Industry And Cluster | News & Insights

Key highlights of Union Budget 2020-21.

Published: February 3, 2021
Author: Manali bhanushali

Union Finance Minister Nirmala Sitharaman tabled the Union Budget 2020-21 in the Lok Sabha today. The minister insisted that the Budget will boost income and purchasing power.

Given below are some of the important points of the Budget regarding textile and apparel industry.

1) Technical Textiles:

India imports a significant quantity of Technical Textiles worth US $ 16 billion every year. To reverse this trend and to position India as a global leader in Technical Textiles, A National Technical Textiles Mission will be introduced, with a four-year implementation period, at an estimated outlay of Rs. 1,480 crore.

Anti-dumping duty on purified terephthalic acid (PTA) is being abolished. Notably, PTA, for example, is a critical input for textile fibres and yarns.

2) Budget for Textile Ministry:

The Ministry of Textiles has been allocated Rs. 3,514.79 crore in the current Budget against the allocation of Rs. 4,831.48 crore in the 2019-20 Budget.


For ATUF Scheme, the fund allocation is only Rs. 761.90 crore.

4) Imposition of 10% Customs Duty on Cotton Imports to Support Farmers:
India, the world’s biggest cotton grower, imposed a 10% import tax on the fiber to help farmers, Finance Minister Nirmala Sitharaman said in her budget speech in parliament on Monday.

A levy on overseas purchases will potentially support local prices amid higher domestic production and prevent distress sales by the growers. There was no duty on cotton imports until now.

The government also raise the levy on raw silk and silk yarn to 15% from 10%, according to the minister.

India’s cotton output may climb to 37.12 million bales of 170 kilograms each in 2020-21, from 35.49 million bales a year earlier, according to the farm ministry. Imports are expected to fall to 1.4 million bales this year from 1.55 million bales in 2019-20, according to the Cotton Association of India.

The state-run Cotton Corp. of India will increase purchases from farmers to 12.5 million bales in 2020-21 from 10.5 million bales a year earlier, according to the textile ministry. The government plans to spend 350 billion rupees ($4.8 billion) to buy cotton, compared with 285 billion rupees a year ago.

5) Proposal for Mega Investment Textile Parks (MITRA):

To enable Textile industry to become globally competitive, attract large investments and boost employment generation, a scheme Mega Investment Textile Parks (MITRA) will be launched in addition to PLI Scheme. This will create world-class infra-structure with plug in play facilities to enable create global champions in exports. 7 such textile parks will be established over 3 years.

6) Customs Duty Rationalization:

The Textiles Sector generates employment and contributes significantly to the economy. There is a need to rationalize duties on raw material inputs to manmade textiles.  We are now bringing nylon chain on par with polyester and other man-made fibers. We are uniformly reducing the BCD rates on caprolactam, nylon chips and nylon fiber& yarn to 5%. This will help the textile industry, MSMEs, and exports, too.

Our Customs Duty Policy should have the twin objective of promoting domestic manufacturing and helping India get onto global value chain and export better. The thrust now has to be on easy access to raw materials and exports of value added products.

Towards this, last year, govt started overhauling the Customs Duty structure, eliminating 80 outdated exemptions.  I also thank everyone who responded overwhelmingly to a crowd-sourcing call for suggestions on this revamp. I now propose to review more than 400 old exemptions this year.  We will conduct this through extensive consultations, and from 1st October 2021, we will put in place a revised customs duty structure, free of distortions. I also propose that any new customs duty exemption henceforth will have validity up to the 31st March following two years from the date of its issue.

7) Incentive for Employers for Restoration of Jobs:

Earlier govt has announced an incentive scheme for people to join back and to take their jobs back. For employers to take back employees who were thrown out and have some money paid by the govt for their EPF? Govt has worked out a scheme and that scheme will run till next year. Govt has allowed employers to get those people who were thrown out of their jobs to be back in the job for whom govt will pay EPF for two years. This is an incentive for people to take them back.

8) MSME Products including Textiles.

  1. a) Import of duty free item:

Govt is rationalizing exemption on import of duty-free items as an incentive to exporters of garments, leather, and handicraft items. Almost all these items are made domestically by our MSMEs. We are withdrawing exemption on imports of certain kind of leathers as they are domestically produced in good quantity and quality, mostly by MSMEs. We are also raising customs duty on finished synthetic gem stones to encourage their domestic processing.

  1. b) MSME- Finance related:

The Budget proposed to raise by 5 times the turnover threshold for audit from the existing Rs. 1 crore to Rs. 5 crore. Further, in order to boost less cash economy, it is proposed that the increased limit shall apply only to those businesses which carry out less than 5 per cent of their business transactions in cash. As of now, businesses having turnover of more than Rs. 1 crore are required to get their books of accounts audited by an accountant.

A scheme to provide subordinate debt for entrepreneurs of MSMEs will also be introduced. The Government has also asked RBI to extend debt restructuring window for MSME by a year to 31 March 2021.

An app-based invoice financing loans product will be launched. This will obviate the problem of delayed payments and consequential cash flows mismatches for the MSMEs.

9) Applicable for all Industries:

In the coming months, the Government shall review Rules of Origin requirements, particularly for certain sensitive items, so as to ensure that FTAs are aligned with the conscious direction of Government policy. It has been observed that imports under Free Trade Agreements (FTAs) are on the rise. Undue claims of FTA benefits have posed threat to domestic industry and such imports require stringent checks. This will help reduce imports from Bangladesh, etc. that is plaguing textile industry.

The Government proposes amendments in Companies Act to decriminalise civil offences.

Tax payer charter will be part of statute. Around 70 of more than 100 income tax deductions and exemptions have been removed, in order to simplify tax system and lower tax rates. The Budget has also proposed ‘Vivad se Vishwas’ scheme for direct tax payers whose appeals are pending at various forums. The tax on cooperative societies has been proposed to be reduced to 22 per cent plus surcharge and cess, as against 30 per cent at present.

Besides, Rs. 3,000 crore proposed to provide for skill development.

10) For exporters:

Digital refund of duties and taxes of centre, states and local bodies to exporters from this year.

Nirvik (Niryat Rin Vikas Yojana) scheme to provide enhanced insurance cover and reduce premium for small exporters.

11) Start-ups:

The Government proposes to provide early life funding, including a seed fund to support ideation and development of early stage start-ups.

The Budget proposes deferment of tax payment by employees on ESOPs (employee stock ownership plan) from start-ups by 5 years or till they leave the company or when they sell their shares, whichever is earliest.

An eligible start-up, having turnover up to Rs. 25 crore, is allowed deduction of 100 per cent of its profits for 3 consecutive assessment years out of 7 years if the total turnover does not exceed Rs. 25 crore.

In order to extend this benefit to larger start-ups, there’s a proposal to increase the turnover limit from existing Rs. 25 crore to Rs. 100 crore.

Moreover, considering the fact that in the initial years, a start-up may not have adequate profit to avail this deduction, the Government proposes to extend the period of eligibility for claim of deduction from the existing 7 years to 10 years.

12) For Public Ltd. Companies:

Dividend distribution tax (DDT) to be removed (currently it is 15 per cent). Dividend shall be taxed at the hands of the recipients.

13) Logistics:

Rs. 1.7 lakh crore provided for transport infrastructure in 2020-21.

14) Sustainability:

India’s commitment towards tackling climate change made in Paris conference kick starts from 1 January 2021.

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