Treasury Secretary Nirmala Sitharaman had set expectations when she pledged a “never before” budget (and a paperless budget) to resolve its biggest concern, a likely 7.7 percent decline in GDP [as per advance estimates on the Indian economy by the National Statistical Office (NSO)] as the uncertainties about a sustainable recovery in demand continue to weigh on economic activity.
The key would likely be to prioritize spending and take appropriate action to fill the gaps created by the pandemic. Given the wealth of many multinational corporations hit by the pandemic, India Inc’s expectation of government support through corporate tax reforms is largely expected.
The government has taken several steps to support and revitalize the economy, such as introducing labor reforms, production-related incentives and aid packages, particularly for MSMEs. In line with previous aid packages, much is expected of the Union’s 2021 budget on February 1st.
IMPORTANT EXPECTATIONS OF THE CORPORATE TAX PAYERS:
– Currently, startups that were founded on or before April 1, 2021 have three years of tax leave. It is expected that this will be extended for at least a few years for startups founded after April 1, 2021.
– TDS / TCS regulations are expected to streamline certain regulations and impose a reduced rate of 1% or 2% in all cases. This allows the government to gather the information it needs while reducing interpretive litigation. It will also help address cash flow issues for businesses that have been exacerbated by the pandemic.
– Corporate tax rates were lowered last year to make them globally competitive. The reduced rates were 15 percent for new manufacturing companies and 22 percent for others who waive certain exemptions / deductions. Companies expect the status quo.
– To encourage travel and tourism in India and to incentivize businesses that manufacture in India, taxpayers may be granted a one-time tax deduction for expenses related to travel and stay in India, the purchase of electronics, white goods and vehicles made in India . This move would help revitalize these troubled sectors.
– Under Company Law, certain companies must spend 2% of their average profit on Corporate Social Responsibility (CSR). A tax deduction for these expenses is not possible because they are related to social and charitable purposes and are not incurred for business purposes. Recently, the Department of Corporate Affairs allowed funds spent on awareness programs and outreach related to the Covid-19 vaccination drive to be classified as a CSR activity. It is desirable that these provisions denying tax deduction for CSR expenses be revised and allow a deduction.
– The pandemic has changed the way companies work. Working from anywhere has become the new normal. Companies have also recognized that this is an inexpensive way to operate in the future. In view of these economic and social advantages, it is expected that permanent relaxation will be guaranteed and that SEZ will be given the freedom to determine where their employees will work in the future.