Analysis of Amendments To The Finance Act 2021

INCOME TAX

♦ Income Tax Rates

There is no change in the Rates of Income Tax for the AY 2022-23. .

♦ TDS and TCS Rates- No Further COVID Relief

TDS and TCS Rates had been reduced by 25% during FY 2020-21 due to COVID-19. However, with effect from 1st April 2021, original TDS and TCS rates will be applicable for FY 2021-22. Some of the important ones are:

• TDS On Purchase Of Goods Section 194Q

From 1^st July 2021, TDS at 0.1% is applicable on a purchase transaction exceeding Rs.50 Lacs in a year. The responsibility of deduction shall lie only on the buyer whose turnover exceeds Rs. 10 Crore.

The tax shall not be deducted under this provision if the tax is deductible or collectible under any other provision (motor vehicle, jewellery, etc.) except Section 206C (1H).

However, if a transaction is subject to TCS under section 206C(1H), TCS will not be collected and instead TDS under 194Q will be deducted.

• TDS/TCS On Non Filer of income tax return At Higher Rates

In case of non-filing of income tax return for last two years and where TDS /TCS is Rs. 50,000 or more in each of these two previous years, rate of TDS/ TCS shall be higher of:

– Twice the specified rate

or

– 5%

Salary income, payment to NR, income from lottery shall be excluded from this section.

• Exemption From Tax Audit If Cash Transactions Are Not Exceeding 5%

Persons carrying on business need to get books of accounts audited from Chartered Accountant if total sales, turnover or gross receipt during the previous year exceeds Rs. 1 Crore.

This threshold limit of turnover was increased to Rs. 5 Croreif the cash receipt and payment made during the year does not exceed 5% of total receipt and total payment respectively.

From AY 2021-22 onwards exemption from Tax Audit limit has been doubled from Rs. 5 Crore to Rs. 10 Crore turnover limitsif cash receipt and payment does not exceed 5% of total receipt and total payment respectively. The payment or receipt settled through a non-account payee cheque or non-account payee bank draft shall be deemed to be cash payment or cash receipt respectively.

• Disallowance of Employees’ Contribution To Labour Welfare Funds (ESI/PF Etc.) If Not Deposited By Due Date

With effect from 1st April,2021 any amount received as an employee’s contribution towards provident fund, or ESI funds, shallbe treated as income of the Employer if the same is not deposited on or before the due date as provided under the PF and ESI Acts.

• Interest Income On PF Contribution Above Rs. 2.5 Lacs Or Rs. 5 Lacs To Become Taxable In A Year

Earlier interest income on PF contribution was exempt from tax. From AY 2022- 23 interest income will be taxable on contribution by employees exceeding Rs. 2,50,000 in the previous year.

However, if the employee is contributing to the fund and there is no contribution to such fund by the employer, then interest income on contribution by employee in excess of Rs.5,00,000 will be taxable.

• Increase In Safe Harbour Limit For Primary Sale Of Residential Units

In order to incentivise home buyers and real estate developers, increase in safe harbour limit from 10% to 20% for sale of residential units if:

– Sold between 12th November, 2020 to 30th June, 2021

– Applicable only on first allotment

– Consideration upto Rs. 2 Crore

This means that home buyers, who purchased properties with values below the circle rate by up to 20%, will not have to pay additional tax. Similarly, developers selling units below the circle rate by up to 20% will not have to pay additional tax. This benefit will be applicable from the assessment year 2021-22.

• Extension In The Time Limit For Transfer Of Residential House Property For Section 54GB Exemption

Section 54GB provides for exemption from the capital gain arising from the transfer of a residential property on or before 31-03-2021, if the assessee utilises the net consideration for investment in the equity shares of an eligible start-up. The Finance Act 2021 has extended the said outer date of transfer of residential property to 31-03-2022.

• Taxability On Receipt Of Capital Asset Or Stock In Trade On Retirement Of A Partner And/Or Dissolution Of Firm

At the time of dissolution or reconstitution of the firm, where a partner /member receives any capital asset or stock in trade or both, it shall be a deemed transfer in the hands of such Firm/AOP/BOI and profits/gains arising on such transfer based on FMV of such asset shall be taxable as business income or capital gains in the previous year in which the asset was received by the Partner/member.

The fair market value of the capital asset or stock or both on the date of such receipt shall be deemed to be the full value of the consideration.

The balance in the capital account of the specified person in the books of accounts at the time of its dissolution or reconstitution shall be deemed to be the cost of acquisition without taking into account increase due to revaluation of any asset or due to self-generated goodwill or any other self-generated asset

Reconstitution means:

a. One or more of its partners or members ceases to be partners or members;

b. One or more new partners or members are admitted. However, at least one existing partner or member should continue to be partner or member of the specified entity after admission of the new partner(s) or member(s); or

c. All the partners or members continue with change in their respective share or in share of some of them.

• Amendments Related To Charitable Trusts and Institutions

Under the existing provisions of the Income-tax Act, 1961, voluntary contributions made with a specific direction that they shall form part of the corpus of trusts, institutions, funds etc. shall not be included in the total income of the trust or institution.

However following amendments have been made which will take effect from 1st April 2022, and apply from AY 2022-23 onwards.

a. Voluntary contributions made with a specific direction that it shall form part of the corpus shall be invested or deposited in one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus.

b. Application out of corpus shall not be considered as application for charitable or religious purposes for the purposes of third proviso of clause (23C) and clauses (a) and (b) of section 11. However, when it is invested or deposited back, into one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus from the income of the previous year, such amount shall be allowed as application in the previous year in which it is deposited back to corpus to the extent of such deposit or investment.

c. Application from loans and borrowings shall not be considered as application for charitable or religious purposes for the purposes of third proviso of clause (23C) and clauses (a) and (b) of section 11. However, when loan or borrowing is repaid from the income of the previous year, such repayment shall be allowed as application in the previous year in which it is repaid to the extent of such repayment.

d. Clarify in both clause (23C) of section 10 and section 11 that for the computation of income required to be applied or accumulated during the previous year, no set off or deduction or allowance of any excess application, of any of the year preceding the previous year, shall be allowed

As per The Finance Act 2020 all existing trust or institutions have to apply for fresh and obtain fresh approval under Section 80G. However, in view of Covid-19 the process had been deferred till 31.03.2021.On 26.03.2021,CBDT has notified new Rules and Forms for Registration of Trust, institutions including approval under section 80G.

a. All existing trusts or institutions are required to make an application for registration or approval in Form 10A or Form 10AB.

b. Such application must be filed by 30.06.2021 i.e. within three months from the 1st day of April, 2021.

c. Now, there will be completely new system of online registration. The registration will be valid for 5 years.

d. Such application or intimation must be accompanied by certain documents prescribed on this behalf

e. On acceptance of application a Sixteen digit Unique Identification Number will be allotted to institution

• Definition Of The Term Liable To Tax

In The Finance Act 2020, Indian citizen who is not liable to tax in any other country or territory shall be deemed to be resident in India, if his total income other than income from foreign sources exceeds R.15 Lacs during the previous year.

As per The Finance Act 2021, the term liable to tax in relation to a person means that there is a liability of tax on that person under the law of any country and will include a case where subsequent to imposition of such tax liability, an exemption has been provided.

This amendment will take effect from 1st April, 2021 and will, accordingly, apply inrelation to the assessment year 2021-22 and subsequent assessment years.

• Last Date For Filing Of Belated Or Revised Returns Of Income Reduced By Three Months

Currently, belated and revised ITRs can be filed voluntarily after the normal deadline, up to March 31 of the assessment year.

From FY 2020-21 onwards, belated return or revised return are to be filed three months before the end of the relevant assessment year (up to December 31) or before the completion of the assessment, whichever is earlier.

• Late Fee For Filing Income Tax Returns

As per the amendment to Section 234F of The Finance Act 2021, the late-filing fee of return u/s 139(1) shall be Rs. 5,000. However, where the total income of a person does not exceed Rs. 5 Lacs, the fee payable shall not exceed Rs. 1,000.

• Reduction In Time Limit For Issuance Of Scrutiny Notice U/S 143(2) i.e,. 30th June

Reduction in the time limit for issue of notice under section 143(2) of the Act from 6 months to 3 months from the end of the financial year in which the return is furnished. This will applicable from AY 2021-22.

• Reduction In Time Limits For Completion Of Assessment Proceedings

The time limit for completing Scrutiny Assessment and Best Judgement Assessment will be 9 months from the end of the assessment year in which the income was first assessable, applicable from AY 2021-22.

• Reduction In Time For Reopening Of Income Tax Proceedings

For reopening of Income Tax Assessment, the time limit for reopening of income tax assessment proceedings has been reduced to 3 years from the earlier 6 years.

For Serious Tax Evasion cases, where evidence of concealment of Income is more than Rs. 50 Lacs, notice can be issued beyond 3 years but not beyond 10 years.

• Provisional Attachment In Case Of Fake Invoices Cases

The penalty proceedings initiated for fake invoice/sham transactions of more than Rs. 2 Crore shall also be eligible for provisional attachment of assets.

• Faceless ITAT

To eliminate the human interface and to increase transparency in disposal of appeals, a National Faceless Income Tax Appellate Tribunal Centre will be established for electronic communication between ITAT and Assessee. The Government has already introducedfacelessassessment and appeal this year.

• Linking Of PAN With Aadhaar

The due date for linking Aadhaar and Income Tax PAN has been extended to 30th June 2021.In case of non-linking, your PAN Card would become in­operative and penalty is up to Rs. 1,000. The penalty for not furnishing PAN or giving inoperative PAN is Rs. 10,000.

• Advance Tax Liability On Dividend

As per The Finance Act 2021, advance tax liability on dividend income shall arise only after receipt of dividend income. This will help taxpayers in saving interest on late payment of advance tax due to incorrect estimation of dividend income. However his will not include deemed dividend under Section 2(22)(e).

• Relief For Senior Citizens

Senior citizens above 75 years of age have been given relief 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 in the same bank account.

• Dispute Resolution Committee For Small Taxpayers

A dispute resolution committee for small taxpayers will be setup. Anyone with taxable income of up to Rs 50 Lacs and disputed income of up Rs 10 Lacs will be eligible to approach dispute resolution committee. This will provide quicker relief to small taxpayers.

• No Depreciation On Goodwill

Till now Goodwill was included in the block of assets of Business or Profession depreciation was allowed on Goodwill. From AY 2021-22 onwards, goodwill of a business or profession will not be considered as a depreciable asset and there would not be any depreciation on goodwill.

In case depreciation was obtained by the assessee in relation to goodwill purchased prior to the AY 2021-22, then cost of acquisition will be purchase price reduced by depreciation obtained prior to AY 2021-22.

• Valuation Of Slump Sale Transactions

Earlier Capital Gain on slump sale transactions of an undertaking was calculated as the difference between the actual sales consideration and the net worth (cost of acquisition + cost of improvement).

From FY 2020-21 onwards, fair market value of capital assets on slump sale transaction will be deemed to be the full value of the consideration received by the seller of the asset. If the Capital asset is goodwill, its value will be treated as nil if the taxpayer had not acquired it through a purchase from a previous owner. This will increase the capital gain arising from M&A transactions.

• Amendments Related To Equalisation Levy

The scope of Equalisation Levy has been widened. Now, Equalisation Levy shall be charged where the consideration receivable by an e-commerce operator on the sale of goods or provision of services irrespective of whether such goods or services are owned by any other person.

However such consideration shall not include consideration for sale of goods or provision of services owned/provided by a person resident in India or by a permanent establishment (PE) of a person non-resident in India, if such sale/provision is connected with such PE.

Consideration received or receivable for e-commerce supply or services shall not include considerationwhich is taxable as royalty or fees for technical services inIndia under the Income-tax Act read with the agreement notified by the Central Government under section 90 or section 90A of the Income-tax Act.

Online sale of goods and online provision of services shall include one or more of the following activities taking place online:

Acceptance of offer for sale;

a. Placing the purchase order;

b. Acceptance of the Purchase order;

c. Payment of consideration; or

d. Supply of goods or provision of services, partly or wholly

GOODS AND SERVICE TAX

Following amendments to CGST Act and IGST Act will come into effect from the date when they are notified.

• GST Audit (GSTR 9C) has been scrapped. It has been replaced with a self-certified reconciliation statement.
• Input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in GSTR-1.
• Interest will be charged on net cash liability with retrospective effect from the 1st July, 2017.
• Liability shown in GSTR-1 liable for recovery without SCN.
• For section 75 “self-assessed tax” shall include the tax payable in respect of outward supplies, the details of which have been furnished under section 37 (GSTR-1), but not included in the return furnished under section 39.
• To file an appeal against orders received on detention and seizure of goods and conveyance, amount to be deposited for filing an appeal with the Appellate Authority has been increased from 10% to 25%.
• As per the Amendment in the Finance Act 2021 the Government has been empowered to attach provisionally, any property, including bank account, belonging to the taxable person or any person who has retained any benefit of the transactions in such manner as may be prescribed, after the initiation of any proceedings under Assessment, Inspection, Search & Seizure, and Arrest, Demands and Recovery.
• As per the amendment to The Finance Act,2021, u/s 129 of the CGST Act penalty applicable under detention, seizure, and release of goods and conveyance in transit, will be:

• Presently there are two routes for making zero rated supply.

a. Claim refund of unutilised ITC, without payment of IGST with bond/LUT

With the new amendment, a registered person making zero rated supply can claim refund of unutilized ITC, without payment of IGST with Bond/LUT. However, in case of non-realisation of sale proceeds, he will be liable to deposit the refund so received along with the applicable interest under section 50 of the CGST Act within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 for receipt of foreign exchange remittances.

b. Payment of IGST and claim refund of tax paid.

For the second route the Government shall specify class of persons and class of goods and services who can make payment of IGST and claim refund of tax paid.

OTHERS

• Import Export Code (IEC Code)

All IEC holders should update their IEC details during April-June of every year. IEC details need to be updated even if there are no changes in particulars.

• I-T Department To Seek Information From Stock Exchanges, Registrars and Depositaries

From FY 2021-22, Income Tax Department will have access to information relating to capital gains on transfer of listed securities or units of Mutual Funds, dividend income, and interest income. The details of capital gains will be provided by stock exchanges, depositary, clearing corporations. The details of dividend paid will be provided by companies and details of interest income will be provided by Banks, Post offices and NBFCs.

This information would be matched with the ITR filed by taxpayers. The Income Tax Department will also share this information with taxpayers.

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Disclaimer: The Article is based on the Relevant Provisions and as per the information existing at the time of the preparation. In no event the author will be liable for any direct and indirect result from this Article. This is only a knowledge sharing initiative.

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