This article is written by Gurpreet Singh, from the Faculty of Law, Delhi University. The article takes you through the budget 2020-2021, and the amendments proposed in the Companies Act, via Budget.
Table of Contents
Introduction
There are three things we Indians hype up to: Cricket, Bollywood, and the budget! Welcome aboard: this article will deal with the third element, i.e., the budget and the changes it has proposed concerning the company law.
The Budget in a nutshell
A snapshot
- Expenditure – The government intends to spend Rs 34,83,236 crore in total for the year 2021-22.
- Income – The estimated income of the government for the year 2021-22 is Rs 19,76,424 excluding the amount that the government intends to borrow.
- Gross Domestic Product Estimates – The Nominal Gdp is expected to grow up by 14.4 %. Nominal Gdp refers to the Real Gdp + Inflation taken into account.
- Ministerial Allocation – The largest chunk of the Budget has been allocated to the Ministry of Jal Shakti depicting the need for improving water supply throughout the Country. The Ministry has witnessed over a 64% increase in the allocation in comparison with the previous year.
Taxing proposals in general
- Personal and Corporate Tax – There is no change introduced for the income tax for corporations and the Individuals.
- Provident Fund – The leeway has been reduced for individuals contributing to employees provident fund. Limit of 2.5 lakh has been fixed on tax-free interest ie tax will be charged on the interest received from the provident fund.
- Cess – Cess of Rs 2.5 liter on petrol and Rs 4 on diesel has been levied with a reduction in excise duty.
- Custom Duties – Products such as cotton silk and will get expensive due to an increase in the custom duties.
- Exemptions from tax auditing – To encourage digital business models, the Government has relaxed the audit requirements for businesses that conduct 95% of their transactions online and have a turnover of fewer than 5 crores.
Direct tax exemptions and proposals
- Senior Citizen Relaxation – Any citizen who is above the age of 75 years would not have to file their income tax returns if their only source of income is interest or /and pension. Relaxation is being given only on the filing of income tax, their income would be received by them after the tax has levied the applicable tax.
- Speedy Recovery – Income tax disputes will be reopened only up to 3 years as it was 6 years previously.
- Digital Income Tax Appellate Tribunal Centre – To make the system more efficient and effective, a provision for faceless settlement of disputes in the Income-tax Appellate Tribunal has been made. The Government hopes this will bring down the cost of compliance for businesses and it will increase trust for due process
- Promoting Start-Ups – The government has gleefully extended the tax holiday for startups up to 31st March 2022.
- Solving The N.R.I Conundrum – The Government has proposed to settle the mess of double taxation for the Non-Resident Indians.
- Provident fund – If the tax on employees contribution towards the provident fund has been deducted, but the employer fails to fulfill its duty and don’t deposit, The Government will not grant it as a deduction for the employer.
- Housing Deduction – The deductions available on affordable housing has been extended up to 31st March 2022.
Indirect tax proposals
- Custom Duties revised on the following items:
- Custom duty on copper scrap was levied at 5 percent, now it has been brought down to 2.5 percent.
- Solar inverters just got more expensive with a steep increase of 15 percent on custom duties from 5 percent to 20 percent.
- Custom duty on solar lanterns increased from 5 to 15 percent.
- Customs duty on gold and silver reduced.
- Revised duty on textiles, chemicals, and other products.
Key sector takeaways
- Finance – The Government intends to set up an asset reconstruction and asset management company to deal with the existing debt stressed debt in the system. The Government also pushed for establishing a framework to instill confidence in the investors of corporate markets.
- Corporate Mechanisms – Focus was laid on alternate methods to resolve disputes in a time-bound manner to gain ease on doing business. A conciliation framework in works was proposed to settle contract matters.
- Industry – Infrastructure push to increase the export capability of the country, 7 textiles parks proposed for the same.
- Labor – Social security schemes horizons expanded to cover gig workers as well, with special emphasis on migrant labourers. Amendment in the apprenticeship act proposed to extend benefits.
- Health – With COVID-19 exposing deep fissures in the society regarding access to quality health care, PM Atma Nirbhar Swasth Bharat Yojana to be introduced to strengthen the already existing systems and develop institutes to detect and cure new diseases.
- Education- A Higher education commission is being proposed to be set up-regulating the higher education in the country, A proposal to strengthen already existing schools to implement a new education policy.
- Real Estate – A Development Financial Institution is being proposed to be built to finance infrastructure-related products in the country.
- Transport – Development of roads has been announced in the poll-bound states of Tamil Nadu, Kerala, West Bengal, and Assam A scrapping policy for vehicles that are on roads for twenty years has been announced making a move towards a cleaner environment.
- Energy Sector – Reforms are being pushed to provide electricity to every household in the country and a special focus is on infrastructure development to push reforms. A further proposal is to extend the Ujjwala scheme to reach over one crore additional beneficiaries.
- Science – A deep ocean mission will be launched to research different aspects of biodiversity.
- Digital Payments – Incentives to encourage digital payments. Will be provided to further the objectives of Digital India.
- Water and Sanitation – Jal Jeevan Mission(Urban) to strengthened to fulfill the mission of providing tap water to every household in Urban India.
- Agriculture and other Sectors – Strengthening of the APMC’S proposed by utilizing the agriculture infrastructure fund.
- Social Welfare – To further the cause of education in backward communities, 750 Eklavya schools to be established in tribal areas.
After having a sneak peek at the budget, let’s move on to the amendments proposed in the Companies Act by the budget.
Definition of a small company
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Before Amendments |
After Proposed Amendments |
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One Person Company
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Before Amendments |
After Proposed Amendments |
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Other significant changes
- Relaxations for Start Up’s – An amendment to the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016. has been made to allow 2 or more startup companies or a startup company and a small company to enter into voluntary mergers or amalgamations.
- The Amalgamation of Securities Acts into a single code – “To ease the compliance structure, The Government has proposed to amalgamate 4 securities Act including SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007 into a single code”.
- Decriminalizing the Limited Liability (LLP) Act, 2008 – The Government has proposed to decriminalize the technical and procedural compoundable offenses m listed under the LLP Act, 2008 in lines with the decriminalization process undertaken under the Companies Act.
- National Company Law Tribunal (NCLT) framework – “The Government aims at stretching the already existing debt recovery mechanisms by focussing on online settlements and alternative methods of dispute resolution. The government has also proposed to pay heed to the special demands of MSMEs”.
- MCA21 portal Upgradation – “MCA is a portal managed by the Ministry of Corporate Affairs that provides various services to limited liability partnerships and companies. The Government has proposed to upgrade the portal by employing data analysis, machine learning to ease the process of e-compliance and adjudication”.
Proposed Changes in the Finance Bill, 2021
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- Amendments to the Indian Stamp Act, 1881 – A new section 8G is being added to the Indian Stamp duty Act, 1881 to exempt the government companies from paying stamp duty on the instruments for the transfer of a business or any asset or any right in the immovable property from one government company to another or the central or state government by disinvestment. The proposed changes are in line with the governmental policy of disinvestment enunciated in the Budget.
- Changes in the Contingency Fund of India – As the name suggests the contingency fund was enunciated in the Constitution to deal with any emergencies. With “Covid-19” straining the budgets of many economies, Govt has proposed to increase the contribution from 500 crores to 30,000 crores in the contingency fund
- Changes in The Sebi Act, 1992 – The Finance Bill, 2021 intends to make it compulsory for a person to obtain a certificate who intends to act as a sponsor or causes to manage an alternative investment fund or business fund as defined under clause 13A of Section 2 of the Income Tax Act, 1961.
- Amendments to Life Insurance Company Act, 1956 – Amendments are proposed to be carried out in the LIC Act, 1956 to ease the process of disinvestment proposed in the budget.
Conclusion
First addressing the concerns about the budget. The “Covid-19″ pandemic hit the poor at a level that my words cannot do justice to their experiences. Many were forced to crawl their way back 1000-1500 km on foot with no transportation being made available to them Many died on trains due to extended travel periods, some were trampled while they were sleeping on the railway tracks. The Budget was a golden opportunity for the government to allay the concerns and fears of the people.
With 19 million job losses, savings taking a hit, and breathing in an atmosphere of death and despair, people were hoping for welfare spending by the government but that was too much to expect from “Aatmnirbhar Bharat” .. Himansh an associate professor of economics at Jawaharlal Nehru University further supports my line argument in better words due to his expertise: “Cutting back on welfare spending at a time when labor markets are in distress and the poor are still dealing with the loss of incomes and livelihoods, and more importantly a wage squeeze due to the pandemic, will only worsen the demand problem in the economy”.He further added: “There is enough evidence to show that the sequential recovery in the economy was driven by profits, even as employment and wages took a hit. A reduction in welfare spending will increase the burden on the poor and erode their bargaining power in the economy, which will generate headwinds for rural demand going forward”.
Secondly, addressing the changes made in the Companies Act, prima facie the changes proposed in the act were much required to create a congenial environment for businesses to operate, relaxing the cumbersome procedures in the administration pushes the industry towards a new level of optimism, but certain lawyers and leaders in the industry believe that the one person company and startup reforms pushed by the government wouldn’t decrease compliance costs on the ground and startups would prefer to incorporate their companies abroad and then carry on business from there. Let us hope it turns out to be false.
References
- https://taxguru.in/company-law/amendment-companies-act-2013-persuant-budget-2021.html
- https://www.caclubindia.com/articles/key-changes-companies-act-2013-43892.asp
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