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Budget at a glance

Budget at a glance
February 25
14:46 2021

Nita Rajesh Dhruva
Chief Executive Keynote Consultancy

Highlights of the Budget (proposed) for the year 2021-22.

Prime Minister Shri Modi said: The budget has a feel of reality and the confidence of development. The impact of Covid-19 across the world has shaken the entire human race. Under these circumstances, the budget highlights India’s self-belief and at the same time it will infuse new confidence in the world.  It’s a pro-active budget that gives boost to wealth as well as wellness.

Shri Modi further said;-We have taken the approach of widening new opportunities for the  growth, creation of new opportunities for our youth, giving a new dimension to human resources, develop new sectors for infrastructure development and moving towards technology and bringing new reforms in this Budget.

Finance Minister Nirmala Sitharaman presented Union Budget for 2021-22 emphasizing six pillars on which the budget rests – Health &well being, Physical financial capital & infrastructure, Inclusive development of aspirational India, Reinvigorating human capital, Innovation , Research & development, Minimum Government & Maximum governance with full transparency & boldness in budget proposals focusing on growth. The proposed Budget of 2021-22 can be called a budget with Head & Heart in right place and is Healthy Wealthy and Wise with some unique features very well thought of after a lot of research work done and farsightedness of Modi Government.

The Finance Minister said that The Union Budget has marked a clear directional change for the Indian economy with infrastructure, health and agriculture identified as three big-ticket area for expenditure. Budget focused on multiplier effect by stress on facilitating private investments with thrust on transparency and stability. It is a budget which raises resources but not on the back of increased taxation.

NRI Corner

India has been one of the most attractive destinations for global investors in recent years. This trend continued even during pandemic as India received $28.1 billion by way of Foreign Direct Investments (FDI) in the second quarter of 2020-21, the highest among the major global economies.

In the current (proposed) Budget 2021-22, many benefits/reliefs are given to NRIs. There are few Amendments also proposed by Finance Minister.

  • Under current law, the worldwide income of an Indian Resident is taxable in India. In case of NRI, only the income earned in India is taxable. Under the changes made in the last budget,  an Indian citizen who is not liable to be taxed in any other country or territory shall be deemed to be Resident in India. To give more clarity to the same definition of “Liable to Tax ” it has been proposed as under :
  • The term ‘liable to tax’ in relation to a person means that there is a liability of tax on such person under the law for the time being in force of any country and shall include a case where subsequent to imposition of such tax liability, an exemption has been provided.
  • Indian passport holders who are residents in zero tax jurisdictions, such as UAE, Bahamas,Oman, Bahrain, Qatar, Kuwait, Saudi Arabia etc. will potentially be subject to tax in India on their global Income.
  • The budget proposal has allowed NRIs to create  one-person company(OPC) to propel entrepreneurship, by reducing  residency limit from 182 days to 120 days. With this move the Government  has opened extra channels of investments and positive  to reel in overseas Indian talent.
  • The Budget has also proposed foreign participation through infrastructure investment trusts by allowing debt financing by FPIs in Real Estate Investment Trusts (REITS) and Infrastructure Investment Trusts (InvITs) and exempting  taxes on dividends will lead to more investments. Also relaxing norms on TDS reduces the compliance burden in REIT and allows investors to have more cash flow and plan better for taxation.
  • Relief for NRIs facing Double Taxation issue on retirement accounts;
Currently the withdrawal from foreign retirement accounts may be taxed on receipt basis in those countries while on accrual basis in India. This is usually due to mismatch in taxation periods.  it is proposed to notify rules for removing hardship of double taxation .
  • The union Budget has rationalized the tax on dividends for Foreign Portfolio Investors (FPIs), bringing it at par with treaty rates, which could be lower than 20% tax rate applied presently.
  • Rationalizing  TDS on dividends for FPIs to treaty rates ranging from 5 to 15% depending on the country of  Resident of FPI from current year of 20% will provide a big cash flow relief for FPIs.
  • The Budget has also provided that advance tax liability on dividend income will arise only after the declaration or payments of dividend so that exact quantum of dividend income can be figured out.
  • The budget has proposed an increase in the FDI limit in insurance companies to 74% from present 49% providing a further boost to FDI inflow.

Stock Markets

India’s stock market has moved up three  spots to become the seventh largest in the world in terms of market value. India is the second best performer among the top 15 countries in 2021 and is inching towards the sixth position.

Foreign portfolio investors have pumped in nearly $4.05 billion in Indian equities  since January 1 2021. Weakness in the US dollar and also as per Analysts, India has been among the better performers because of faster recovery in domestic demand after the covid-19 led disruptions and the Government’s focus on reviving the economy. As per latest IMF projection India’s growth will rebound sharply to 11.5% in FY22.     

Foreign Portfolio Investors (FPIs) continue to bet big on India with their net investment in equities hitting $31.7 billion mark so for in 2020-21. After the presentation of budget in two days alone FPIs pumped in over $ 1 billion in equities.

Announcement of Budget proposals were very cheerfully responded by the stock market with Sensex jumping  5% and bank Nifty zoomed 8.3% .This  was the best budget day performance for the market since 1999.

The table below shows the rise of markets in last five years.

Date BSE Sensex Nifty
01-01-2017 26626 8180
01-01-2018 33813 10442
01-01-2019 36068 10793
01-01-2020 41254 12183
01-01-2021 47751 13982

The post budget effect is welcomed by stock market with a very positive node bringing the Sensex to 51,544 on 12 Feb, 2021 and Nifty to 15,163 points.

Foreign investors are steady buyers of Indian equities. The overall improvement in the Indian Economy has made NRIs realize the strength and budget proposals have reinforced their positive stand on India.

Additionally there is ample liquidity globally to find way in to emerging market like India. 

The market response to the Budget was positive partly due to no new taxes were imposed, some excellent policy measures, strong focus on infrastructure creation, new set up of vehicle scrapping policy , mega textile plants and additionally health care budget substantially expanded to bring growth of health care and pharma sectors.

The market has welcomed the shift to a growth focus with easy liquidity, rising investment and improving risk appetite.

To Summarize

Overall the Finance Minister has delivered a well-balanced budget, which to a large extent manages the expectations and aspirations of India. Most importantly it is a Budget that ensures that the momentum of economic recovery shall be sustained with least disruption.

This is an economy and market-friendly budget; it reflects a change in mindset and a bet on growth that we haven’t seen to this extent previously.

This budget marks an inflection point in India’s fiscal policy architecture that will be remembered for years to come. Despite the current odds, the budget creates the right policy environment for $5 Trillion GDP goal on the strong foundation of Aatmanirbhar Bharat. 

 

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