Legal Viewpoints on Union Budget 2021-22 by Prem Rajani, Managing Partner, Rajani Associates

Considering we are still battling the Coronavirus, it is no surprise that this year’s budget focused on improving healthcare and infrastructure. Health allocation jumped 137% for 2021-22 compared with an allocated budget in 2020-21. On the infrastructure side-National Asset Monetizing Pipeline launched to monitor asset monetization process, highway and road work announced in Kerala, Tamil Nadu, West Bengal and Assam, Vehicle Scrapping Policy to phase out old and unfit vehicles, 100% electrification of railways are some of the significant announcements made in the budget.

Besides these two areas, at a cursory glance, a few interesting announcements and initiatives will be the completion of the strategic disinvestment of BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, Pawan Hans among others, for which, in some cases, would also require legislative amendments. The leasing of aircraft seems to be a good move to boost the airline sector. Adoption of new technology will continue being a focus or perhaps only increase with the increase in digitalisation. While the Finance Minister did not tinker with the income tax slabs and no major announcements were made on the Direct Tax front, from a citizen point of view, senior citizens above the age of 75 will be much relieved with the doing away of income tax returns, subject to fulfilment of certain conditions.

Another interesting development is on the side of reopening of tax assessment, the time limit of which has been reduced to three years from earlier six years (except in case of serious tax evasion cases, wherein, the assessment can be reopened up to ten years).  Some relief for higher-income taxpayers as no Covid cess was announced for them as earlier debated in the section of the news.

Another much-awaited welcome step is that the Government has decided to set up an asset reconstruction company that will take over the bad loans of banks, giving them the flexibility to finance the economic recovery.

From a sectoral focus, the Government has touched upon several interesting initiatives towards:

1. Disinvestment: Apart from the disinvestment in identified companies, the privatisation of the two public sector banks and one general insurance company, the disinvestment of LIC through initial public offering (IPO) is definitely a big move. While it will help raise revenue for the Government, it is expected to improve efficiency and provide momentum to privatisation. It will be interesting to see which would be the next list of companies for strategic sale identified by Niti Aayog, as announced in the budget.

2. Banking and finance: Hon’ble FM’s announcement towards further infusion of Rs. 20,000 crore for public sector banks will certainly help boost the functioning of public sector banks. A welcome move is the introduction of bad banks which will aim to deal with non-performing assets of the financial sector. However, time will tell if the bad banks have effectively shifted the toxic assets of a bank to infuse fresh growth stimulus.

3. Capital Markets and AIFs: One of the big announcements towards boosting investor attention is the increase in FDI limit to 74% from 49% in the insurance industry. A welcome change, this will allow more participation of foreign JV partner/s along with Indian key management personnel. All in all, this move will help increase capital inflow in insurance companies and allow insurance companies to grow and expand. Additionally, there have been several measures to make it easy for foreign investors to invest in India's infrastructure projects such as the proposal to make dividend payments to REIT (estate investment trusts) and InvIT's (Infrastructure investment trusts) exempt from TDS. This too will instil more investor interest allowing further development and issues of newer REITs and InvITs.

4. Corporates, businesses and start-ups: The FM touched upon plans to unveil and consolidate provisions of the Sebi Act, Depositories Act, Securities Contracts Regulation Act, and the Government Securities Act. These, of course, will be much anticipated. Safeguarding the gig economy and platform workers have been in the works for a while and Budget 2021 has aimed to address this matter through social security measures. Start-ups and small businesses will certainly welcome the extension of 1 year exemption on capital gains on investments, the decriminalization of the LLP Act to improve ease of doing business and the removal of the threshold limits of paid-up share capital for a one-person company. With the support extended to individuals, we will certainly see a spike in NRIs setting up One Person Companies (OPCs). On a cautionary note, businesses will need to be more vigilant towards the deposit of employee's contribution to PF. Nevertheless, if the proposals are implemented in letter and spirit, this move will provide more confidence and clarity to investors and stakeholders.

5. Dispute resolution: The Government has proposed the setting up of conciliatory mechanism for quick resolution of contractual disputes, plans to strengthen the NCLT framework and setting up of the e-court system for faster resolution of bad debts. Towards this, there is much debate on how effective the faceless dispute resolution panel may actually be.

All in all, the Budget 2021 aims to support the economy, ease the way of doing businesses and instil confidence in SMEs. MSMEs need more support in order to sustain and thrive. Towards this, the implementation of the six pillars that the Budget proposal for 2020-2021 rests upon will be critical. Needless to say, a look at the fine print is important for more in-depth understanding.”