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Key highlights of Budget 2021 for Investors

Union Budget 2021 was presented against the backdrop of an economy limping back to recovery from the Covid-19 pandemic. And when it was announced, markets seemed to perceive it as the boldest budget seen in recent years.

For one, it involved higher borrowing, which means that the fiscal deficit is estimated to stretch to 9.5% for FY21. It also proposed aggressive disinvestment in public sector enterprises amounting to Rs.1.75 lakh crore.

Read on for the key highlights of Union Budget 2021 pertinent to investors.

Key highlights of Union Budget 2021 for Investors:

  • No negative news is positive news: In a relief to financial markets, much-feared measures like Covid cess or raising taxes on capital gains or securities transaction tax (STT) did not turn into a reality
  • Investor charter: The government announced the introduction of a charter that would spell out all investors’ rights across all financial products.
  • Regulation of gold exchanges: The FM proposed to bring all gold exchanges under the regulation of the SEBI, further formalizing gold markets and ensuring uniformity in processes like warehousing and settlement.
  • Changes in rules for Advance Tax on Dividends: Union Budget 2021 proposed to make dividend payments for REIT/ InvIT exempt from TDS. It further included a proposal that advance tax on dividend income will be applicable only after the declaration or payment of the dividend.
  • Measures for the debt market: The budget proposed to deepen the debt market by floating a new Debt-ETF mainly comprising government securities. This would provide retail investors access to government securities and serve as an attractive investment avenue for pension funds and long-term investors.
  • Infrastructure Financing: The budget proposed to allow debt financing for INVITs and REITs by foreign portfolio investors (FPIs). This access to funds for InvITs and REITs would lead to hassle-free funding for infrastructure and real estate sectors.
  • Changes in capital gains on ULIPs: Union Budget 2021 has brought Unit Linked Insurance plans (ULIPs) under taxable bracket. As per the new proposal, where the the annual premium payable by a person exceeds ₹2.5 lakh, the redemption of ULIPs issued on or after 1 February 2021 would be subject to capital gains tax at par with equity mutual funds.
  • Hike in FDI Limit: Union Budget 2021 proposed to raise the FDI limit in the insurance sector to 74% from 49% earlier.
  • Privatisation: The government announced plans to privatise two PSU banks and sell part of its holding in LIC through Initial Public Offer (IPO).
  • Unified market code: The government proposed a rationalised single Securities Markets Code for financial markets. This would help slash compliance costs and reduce friction among provisions of acts passed by SEBI, Depositories and G-Secs.

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12 February, 2021

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