On 1st February 2021, the Finance Minister Nirmala Sitharaman presented the Union Budget 2021-22 in parliament. This year’s budget rests on 6- Health and Wellbeing, Physical and Financial Capital and Infrastructure, Inclusive Development for Aspirational India, Reinvigorating Human Capital, Innovation and R&D, and Minimum Government Maximum Governance. In this budget, several amendments related to direct tax, GST, Company Law and Customs are proposed. Accordingly, a budget analysis is presented below pertaining to such four segments:
A. Direct Taxes
> The individual and corporate tax for the financial year 2021-22 remains unchanged.
I. Salary
> Leave Travel Concession
As per clause (5) of section 10 of the Income Tax Act, the value of travel concession or assistance received by or due to an employee from his employer in connection with a vacation in India is exempt.
In view of the situation arising out of outbreak of COVID pandemic, it is proposed to provide tax exemption to cash allowance in lieu of LTC, subject to fulfilment of certain conditions.
One of the prescribed condition is to spend on goods or services which attracts the GST of 12% or above under GST Laws and such goods/services are procured from GST registered vendors/service providers.
This amendment will take effect from 1st April, 2021 and will, apply in relation to the assessment year 2021-2022 only.
> Taxability of Provident fund Interest
It is proposed that an exemption shall not be available for the interest income accrued during the previous year to the extent it relates to the employee’s contribution exceeding Rs 2,50,000 deposited in a previous year.
> Incentive for affordable rental housing
In order to incentivise purchase of affordable house. It is proposed to extend the eligibility period for claim of additional deduction for interest of Rs 1.5 lakh paid for loan taken for purchase of an affordable house to 31st March 2022.
II. Profits and Gains from Business & Profession
> Tax incentives to startups
The tax holiday for startups has been extended by one more year up to 31st March 2022.
> Disallowance of PF contribution- Employees’ Contribution
The deduction under Section 36(va) of the Act for any sum received by employer from any of his employees towards welfare fund shall be allowed if the said sum is deposited in the relevant fund on or before due date as prescribed by the relevant fund.
> Increase in the threshold limit of Tax Audit
It is proposed to increase the threshold limit of tax audit from Rs 5 Crore to Rs 10 Crore provided 95% of the transactions (business receipts + business expenses) are made through electronic modes.
> Presumptive taxation for professionals under section 44ADA
It is proposed to amend Section 44ADA to provide that the provision of this section shall apply to an assessee, being an individual, HUF or partnership firm, not being an LLP. Here, it has been clarified that LLPs are not eligible for presumptive taxation scheme under the said section.
> Advance Tax Calculation for dividend income
Taxpayers will not be required to estimate their dividend while advance tax payments. Advance Tax will now be payable only when dividend is declared or paid by the company.
This will save payment of interest by taxpayer due to underestimation of tax liability while making advance tax payments.
> Goodwill- No depreciation allowed
It has been decided to propose that goodwill of a business or profession, whether self-generated or acquired, will not be considered as a depreciable asset and there would not be any depreciation on goodwill of a business or profession in any situation.
III. Tax Deducted at Source (TDS)
> TDS on purchase of goods- Section 194Q
Tax is required to be deducted by a buyer, if the purchase of goods by him from the seller is of the value or aggregate of such value exceeding Rs 50 Lakh in the previous year. The rate of TDS is kept very low at 0.1%.
*Buyer whose turnover exceeds Rs 10Cr in preceding during the financial year immediately preceding the financial year in which the purchase of goods is carried out.
The provision will not apply to a transaction on which:
a) Tax is deductible under any of the provisions of the Income Tax Act; and
b) Tax is collectible under the provisions relating to collection of Tax at Source (TCS) other than a transaction to which provision related to collecting TCS for the sale of Goods applies.
It’s basically Section 194Q vs 206C (1H) and Section 194 Q wins subject to facts of the case.
> Amendment in section 206AA
It is also proposed to amend sub-section (1) of section 206AA of the Act and insert second proviso to further provide that where the tax is required to be deducted under section 194Q and Permanent Account Number (PAN) is not provided, the TDS shall be at the rate of 5%.
> TDS/TCS on non-filer at higher rates
It is proposed to insert a new section 206AB and 206CCA in the Act as a special provision providing for higher rate for TDS and TCS for the non-filers of income-tax return.
Proposed sections of the Act would apply on any sum or income or amount paid, or payable or credited, by a person (herein referred to as deductee) to a specified person.
Proposed section shall not apply where the tax is required to be deducted under sections 192 (Salaries), 192A (PF), 194B (Winning from lottery etc), 194BB (Winning from horse rates), 194LBC (income received from a securitisation trust) or 194N (Cash withdrawal exceeding Rs 20 lakh) of the Act.
However, it is not clear how the deductor will check whether the person is covered as a ‘specified person’ as defined under the law.
As per memorandum, specified person is defined as:
a) Who has not filed the returns of income for both of the two assessment years relevant to the two previous years which are immediately before the previous year in which tax is required to be deducted or collected.
b) If the time limit for filing tax return has expired for both the years, then, there is another condition to identify specified person. Such condition states that aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years.
IV. Charitable & religious trust
> Set off of deficit not to be allowed to Charitable Institutions
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
> Application from loans and borrowings
Application from loans and borrowings shall not be considered as application for charitable or religious purposes.
> Corpus Contribution to be exempted only if invested
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.
> Relief to Small Trusts
Exemption limit of annual receipt revised from ₹1 crore to ₹5 crore for small charitable trusts running schools and hospitals.
V. Return of Income
> Pre-fillings of returns
Currently, pre-filled details of salaries, interest income, TDS, tax payments, etc are available to a tax payer. Now, it is proposed to provide pre-filled details of capital gains from listed securities, dividend income, etc.
> Relaxation for certain category of senior citizen from filing return of income-tax
It is proposed to provide relief to senior citizens who are age of 75 year or more from filing of Income Tax Return. Provided, pension income and source of income are their only source of income.
The banks to deduct tax on senior citizens more than 75 years of age who have a pension and interest income from the bank.
> Reduction in time limit for filing of belated & revised return
The time limit for filing of belated or revised return has been reduced by 3 months. Accordingly, the belated return or revised return can be filed on or before 31st December of the assessment year or before the completion of assessment whichever is earlier.
> Reduction in the time limit for issuance of notice
It is proposed to reduce the time limit for issue of notice under sub-section (2) of section 143 of the Act from 6 months to 3 months from the end of the financial year in which the return is furnished.
> Reduction in the time limit for issuance of notice
It is proposed to reduce for sending intimation under sub-section (1) of section 143 of the Act from 1 year to 9 months from the end of the financial year in which the return was furnished.
VI. Assessment & Appeal
> Reduction in the time limit for completing assessment
It has been proposed that the time limit for completion of assessment proceedings may be reduced further by 3 months. Thus the time for completing of assessment is proposed to be 9 months from the end of the assessment year in which the income was first assessable.
> Reduction in time limit for income escaping assessment
In normal cases, no notice shall be issued if 3 years have elapsed from the end of the relevant assessment year. Earlier, the time limit was 6 years.
Notice beyond the period of 3 years from the end of the relevant assessment year can be taken only in a few specific cases.
In specific cases where the Assessing Officer has in his possession evidence which reveal that the income escaping assessment, represented in the form of asset, amounts to or is likely to amount to Rs 50 Lakh rupees or more, notice can be issued beyond the period of three year but not beyond the period of 10 years from the end of the relevant assessment year
With the said amendment, government is of the view that the new system would result in less litigation and would provide ease of doing business to taxpayers.
> Constitution of Dispute Resolution Committee
Those assessed with a taxable income of up to Rs. 50 lakh (for small and medium taxpayers) and any disputed income of Rs.10 lakh can approach this committee under section 245MA. It will prevent new disputes and settle the issue at the initial stage.
> National Faceless Income Tax Appellate Tribunal Centre
Provision is made for faceless proceedings before the Income Tax Appellate Tribunal (ITAT) in a jurisdiction less manner. It will reduce the cost of compliance for taxpayers, and increase transparency in the disposal of appeals. Further, it will also help achieve even distribution of work in different benches and ensure efficient administration.
B. Company Matters
> To decriminalize the Limited Liability Partnership (LLP) Act, 2008
> Easing Compliance requirement of Small companies by revising their definition under Companies Act, 2013 by increasing their thresholds for Paid up capital from “not exceeding Rs. 50 Lakh” to “not exceeding Rs. 2 Crore” and turnover from “not exceeding Rs. 2 Crore” to “not exceeding Rs. 20 Cr”.
> Promoting start-ups and innovators by incentivizing the incorporation of One Person Companies (OPCs)
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- Allowing their growth without any restrictions on paid up capital and turnover
- Allowing their conversion into any other type of company at any time,
- Reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and
- Allowing Non Resident Indians (NRIs) to incorporate OPCs in India.
> To ensure faster resolution of cases by:
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- Strengthening NCLT framework
- Implementation of e-Courts system
- Introduction of alternate methods of debt resolution and special framework for MSMEs
> Launch of data analytics, artificial intelligence, machine learning driven MCA21 Version 3.0 in 2021-22
C. GST
> Audited GST Reconciliation Statement not required
Sub-section (5) of section 35 of the CGST Act is being omitted so as to remove the mandatory requirement of getting annual accounts audited and reconciliation statement submitted by specified professional.
Hence, there will be no requirement for the taxpayers to get his books of accounts audited by a CA or CMA (GSTR-9C).
Earlier, taxpayers are required to upload a copy of audited annual accounts reconciliation statement certified by CA or CMA (GSTR-9C). Now, a self-certified reconciliation statement along with audited annual financial statement shall be uploaded.
> GST on Club/Association
It is proposed to insert the following new clause after clause (a), in sub-section 1 of section 7 retrospectively from 1st July 2017:
(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.”
With the introduction of this clause, it is clarified that tax is levied on activities or transactions involving supply of goods or services by any person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.
> Input Tax Credit
Clause (aa) introduced in Sec 16(2), to allow ITC only if details are uploaded by supplier. Now one more condition has been inserted which provides that taxpayers are entitled to avail ITC on purchase invoice only if supplier has uploaded the same on GST portal.
> Interest on net liability
This provision is being amended, retrospectively from 1st July 2017, so as to charge interest on net cash liability.
> Seizure and Confiscation
Section 74 of the CGST Act is being amended so as make seizure and confiscation of goods and conveyances in transit a separate proceeding from recovery of tax.
> Self-Assessed Tax Clarification
Earlier, there was a confusion as to whether SCN needs to be issued to recover the tax, if the taxpayer declares his tax liability in GSTR-1 but failed to pay in GSTR-3B. With this insertion of explanation, it has now become crystal clear that such tax liability can straightaway be recovered under section 79 (recovery of arrears).
> Provisional Attachment of Property
The scope for provisional attachment of property has been widened so as to include many other proceedings.
> Filing of Appeal under Sec 129(3) for detention/sizer of goods
> A proviso is being inserted to provide that no appeal shall be filed against an order made under Sec 129(3), unless a sum equal to 25% of penalty has been paid by the appellant.
> Section 151 of the CGST Act is being substituted to empower the jurisdictional commissioner to call for information from any person relating to any matter dealt with in connection with the Act.
> The commissioner or any officer authorized by him shall not use the information of any person for the purposes of any proceedings under GST Act without giving an opportunity of being heard to such person.
> Section 16 of the IGST Act
Section 16 of the IGST Act is being amended so as to:
(i) zero rate the supply of goods or services to a Special Economic Zone developer or a Special Economic Zone unit only when the said supply is for authorised operations;
(ii) restrict the zero-rated supply on payment of integrated tax only to a notified class of taxpayers or notified supplies of goods or services; and
(iii) link the foreign exchange remittance in case of export of goods with refund.
D. Custom Duty Rationalization
> Twin objectives: Promoting domestic manufacturing and helping India get onto global value chain and export better
> 80 outdated exemptions already eliminated
> Revised, distortion-free customs duty structure to be put in place from 1st October 2021 by reviewing more than 400 old exemptions
> New customs duty exemptions to have validity up to the 31st March following two years from its issue date
> Electronic and Mobile Phone Industry:
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- Some exemptions on parts of chargers and sub-parts of mobiles withdrawn
- Duty on some parts of mobiles revised to 2.5% from ‘nil’ rate
> Iron and Steel:
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- Customs duty reduced uniformly to 7.5% on semis, flat, and long products of non-alloy, alloy, and stainless steels
- Duty on steel scrap exempted up to 31st March, 2022
- Anti-Dumping Duty (ADD) and Counter-Veiling Duty (CVD) revoked on certain steel products
- Duty on copper scrap reduced from 5% to 2.5%
> Textiles:
Basic Customs Duty (BCD) on caprolactam, nylon chips and nylon fiber & yarn reduced to 5%
> Chemicals:
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- Calibrated customs duty rates on chemicals to encourage domestic value addition and to remove inversions
- Duty on Naptha reduced to 2.5%
> Gold and Silver:
Custom duty on gold and silver to be rationalized
> Renewable Energy:
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- Phased manufacturing plan for solar cells and solar panels to be notified
- Duty on solar invertors raised from 5% to 20%, and on solar lanterns from 5% to 15% to encourage domestic production
> Capital Equipment:
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- Tunnel boring machine to now attract a customs duty of 7.5%; and its parts a duty of 2.5%
- Duty on certain auto parts increased to general rate of 15%
> MSME Products:
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- Duty on steel screws and plastic builder wares increased to 15%
- Prawn feed to attract customs duty of 15% from earlier rate of 5%
- Exemption on import of duty-free items rationalized to incentivize exporters of garments, leather, and handicraft items
- Exemption on imports of certain kind of leathers withdrawn
- Customs duty on finished synthetic gem stones raised to encourage domestic processing
> Agriculture Products:
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- Customs duty on cotton increased from nil to 10% and on raw silk and silk yarn from 10% to 15%.
- Withdrawal of end-use based concession on denatured ethyl alcohol
- Agriculture Infrastructure and Development Cess (AIDC) on a small number of items
> Rationalization of Procedures and Easing of Compliance:
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- Turant Customs initiative, a Faceless, Paperless, and Contactless Customs measures
- New procedure for administration of Rules of Origin
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