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<ul><li>Numerous industry specific benefits and tax holidays are awaited in the upcoming budget announcements.</li><li>The need of the hour is to increase the liquidity in the market.</li><li>These minor changes in the form of deductions and exemptions will positively impact the consumer behavior in the market for the upcoming financial year.</li></ul>Every year anticipations circle around the budget and the consequent announcements. however, given the unprecedented pandemic, major announcements and relaxations in form of some respite are expected from Budget 2021. The repeated lockdowns have caused disruption in day-to-day business activities and have postponed new ventures that were to be undertaken in the current financial year. In the light of such impediments posed by Covid-19, numerous industry specific benefits and tax holidays are awaited in the upcoming budget announcements. The need of the hour is to increase the liquidity in the market. To effect the same, individual taxpayers will have to be bestowed with certain tax deductions relaxing their tax liability. For the salaried employee, an alteration in basic tax exemption limit from Rs. 2.5 lakhs to Rs. 5 lakhs will significantly affect the liquidity in the hands of the taxpayers, thereby, resulting in increase of consumption. The norm of social distancing adopted to avoid the spread of Covid-19 certainly brought convenience from being able to work from home, however, shifted the liability of office infrastructural expenses from organization’s hands to that of employees. An amendment to claim such one-time expense should be allowed as ‘work from home’ expenditure in calculating salary income for FY 2020-21. An increase in threshold amount to claim deduction towards payment of life insurance and health insurance premium will incentivize taxpayers to procure a higher medical insurance cover in turn benefitting them in this precarious pandemic. Certain changes with respect to ceiling for claiming interest on house loan as deduction is also expected from the Budget. To boost consumer demand, in line with an announcement made in earlier press release, it is expected there will be a leave travel concession voucher. Such voucher may be allowed to be utilized for goods and services bought from registered GST vendors, since spending money on travelling is unlikely because of the pandemic. These minor changes in the form of deductions and exemptions will positively impact the consumer behavior in the market for upcoming financial year. Last year, the Government lowered tax rate for domestic companies involved in manufacturing activity on a condition that the manufacturing unit must be set up after 1 October 2019 and should commence production before 31 March 2023. Due to the consecutive nation-wide lockdowns imposed by the Central Government, projects came to a standstill for a few months. It is desirable from the Budget that these deadlines should be extended by 1-2 years to provide reasonable time to the manufacturing companies to set-up and commence operations. Similarly, a tax holiday of three years was provided to start-ups incorporated between 1 April 2016 to 1 April 2021. It is expected from the Budget that the deadline be extended by 1-2 years so as to encourage the start-up industry. A surge in unemployment rate has been seen during the pandemic period which requires immediate attention and a plausible solution in Budget 2021. To promote employment generation activities, the Government in 2016 had introduced a provision to claim deduction upto 90% on additional employee cost over a period of three years for recruiting employees earning not more than Rs.25,000. This threshold of remuneration disbursed to employees should be increased to Rs. 50,000. This may advance the objective of employment generation on a larger scale covering a larger group of people eligible to be employed, acting as a boon in these tough times. In the post Covid-19 era, businesses are expected to undergo corporate restructuring and reorganizing. A number of mergers, amalgamations and acquisitions may be expected in the coming financial year. In such a scenario, the provision of carry forward of losses of the amalgamating company being utilized by the amalgamated company should be available not only to industrial undertakings, but also to other sectors like real estate, e-commerce, retail, IT, start-ups, etc. Similarly, a clarificatory amendment extending benefit of carry forward of MAT credit to the amalgamated or resulting company through Budget 2021 will be a respite for the economy. Considering the devastating effects of Covid-19 on the economy, certain countries have formulated a scheme of carry backward of losses for the FY 2020-21. In such a situation, the losses for the current financial year which cannot be claimed towards a positive income for the said year will be allowed to be carried backward to the preceding year(s) and will be set off against the positive income of those years. Subsequently, a refund can be claimed by setting the carried back loss. The idea behind such a scheme is to help the businesses invigorate. If such a radical change is introduced by the Budget, it will surely be a major booster shot from the Government to revitalize the economy. Amidst all the benefits expected from the Budget 2021, there are talks of Government introducing a ‘Covid-19 cess’ to collect revenue for fighting against Covid-19 and deploying funds so collected in its vaccination drive to prevent the spread of the pandemic. Although the Covid-19 cess is said to be applicable only on high-income earners, imposition of a new cess in the middle of economic crisis may dampen the spirits further. Only time will tell how many of the above wishes come true. One can always live with eternal hope!

A lawyer’s wishlist from Budget 2021 includes these income tax rebates, deductions and holidays

With an intent to revive the economy from the looming market slowdown by attracting investments and to simplify the taxation structure, the Government of India had reduced the corporate tax rates for companies by inserting Section 115BAA and 115BAB in the Income Tax Act, 1961 (the ‘Act’) vide The Taxation Laws (Amendment) Act, 2019. The table below provides a glimpse of the reduced corporate tax rates: <div type="image" title="Tables1" msid="75444471" hostid="261"></div> <div type="Article" hostid="261" msid="75320656" title="Coronavirus crisis will affect India’s solar industry to the tune of ₹16,000 crore" mstype="2" mssubtype="0"></div> While the reduced rate of tax under Section 115BAA is available to all domestic companies, the benefit under Section 115BAB is available only to those domestic companies that are set up and registered on or after October 01, 2019 and are not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to or distribution of, such article or thing manufactured or produced by it. Thus, a company’s eligibility under Section 115BAB of the Act hinges interalia on the determination whether the business of a company amounts to manufacture or not. Section 115BAB does not provide a specific definition of the term ‘manufacture’ or ‘production’ but provides a list of activities that would not be considered as ‘manufacture of goods or production of article’, viz software development, printing of books, etc. Therefore, in the absence of a specific definition for the purpose of Section 115BAB, the meaning of the term ‘manufacture’ would be in terms of Section 2(29BA) of the Act wherein it is defined to mean a change in a non-living physical object or article or thing: <ol><li>resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or</li><li>bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure.</li></ol>In this background, an interesting question that arose was whether the activity of generation and distribution of power would be covered within the phrase ‘business of manufacture or production of any article or thing’ for the purpose of Section 115BAB. The courts have in countless occasions considered electricity to be in the nature of goods and generation of power to be in the nature of manufacture. The Delhi High Court in the case of Principal Commissioner of Income Tax, New Delhi Vs. NTPC Sail Power Co. (P.) Ltd held that electricity is capable of abstraction, transmission, transfer, delivery, possession, consumption, and use like any other movable property and hence, is in the nature of goods, by placing reliance on the decision of the Honourable Supreme Court in the case of State of AP &amp; Others Vs National Thermal Power Corporation Ltd &amp; Others. Accordingly, the benefit of additional depreciation under Section 32(1)(iia) was allowed even though the provision (prior to 2013) only allowed such deduction to an assessee engaged in manufacture and production of article or thing. Accordingly, the legislature chose to treat ‘generation of power’ as an activity distinct from ‘manufacture or processing of goods’ or ‘manufacture or production of article or thing’ in the following provisions of the Act: <div type="image" title="Tables2" msid="75444478" hostid="261"></div> When compared with the above provisions, a doubt could have arisen as to whether generation of power would qualify for the benefit of concessional tax rate under Section 115BAB. Availment of lower tax rate under Section 115BAB is subject to adherence to or compliance with all the provisions or conditions as provided therein. In other words, failure to satisfy any of the conditions as prescribed under Section 115BAB would result in invalidation of the option exercised under Section 115BAB, not only for the relevant assessment year but for every assessment year thereafter. In other words, the assessee would be then assessed under the normal provisions of the Act. Thus, a power generation company would have faced the risk of long drawn litigation if it had availed benefit under the existing Section 115BAB. With a view to provide clarity and certaintyand to eliminate any such risk, various representations were madeby thestakeholders requesting extension of the benefit of concessional rate under Section 115BAB of the Act to the business of generation of electricity as well by express provision. Acceding to such requests, an explanation is proposed to be inserted to Section 115BAB vide the Finance Bill, 2020 which provides that the ‘business of manufacture or production of any article or thing’ shall include the business of generation of electricity.It is noteworthy thatunlike the above listed provisions under the Act, generation or distribution of electricity has not been added as a separate category foran assessee to be eligible for reduced rate of tax under Section 115BAB. It has been clarified by way of an explanation that for the purposes of this section alone,business of generation of electricity would be included within the ambit of business of manufacture or production. The scope of the term “manufacture” and “production” has been a subject matter of litigation for decades now, not only under Income Tax law but also under Central Excise. There are many activities in respect of which conflicting rulings have been rendered by the higher judiciary. Explanation to Section 115BAB(2)(b)provides a list of few such activities that are excluded from the scope of business of manufacture or production of any article or thing, such as bottling of gas into cylinder, conversion of marble blocks into slabs. While the tax practitioners may continue to debate the need for the proposed amendment in the backdrop of existing judicial precedents, businesses intending to make huge capital investments in the power sector will definitely welcomethe express inclusion of generation of electricity in the realm of Section 115BAB. This is a good example of how to bring in certainty in tax laws and increase the ease of doing business in India. S Vasudevan, Partner &amp; Parvathy R Kartha, Senior Associate, Lakshmikumaran &amp; Sridharan Attorneys SEE ALSO: <a href="https://www.businessinsider.in/policy/economy/article/experts-list-out-five-ways-indian-jugaad-can-maximise-resources-in-the-fight-against-coronavirus-pandemic/articleshow/75041366.cms" data-type="tilCustomLink" target="_blank">Public policy strategists list out five ways Indian ‘jugaad’ can maximise resources in the fight against coronavirus pandemic⁠</a> <a href="https://www.businessinsider.in/policy/economy/news/this-is-how-global-economies-are-expected-to-grow-in-the-first-year-after-coronavirus-pandemic/articleshow/75441608.cms" data-type="tilCustomLink" target="_blank">This is how global economies are expected to grow in the first year after Coronavirus pandemic</a> <a href="https://www.businessinsider.in/business/news/average-spot-power-price-remains-low-at-rs-2-36-a-unit-during-lockdown/articleshow/75426562.cms" data-type="tilCustomLink" target="_blank">Average spot power price remains low at Rs 2.36 a unit during lockdown</a>

S. Vasudevan

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