Prime Minister Narendra Modi announced on 12th May 2020 that India’s strategy to counter the COVID-19 pandemic is to focus on achieving an ‘Atma Nirbhar Bharat’ or a self-reliant nation. The Prime Minister announced a 20 lakh crore economic relief package, equivalent to 10% of India’s Gross Domestic Product (GDP), towards this objective to encourage the achievement of Atma Nirbhar Bharat and to provide relief to the citizens of the country during this period.  

Before this package, the government had already made various measures in packages such as the Pradhan Mantri Garib Kalyan Package (PMGKP), several measures by the RBI and other statutory reliefs such as deadlines for various company filings etc. The measures of the RBI to the tune of ~200 thousand crores forms part of the Atma Nirbhar Yojana Package of 20 lakh crores. The details of this package were announced by Finance Minister Nirmala Sitharaman (FM) over 5 (five) tranches, the fifth tranche being announced on 17th May 2020. 

The announcements included several measures for citizens, businesses, the future growth of various industries amongst others. We have looked a little deeper into the announcements which will have a more direct and immediate impact on individual citizens and have set them out in this article. Separately, we have also listed out in the Annexure the details of all the other announcements made by the Finance Minister.

Announcements with direct relevance to individual citizens

Employee Provident Fund (EPF) related measures

  • Increased EPF Support to Workers for an additional 3 months (INR 2800 Crores)
  • Under the EPF Act, each institution is required to contribute 12% of the monthly pay of the employee towards his/her EPF. 12% is additionally deducted from the employees take home salary towards the same. 
  • Prior to the Atma Nirbhar Abhiyaan, under the PMGKP, the Government had announced that smaller firms where there are less than 100 employees and where 90% of the employees were earning less than INR 15,000 monthly, the contributions of the employees of such businesses will be taken care of by the government. 
  • This means that the employer and employee contributions of the eligible employees under the EPF regime (together 24% of the monthly wages) shall be deposited by the government.

This helps in two ways: 

The take-home salary of the employees is higher as there is no PF deduction; and

The business has more liquidity as they do not need to pay  EPF contributions.

The government has extended this provision to such small businesses for a further period of 3 (three) months for the months of June, July and August 2020.

  • EPF Contribution limits for businesses reduced for 3 month period (INR 6750 Crores)
  • The private entities which do not fall under ‘small businesses’ as per the above scheme and cannot avail the benefit have been provided with another scheme by the FM in her speech. 
  • For all such private entities, the mandatory contribution of 12% by each, the employer and the employee shall be reduced to 10%. These benefits are the same as in the first scheme where employees take away more salary and the company has more cash at hand.

This exemption, however, is provided only to private entities. Government and State-run enterprises will continue with the 12% contribution as per the law.

Direct Tax Measures and Reliefs

  • Deduction of rates of Tax Deducted at Source (TDS) / Tax Collected at Source (TCS) (INR 50,000 Crores)
  • The Finance Minister announced that the TDS / TCS rates will be reduced by 25%. 
  • The rate deduction is applicable to non-salaried resident citizens which include contract workers, professional service providers, gig workers etc. who are not salaried employees on the payrolls of a company. Salaried employees do not have this benefit.
  • Payment of contract fees, rent, brokerage, commissions etc will also include this benefit and the TDS rates will be slashed by 25%. 
  • The change will be valid from 14th May 2020 till 31st March 2021.

How does this help?

This enables less deduction from the fees of such service providers and workers. This means that earlier, a payee would deduct 10% of TDS from payments as fees or charges, now the deduction will be 7.5%. For example, as a service provider, if under contract a person/entity is to pay me INR 10,000, earlier the payee would deduct 10% i.e. INR 1,000 and I would receive INR 9,000 as my fees. Now, this TDS is reduced by 25% to 7.5%, which means I will now receive INR 9,250 as me fees and INR 750 will be deducted as TDS. 

This results in an immediate increase in in-hand income for such persons/workers.

Extension of Deadlines and Release of Dues

  • The Government has also declared that specified pending refunds from the government will be cleared on priority basis and they have also extended deadlines for various compliances for individuals/businesses which will be a relief. The details of these measures/reliefs are set out below:
  • All pending refunds to be made to charitable trusts and non-corporate businesses and professions e.g. partnerships, LLPs etc will be cleared immediately. This will allow more cash in hand to these entities which may be struggling during these times.
  • The deadline for filing of income tax returns for the financial year 2019-20 has been extended to 30th November 2020. 
  • The deadline for completion of tax audit was also pushed by a month until 31st October 2020.
  • Assessments by the Income Tax Department which are time-barred on 30th September 2020 have been extended to 31st December 2020. Assessments which were time-barred on 31st March 2021 have been extended to 30th September 2021. 
  • The Vivad se Vishwas Scheme is one where the government incentivised the closing of tax-related disputes without penalties if the disputed dues were cleared by 31 March 2020 and only a 10% penalty was leviable if the disputes were settled by 30th June 2020. However, the FM has permitted the deadline for settling dues without any penalty to be extended until 31st December 2020. The advantage is that any further penalties during this period can also be settled without unnecessary penalties for delay.

The table set out in the Annexure along with the measures set out in the primary article set out a fairly detailed overview of the Atma Nirbhar COVID Relief Package of the Indian Government.

The actual outcome and impact of these measures can be ascertained at least a few months down the line if not more than a year. Only by then most of these measures would have materialised. We can only wait to see the actual impact this creates and whether it improves the economic situation as it has set out to do. Download the PDF of the annexure here.