thornton Bharat LLP.

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