Aatma-Nirbhar Bharat ka Aatmanirbhar Budget
The Union budget 2021 comes on the backdrop of an unprecedented pandemic, which has changed the economic landscape materially due to COVID-19. It is expected to come with announcements which are in line with the Indian government’s focus for a self-reliant economy. As we all aware that FM announced various economic packages and reforms in 2020 to keep the economy afloat, thus Budget 2021 appears merely a watershed event that is expected to lift and give impetus to the Indian economy which is in deep funk. Let’s see whether through this Budget Nirmala Tai able to extricate India out of the current economic mess?
My analysis and view are constrained to few Direct Tax Proposals introduced vide Finance Bill 2021 which unfortunately does not find a place in Budget Speech. As regards amendments in GST Act I will publish another blog on that soon.
In the above background, Let’s start clause wise analysis of Direct Tax Amendments in Budget 2021.
Changes in Tax Slabs for Budget 2021
Don’t read this section with an over expectation or with wide open starry eyes, government has already made themselves very clear last year about Self Reliant India (“Aatma Nirbhar Bharat”) that means Dear Common Man, it’s time you also become Aatma Nirbhar for mitigating your Tax Cost we will not be able to help you in any form of slab relaxation or any form of extra deduction on investing or expending something. I was wondering Why doesn’t the government stop levying taxes and become aatmanirbhar itself?
The common man, which took a hard hit due to medical expenses of COVID-19 and Salary cuts, was pinning hopes on the union budget presented today with high hopes that Nirmala Tai would shake her magic budget wand and drop few drop of pearls for them but unfortunately all of those hopes shattered by the FM in the presented budget
Relaxation in filing ITR of Senior Citizen having age exceeding 75 years
In order to provide relief to senior citizens who are of the age of 75 year or above and to reduce compliance for them, FM has inserted a new section to provide a relaxation from filing the return of income, if the following conditions are satisfied: –
(i) The senior citizen is resident in India and of the age of 75 or more;
(ii) He has pension income and no other income. However, in addition to such pension income he may have also have interest income from the same bank in which he is receiving his pension income;
(iii) This bank is a specified bank. The Government will be notifying a few banks, which are banking company, to be the specified bank; and
(iv) He shall be required to furnish a declaration to the specified bank. The declaration shall be containing such particulars, in such form and verified in such manner, as may be prescribed.
Once the declaration is furnished, the specified bank would be required to compute the income of such senior citizen after giving effect to the deduction allowable under Chapter VI-A (Section 80C, 80D etc) and rebate allowable under section 87A of the Act, for the relevant assessment year and deduct income tax u/s newly introduced Section 194P on the basis of rates in force. Once this is done, there will not be any requirement of furnishing return of income by such senior citizen for this assessment year.
Taxability of Interest on Provident Fund Schemes:
As of now as per Section 10(11) & (12) Interest earned on statutory & recognised provident funds are totally exempted regardless of how large the contribution is, going forward interest earned on PF balance if the annual contribution to PF exceeds Rs. 2.5 Lakhs annually will be taxable. Interest earned on annual PF contribution exceeding 2.5 Lakhs will be subjected to the tax. Employees having basic salary exceeding Rs. 10,41,667/- (Rs.2.50 Lakhs/24% ) will be affected by this amendment. I am still amazed that such an interesting change not found place in Budget Speech. It is still unclear that whether such interest accrued will be taxed during the year or on withdrawal of such funds.
Taxability on withdrawal of ULIP policies on which premium paid exceeds Rs.2.5 Lakhs Annually:
Present provisions of Section 10(D) provide full exemption on maturity proceeds received from ULIP policies if premium payable does not exceed 10% of the Sum Assured. In proposed amendments benefit of this exemption limited now to the such policies wherein aggregate premium does not exceeds Rs.2.5 Lakhs p.a. if such policy issued on or after 01.02.2021. In other words, exemption is still available for existing policies but not for policies issued after today. However, in case of death exemption will be 100%. Those ULIP which will no longer covered under above exemption shall be taxed under Capital Gain head with relevant rates mentioned u/s 111A and 112A. On perusal of the Finance Bill 2021, I noted that consequential amendment was made in Section 112A, however such amendment doesn’t file place u/s 111A.
Extension of benefits u/s 80EEA for First time home buyers
A deduction for interest payments up to Rs 1,50,000 is available under Section 80EEA on satisfying certain conditions such as stamp duty value of such property does not exceed 45 Lakhs and the assessee does not own any residential property on the date of sanction of loan. This deduction is over and above the deduction of Rs 2 lakh for interest payments available under Section 24 of the Income Tax Act. Under proposed budget this scheme is extended up to 31.03.2022.
Time limit for filing Belated and Revised Income Tax Return reduced by 3 Months
Earlier as per the provisions of Section 139(4) belated return an Income Tax Return can be filed up to end of the relevant Assessment Year with Late Fees which is now proposed to reduce by 3 Months. For an example AY 2021-22 (FY 2020-21) normally can be filed upto 31.07.2021 as per Section 139(1) without any late fees, ITR for such year can also be filed belated u/s 139(4) up to 31.03.2022 i.e. up to the end of the Assessment year on payment of late fees. Under the proposed amendment such returns can be now filed only up to 31.12.2021. Similarly, presently ITR can be revised till the end of assessment year, same can be revised now up to only 31.12.2021.
Employee’s Contribution to PF/ESIC Taxable in the hands of deductor if not deposited within Due Date specified under the relevant Act.
(AN INDIRECT RETROSPECTIVE AMENDMENT)
As of now as per the provisions of Section 36(1)(va) and Section-43B Employer contribution to PF/ESIC if not paid within the due date specified under the relevant act is allowed as deductible expense if paid on or before the due date of furnishing ITR. However, there are various courts which have ruled and interpreted that similar analogy applies to Employee Contribution also and this is also deductible. In order to provide clarity and reverse decisions of such courts, necessary amendments are incorporated under the Act which will results into disallowance of claim of Employee Contribution expense if not paid within the due dates specified under the relevant act.
Let us go through the explanation inserted by the FM
“Explanation 5 to the said section so as to clarify that the provisions of that section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of subclause (x) of clause (24) of section 2 applies.”
Do you understand this underlined line in above amendment, it straightaway says that this clause is retrospective. Government has forgotten their promise of not making retrospective amendment so soon.
Special provision for deduction of TDS/TCS for non-filers of ITR (Section 206AB and 206CCA)
I must really applaud this government with their idea of doing something innovative and creative under every Budget to make people busy so that they lost track of all those things and issues which requires nation’s attention. This provision is inserted to ensure that Deductor should deducts more TDS of the persons who are not filing their ITR. One should recall that provisions of deduction of TDS was introduced in Income Tax Act few years ago to ensure that Tax should be collected in advance in the hands of government on Income earned by various persons during the year, but now I think it has changed to complete new object of making compliances tedious.
Who is liable to deduct?
Person who is liable to deduct TDS under section mentioned below. Still to make it clearer every company, every individual/HUF having turnover exceeding Rs. 1 Crore.
Which sections are covered?
Where TDS is deductible under Chapter XVIIB other then Section 192 (Salary), 192A, 194B, 194BB, 194LBC or 194N.
Applicable to which persons (Deductee)?
Person who has not filed the returns of income for both of the 2 preceeding assessment year within the time limit u/s 139(1) AND aggregate of TDS/TCS in his case is Rs.50,000 or more in both of those 2 years.
Rate of TDS?
It is unfathomable to understand that one side government is tapping own back for easy and smooth compliance and on one side introduces such illogical provisions which not only makes the compliance for businesses stringent but also reduces the liquidity and working capital in their hands. It is also important to note that they have inserted a condition that TDS with higher rates will be deducted on persons who doesn’t file their previous two ITR on time specified u/s 139(1) which adds to another complication. Let us understand this through an example, Mr. A supposed to deduct TDS of Mr. B on payment made between 01.04.2021-31.07.2021 u/s 194J @ 10%, now suppose Mr. B has filed his ITR belated for FY 2019-20 and not filed ITR for FY 2020-21 as due date i.e. 31.07.2021 is not expired then Mr. A should remember that he has to deduct TDS @ 10% only, but if that payment is supposed to happen after expiry of due date and Mr. B still not filed the ITR then he has to deduct TDS @ 20% (10% x2). One has to also understand that Mr. A has to obtain copy of Mr. B last 2 year ITR and verify the same before deducting TDS. Also in order to determine applicable rates in force Mr. A would need to obtain similar kind of declaration which employer seeks from an employee regarding deduction and other income. How will Mr. A would decide that Mr. B submitted complete or correct information? I feel there is so much of burden casted on the shoulders of Mr. A.
Section 194Q – TDS on payment of certain sum for purchase of goods
I think soon government will be short of alphabets with the speed they have been introducing TDS/TCS provisions, during my CA studies there were limited TDS sections which is now reached to Q letter, I really feel sad for all those CA students so much of their syllabus increasing budget by budget.
Businessman are still digesting provisions of TCS under Section 206C(1H) wherein person becomes liable for TCS collection @ 0.1% of sales consideration exceeding Rs. 50 Lakhs whose total sales, gross receipts or turnover from the business carried on by him exceed 10 crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out. Now they have introduced provision for deducting TDS on purchase of goods over specified limit also.
TDS Rate? : 0.1%
Eligible Deductor? Whose Sales or Gross Receipts exceeds Rs. 10 Crore in last FY.
TDS rate on What Amount?
The assessee at the time of credit of such sum to the account of the seller or at the time of payment whichever is earlier (covers advance payment) shall deduct an amount equal to 0.1% of such sum exceeding Rs.50 lakhs by way of TDS.
This provision shall not apply where (i) tax is deductible at source under any other provision of this Act; and (ii) tax is collectible under the provisions of section 206C other than a transaction to which section 206C(1H) applies.
In other words, the seller covered by section 206C(1H) would collect 0.1% (w.e.f. 01.04.2021) and the buyer would deduct 0.1% w.e.f. 01.07.2021.
For example if Mr.ABC buys goods from XYZ Co Ltd for Rs.80 lakhs and makes payment, XYZ Co Ltd would collect Rs.3,000 (Rs.80 lakhs minus Rs.50 lakhs) under section 206C(1H). Similarly, Mr.ABC before making payment would deduct identical amount and remit Rs.3,000 as TDS as per section 194Q.
Isn’t this absurd, such a pain Ek dusre ka Kaato!
In preceding year government implemented TCS provision for Seller on Receipt of Sales of Goods, more than Rs. 50 Lakhs as sale consideration, during the current financial year. The TCS is payable on the amount of receipt which is greater than 50 Lakhs and received after 1st. Oct. 2020. The rate of TCS is 0.1% (effective rate is 0.075% due to COVID 19).
There were instances where Seller Turnover is less than 10 Crore but his receipt from sales of goods to particular buyer exceeding Rs.50 Lakhs. Therefore, there was no liability of TCS on seller. To handle this situation Government come up with similar type of provision for Purchaser (Buyer) via TDS applicability.
A cursory look at the proposals for tax deduction at source by the buyer in respect of the payments made to the supplier of goods besides enhanced rate of TDS / TCS applicable in the event of non furnishing of ITRs for the immediately preceding two previous years show that the taxpayers not only have to do business, earn income and pay tax thereon but also have to work for the Government for creating some trail for the purpose of tax collection by the exchequer without pains.
Revamped structure for Reassessment
This is one of the crucial amendments in Budget 2021 which didn’t find place in Budget Speech. After reading the proposed changes I can totally relate myself with that Pakistani cricket fan during World Cup who had gone viral stating “OHH BHAI, EK DAM SE JAZBAAT DADAL DIYE…WAQT BADAL DIYE…ZINDAGI BADAL DI….NI YE MAJAK HO RAHA HAI..”
In order to reduce ongoing litigations during the course of Reassessment FM introduced new provisions with respect to the reassessment. Before explaining new provisions it is necessary to understand present one for fair comparison. Under the present provisions a reassessment can be done when Assessing Officer (AO) has reason to believe that any income chargeable to tax has escaped the assessment. In order to do such assessment AO has to form belief and records reasons for reopening which in most of the cases led to litigation due to incompetence at the end of AO. One can read my detailed analysis on earlier provisions of reassessment at my blog. http://animeshsingi.blogspot.com/2015/06/section-147-reopening-of-assessment_4.html
Proposed Structure is given as below:
1. AO Conducts an enquiry with prior approval of specified authority with respect to information which suggests that Income chargeable to tax has escaped assessment. (Section 148A)
Information means, any information flagged in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time OR any final objection raised by the Comptroller and Auditor General of India to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act.
Flagging would largely be done by the computer-based system who will rely on the information gathered from third party’s u/s 285BA. That means you should not wonder if you have sold any property and shown capital gain on such property in your Income Tax Return, even then also AO can issue notice u/s 148A just to verify the accuracy of the same and can reopen the assessment based on information you will provide in reply to the notice. This word “ANY INFORMATION” would surely lead to some serious damage.
2. AO issues show cause notice to the assessee that why Notice u/s 148 for reassessment should not be issued which assessee has to reply Minimum within 7 Days and Maximum 30 Days. Though section 148A(d) suggests that order should be passed after considering the extended time limit given to the assessee to furnish the reply, but sub section (b) nowhere seems to provide such extention. (Section 148A)
What if such a crucial notice served to the wrong address or due to unforeseen circumstances Assessee overlooked the same?
3. AO after considering reply pass the order u/s 148A.
It is important to note that such order is non appealable. One can challenge the same only through Writ Petition.
4. AO after passing order u/s 148A will issue notice u/s 148 for reassessment within one month from the end of the month if he seems case fit for reassessment.
No obligation cast on the AO to record the reasons for reopening of the assessment or to form a belief based upon such reasons for reopening, he/she can straightaway reopen any case without application of his mind wherein suitable reply not received from the assessee or in such case also wherein assessee failed to reply such notice u/s 148A. Power of AO has been widened up and compliances previously applicable to them has been reduced.
5. AO issues notice u/s 148 to the assessee for filing of ITR.
6. AO completes reassessment u/s 147 of the Act.
7. New time limit u/s 149 for the issuance of the notice u/s 148.
|Normal Cases||3 Year from the end of relevant assessment year.|
(Income chargeable to tax, represented in the form of asset which has escaped amount to Rs.50 Lakhs)
|10 Year from the end of relevant assessment year.|
It is important to note that on one hand FM reduced time limit of issuing scrutiny notice u/s 143(2) but on the other hand gave wide powers to AO to do reassessment u/s 148. In short if AO missed to catch the train of Section 143(2) he can still catch the train u/s 148 and fetch assessee’s neck. Also these amendment empowers AO to reopen compulsory the cases under the Survey, government should understand that there is large difference in Survey and Search both cannot be treated equally.
Raising of exemption limit u/s 10(23)(iiiad) and (iiiae) for Hospital and Educational Institutes
Above section provides exemption to such hospital and educational institutes whose annual receipts does not exceed Rs.1 Crore. Beyond such limit institutes are require to seek approval u/s 12A to take the benefit of exemption. FM now extended such limit to Rs.5 Crore. It is one of the welcome move by the FM as this limit was not extended since the provision was introduced.
Goodwill is no longer a depreciable Asset:
Hon‘ble Supreme Court in the case Smiff Securities Limited [(2012)348 ITR 302 (SC)] held that Goodwill of a business or profession is a depreciable asset under section 32 of the Act, However our FM isn’t happy with this decision and rationale behind it. Thus Section-2, 32 and 43 are amended in order to reverse the decision rendered by Hon’ble Supreme Court.
Increase in Tax Audit Limit:
As per present provisions of Section 44AB every person carrying on business is required to get his accounts audited, if his total sales, turnover or gross receipts, in business exceed 1 crore, in order to reduce compliance burden for such assessee’s such limit is increased to Rs. 10 Crore if aggregate of all receipts and payments individually realises 95% in mode other than cash. There is no such relaxation for professionals.
Charitable Trust no more allowed to carry forward deficit to carry forward and set off in next year u/s 11(5)
Discontinuance of Income-tax Settlement Commission.
Increase in safe harbour threshold under Section 43CA from 10% to 20%
In order to boost the demand in the real-estate sector and to enable the real-estate developers to liquidate their unsold inventory at a lower rate to home buyers, it is Proposed by FM to increase the safe harbour threshold from existing 10% to 20% under section 43CA of the Act, if the following conditions are satisfied:-
Further it is proposed to provide the consequential relief to buyers of these residential units by way of amendment in clause (x) of sub-section (2) of section 56 of the Act by increasing the safe harbour from 10% to 20%. Accordingly, for these transactions, circle rate shall be deemed as sale/purchase consideration only if the variation between the agreement value and the circle rate is more than 20%.
Reducing time limit for completion of Assessment:
|Particulars||Present Time Limit||Revised Time Limit|
|Intimation order of Processing ITR u/s 143(1)||1 Year from the end of financial year in which return is furnished.||9 Months from the end of financial year in which return is furnished.|
|Notice u/s 143(2) for assessment||6 Months from the end of financial year in which return is furnished.||3 Months from the end of financial year in which return is furnished.|
|Assessment Order u/s 143 and 144||21 Months from the end of the assessment year.||9 Months from the end of the assessment year.|
This budget was expected to set an off-kilter path to revived economy back on track which I guess failed to do so in terms of Tax Proposals for common man. No doubt FM announces several highways projects and schemes for Tamil nadu, Kerala, West Bengal and Assam, all four states which will go to polls in April-May this year, hence one can say that it is a Politics driven Budget also. The stock market reaching stratospheric heights is really more of an indication of how divorced it has become from the real economy and its prospects. Those who celebrate the higher profits of some large corporate houses or the gains in the stock market will find out soon enough that these are ephemeral if the vast bulk of the economy continues to stagnate or decline. Only if the Finance Minister realises this and changes her course. Budget should have announced the reforms in tune with the Aatmanirbhar Bharat package to uphold PM Modi’s vision of a self-reliant nation.
Disclaimer: The Contents of the document are solely for information purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Comments on misinterpretation and mistakes are wholeheartedly invited.
Analysis by: CA. Animesh Singi –[email protected]