Important Highlights of Tax Proposals in Finance Budget 2021-22

Taxation

The Finance Minister, Nirmala Sitharaman presented her third Union budget 2021 in Parliament today i.e. 01-02-2021. Following are important proposals made therein:-

Direct tax proposals:-

1. Major Direct Tax Proposals made in budget 2021-22 is given below:-

NO change is proposed in direct tax rates / slab rates of income tax, following 32 changes are proposed in budget 2021-22

Sl. No.ProposalsProposed Amendments in brief
1.Relief to Senior CitizensIn order to ease compliance burden on senior citizen pensioners who are of 75 years of age or above, it is proposed to exempt them from the requirement of filing of income tax if the full amount of tax payable has been deducted by the paying bank. This exemption is proposed to be made available to such senior citizens who have only interest income apart from the pension income.
2.Reduction in Time LimitsIn order to reduce compliance burden, the time-limit for re-opening of assessment is being reduced to 3 years from the current 6 years from the end of the relevant  assessment year.  Re-opening up to 10 years  is proposed to be allowed only if there is evidence of undisclosed income of ` 50 lakh or more for a year. Further, it is proposed to completely remove discretion in re-opening and henceforth re-opening shall be made only in cases flagged by system on the basis of data analytics, objection of C&AG and in search/survey cases.   Further, in order to bring certainty in income tax proceedings at the earliest, it is also proposed to reduce the time limits for general assessment or processing of income tax return by three months and also for filing of returns.
3.Relief for DividendIn order to provide relief to taxpayers, advance-tax liability on dividend income shall arise only after the declaration/payment of dividend. The dividend paid to Real Estate Infrastructure Trusts or Infrastructure Investment Trusts (REIT/InvIT) shall be  exempt from TDS. It is also proposed to clarify that deduction of tax on incomes including dividend income of Foreign Portfolio Investors may be made at treaty rate. It is also proposed to exempt dividend payment from levy of Minimum Alternate Tax (MAT) for foreign company if the applicable tax rate is less than the rate of MAT.
4.Setting up of Dispute Resolution Committee (DRC)For reducing litigation and to give an impetus to the dispute resolution for small taxpayers, a Dispute Resolution Committee is proposed to be constituted. A taxpayer having taxable income up to ` 50 lakh and disputed income up to ` 10 lakh shall be eligible to approach the Committee. For ensuring efficiency, transparency and accountability, the procedure of the Committee will be conducted in a faceless manner.   Consequently, the Settlement Commission shall be discontinued from 01.02.2021. However, the pending cases shall be decided by an Interim Board if opted by the applicant.
5.Faceless       Income       Tax Appellate Tribunal (ITAT)In order to provide transparent tax appellate mechanism, it is proposed to the make the Income Tax Appellate Tribunal faceless and jurisdiction-less. A National Faceless Income- tax Appellate Tribunal Centre shall be established and all the communication between the Tribunal and the appellant shall be   made   electronically.   Wherever personal hearing  is  needed,  it  shall  be  done through
  video-conferencing.
6.Tax Neutrality of conversion of Urban Cooperative Bank (UCB) into a Small Finance Bank (SFB)In order to facilitate the transition of UCBs to SFBs, it is proposed to provide tax neutrality for the transition of UCBs to SFBs. Hence, the UCB shall not be required to pay capital gains for the assets transferred to the SFBs.
7.Tax incentives for Affordable Housing and Affordable                  Rental Housing ProjectIn order to incentivise purchase of affordable house, It is proposed to extend the eligibility period for claim of additional deduction for interest of ` 1.5 lakh paid for loan taken for purchase of an affordable house to 31st March 2022. In order to increase the supply of affordable house, it is proposed to extend eligibility period for claiming tax holiday for affordable housing project by one more year to 31st March, 2022.   In order to promote supply of Affordable Rental Housing for the migrant workers, it is also proposed to allow a new tax exemption for the notified Affordable Rental Housing Projects.
8.Tax benefit for Start-upsIn order to incentivise setting-up of more start-ups in the country, it is proposed to extend the eligibility period to claim tax holiday for the start-ups by one more year to 31st March, 2022. In order to incentivise investment in start-up, it is proposed to extend the eligibility period of claiming capital gains exemption for investment made in the start-ups by one more year to 31st Match, 2022.
9.Relaxation     to     NRI     for Income     of     RetirementIn order to remove the genuine hardship faced  by  the  NRIs in  respect  of their income accrued on foreign retirement benefit account
 Benefit Accountdue to mismatch in taxation, it is proposed to notify rules for aligning the taxation of income arising on foreign retirement benefit account.
10.Exemption from AuditTo incentivise digital transactions and to reduce the compliance burden of the person who is carrying almost all of their transactions digitally, it is proposed to increase the limit  for tax audit for persons who are undertaking 95% of their transactions digitally from ` 5 crore to ` 10 crore.
11.Relaxation of Condition for carry forward of loss for DisinvestmentIn order to promote strategic disinvestment of PSU, it is proposed to relax the condition regarding carry forward of loss for disinvested PSU in amalgamation.
12.Relaxation of Condition for tax neutral Demerger for disinvestmentIn order to promote strategic disinvestment, it is proposed to deem the transfer of assets by the PSU to the resulting company as tax neutral demerger.
13.Zero Coupon Bonds by Infrastructure Debt Fund (IDF)In order to allow funding of infrastructure, it is proposed to make Zero Coupon Bonds issued by notified IDF eligible for tax benefit.
14.Rationalisation                  of taxation of Unit Linked Insurance Plan (ULIP)In order to rationalise taxation of ULIP, it is proposed to allow tax exemption for maturity proceed of the ULIP having annual premium up to ` 2.5 lakh. However, the amount received on death shall continue to remain exempt without any limit on the annual premium. The cap of ` 2.5 lakh on the annual premium of ULIP shall be applicable only for the policies taken on or after 01.02.2021. Further, in order to provide parity, the non- exempt ULIP shall be provided same concessional capital gains taxation regime as available to the mutual fund.
15.Rationalisation of Tax- free Income on Provident FundsIn order to rationalise tax exemption for the income earned by high income employees, it is proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of ` 2.5 lakh. This restriction shall be applicable only for the contribution made on or after 01.04.2021.
16.Taxability of Surplus amount received by partnersIn order to provide certainty, it is proposed to rationalise the provisions relating to taxation of the assets or amount received by partners from the partnership firm in excess of their capital contribution.
17.Clarification                       on Depreciation on GoodwillIn order to provide certainty, it is proposed to clarify that no depreciation on Goodwill shall be allowed. However, the deduction for the amount paid for acquiring Goodwill shall be allowed on sale of Goodwill.
18.Clarification for the Slump SaleIn order to provide certainty, it is proposed to clarify that slump sale shall include all types of transfer.
19.Fake                Invoice/sham transactionIn order to protect the revenue, it is proposed to provide that the penalty proceedings initiated for fake invoice/sham transactions of more than ` 2 crore shall also be eligible for provisional attachment of assets.
20.Exemption       for       Small TrustsIn order to reduce compliance burden on the small charitable trusts running educational institutions and hospitals, it is proposed to increase the limit on annual receipts for these trusts from present ` 1 crore to ` 5 crore for non-applicability of various compliances like approval etc.
21Carry Forward of loss by Charitable OrganisationsIn order to provide certainty, it is proposed to clarify that charitable trusts shall not be
  permitted to claim carry forward of loss. However, the loan repayment and replenishment of corpus shall be allowed as application.
22.Clarification                       for Equalisation LevyIn order to provide certainty, it is being expressly clarified that transaction taxable under income-tax are not liable for equalisation levy. Further, it is also proposed to clarify regarding applicability of equalisation levy on physical/offline supply of goods and services.
23Timely deposit of Employees’ contribution to labour welfare funds by Due DateDelay in deposit of the contribution of employees towards various welfare funds by employers result in permanent loss of interest/income for the employees. In order to ensure timely deposit of employees’ contribution to these funds by the employers, it is proposed to reiterate that that the late deposit of employees’ contribution by the employer shall never be allowed as deduction to the employer.
24Relaxation in conditions for exemption to Sovereign Wealth Fund & Pension Fund (SWF/PF)In order to incentivise more number of SWF/PF to invest in Indian Infrastructure, it is proposed to relax some of conditions for availing 100% tax exemption introduced in the last budget. The conditions which are proposed to be relaxed include prohibition on loans or borrowings, restriction on commercial activities, direct investment in entity owning infrastructure, etc.
25.Tax incentives for IFSCIn order to promote IFSC, It is proposed to provide more tax incentives which includes tax holiday for capital gains incomes of aircraft leasing company, tax exemptions for aircraft lease rental paid to foreign lessor, tax incentive  for  re-location  of  foreign  funds  in IFSC    and    tax    exemptions    to  investment
  division of the foreign banks located in IFSC.
26Non-filing of Return by Deductee/CollecteeIn order to discourage the practice of not filing returns by the persons in whose case substantial amount of tax has been deducted/collected, it is proposed to provide that a person in whose case TDS/TCS of `50,000 or more has been made for the past two years and who has not filed return of income, the rate of TDS/TCS shall be at the double of the specified rate or 5%, whichever is higher. This provision shall not be applicable for the transactions where full amount of tax is required to be deducted e.g. salary income, payment to non-resident, lottery, etc.
27Levy of TDS on Purchase of GoodsIn order to widen the scope of TDS, it is proposed to levy a TDS of 0.1% on a purchase transaction exceeding ` 50 lakh in a year. In order to reduce the compliance burden, it is also proposed to provide that the responsibility of deduction shall lie only on the persons whose turnover exceeds ` 10 crore.
28Substitution of Authority for Advance Rulings with Board for Advance RulingsTo ensure faster disposal of cases, it is proposed to replace the Authority for Advance Rulings with a Board for Advance Rulings. It is also proposed to provide appeal against the order of such Board to the High Court.
29.Alignment of Minimum Alternate Tax (MAT) for Advanced                   Pricing Agreement (APA) and secondary adjustmentIn order to provide relief to the taxpayers in whose case MAT liability has arisen in the year of repatriation on account APA or secondary adjustment, it is proposed to provide relief by aligning the MAT provisions with the year of taxability of such income.
30.Exemption       for       Leave Travel Concession (LTC)In  order  to  provide  relief  to employees, it is proposed to provide tax exemption to the amount  given  to  an  employee  in lieu  of LTC
 cash schemesubject to incurring of specified expenditure.
31Increase in safe harbor limit for primary sale of residential units.In order to incentivise home buyers and real estate developers, it is proposed to increase safe harbour limit from 10% to 20% for the specified primary sale of residential units.
32MiscellaneousIt is proposed to make consequential amendment in the provisions relating to processing of returns for allowing certain deductions and to provide clarification for adjustment of income reported in Audit Report.It is also proposed to enable issuance of notice for calling for returns by the prescribed authority.It is proposed to empower the Board to relax the rule relating to defective return for a class of taxpayers and to align due dates of return for certain taxpayers,It is proposed to clarify that Limited Liability Partnership shall not be eligible for presumptive tax for professionals.It is proposed to define the term “liable to tax” to provide certainty.

2.                   Major amendments in the Customs Act, 1962:

S. No.Amendment
A.Reduce dwell time and EoDB (Trade facilitation)
1.It is proposed to mandate filing of bills of entry before the end of day preceding the day of arrival of goods (Section 46).
2.It is proposed to allow the specified amendments by importer/exporter on self-amendment basis. Hitherto all amendments were to be approved by the officer. (Section 149).
3.To encourage paperless processing, it is proposed to recognize the use of common portal to serve notice, order etc and the portal to act as a one-point digital interface for the trade to interact with the Customs.
B.Efficiency and accountability
1It is proposed to add a new provision in law to prescribe that all conditional exemptions, unless otherwise specified or varied or rescinded, given under Customs Act shall come to an end on 31st March falling immediately two years after the date of such grant or variation. (Section 25 of the Customs Act).
2.It is proposed to introduce a new section 28BB to prescribe a definite time-period of two years subject to certain exceptions, for completion of investigations.
C.Improving tax compliance
1.A new provision is being proposed that any goods entered for exportation making wrongful claim of remission or refund shall be liable to confiscation [sub-section (ja) is being added to section 113 of the Customs Act].
2.A new provision is being inserted in the Customs Act (section 114AC) to prescribe penalty in specific case where any person claims refund of tax or duty discharge, using fraudulent invoices, on exports of goods.
E.Disposal of seized gold
1.Section 110 of the Customs Act is proposed to be amended to revise the procedure for pre-trial disposal of seized gold for expediting such disposals

3. Amendments to the Customs Tariff Act, 1975:

S. No.Amendment
AAmendment in First Schedule to the Customs Tariff Act, 1975
  1.The first schedule to the Customs Tariff Act is being proposed to be amended in accordance with HSN 2022 amendments. These changes shall come into effect from 01.01.2022. Besides certain new tariff lines are being created
BAmendment in the provisions relating to Anti-Dumping Duty (ADD), Countervailing Duty (CVD), and Safeguard Measures
                1.It is being proposed to make the following amendments in the provision relating to ADD, CVD [ section 9, 9A of the Customs Tariff Act and respective Rules] to provide for: imposition of duty from the date of initiation of anti- circumvention investigation;anti-absorption provisions;imposition of these duties on review for period upto 5 years at a time;uniform provisions for imposition ADD/CVD on account of inputs (attracting ADD or CVD) used by EoUs and SEZs for manufacture of goods that are cleared to Domestic Tariff Area;whenever any particular ADD or CVD is temporarily revoked, such temporary revocation shall not exceed one year at a time;final findings are to be issued in ADD/CVD, in investigation in review proceedings, by the designated authority, at least three months prior to expiry of the ADD under review (with effect from the 1st Jul, 2021); Amendment at S. No. (vi) is being made in respective Rules and rest of the other changes are being made in the Customs Tariff Act.
  2.The Safeguard Rules are being amended to provide for the manner and procedure for causing investigation into the cases of imports in increased quantity that cause injury to domestic industry for imposition of Safeguard TRQs.

1.                  

4.  Amendments to the Central Excise Act, 1944:

Addition of new tariff lines consequent to review of Harmonised System of Nomenclature (HSN) by World Customs Organisation. A few minor changes in the schedule of clarificatory nature are being made.

5. Amendments in Customs Rules:

The Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 [IGCR] are being made so as a trade facilitation measure to allow:

The Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 [IGCR] are being made so as a trade facilitation measure to allow:

  • job-work on the materials (except precious metals) imported under IGCR
  • clearance of imported capital goods imported under IGCR on payment of customs duty on the depreciated value.

For more detail on proposed changes in Indirect Tax Click here.

For more detail on proposed changes in Direct Tax Click Here

Download Budget Speech Click Here

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