Budget 2021 – Employment Law Implications

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The Minister of Finance, Nirmala Sitharaman, presented the Government of India’s Budget (Budget) for the financial year 2021-2022 on February 1, 2021. Having reviewed the Budget closely, we have set out below its key features from an Indian employment law and human resource perspective:

1.     Efforts towards unorganized sector workers: The Budget proposes to launch an online portal that will collect information in relation to gig workers, building and other construction workers, migrant workers, and other unorganized workers, to enable the government to formulate schemes in relation to health, housing, skill, insurance, credit, and food. The Finance Minister also emphasised that for the first time globally, social security benefits will extend to gig and platform workers pursuant to implementation of the new labour codes. Also, all categories of workers would, pursuant to the new codes, be entitled to claim minimum wages, and avail benefits under the Employees State Insurance Corporation.
2.     Rationalization of tax exemptions on provident fund interests : With the objective of rationalizing tax exemptions available on interest earned by high income employees, the Budget has capped the tax exemption on interest earned on contributions to statutory and voluntary provident funds. Accordingly, with effect from April 1, 2021, it is proposed that interest earned on provident fund contributions exceeding INR 2,50,000 (USD 3426) annually is taxable. Note that, under the current legal regime the interest earned on provident fund contributions is totally tax exempted.
3.     Tax consequences of delayed social security contributions: In order to ensure timely payment of employees’ social security and welfare related contributions like provident funds, superannuation funds, etc. by the employers, the Budget proposes to disallow the benefit of claiming tax related deduction for employers making late contributions.
4.      Apprenticeship: In order to increase employment opportunities for candidates, the Budget proposes to amend the Apprenticeship Act, 1961 by realigning the existing National Apprenticeship Training Scheme for providing post-education apprenticeship, training of graduates and diploma holders in engineering.

Date: February 10, 2021