Budget 2021- Major Direct Tax Amendments

What’s proposed for you in Budget 2021?

“A King/Ruler is the one who creates and acquires wealth, protects and distributes it for common good.”

– Thirukkural 385

A. For Individuals:

1. LTC – Tax exemption to cash allowance in lieu of LTC, from 12th day of October, 2020 to 31st day of March, 2021;

The conditions for this purpose is as under:

• The employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the Block year 2018-21;
• Expenditure incurred by an individual or a member of his family during the specified period on goods or services which are liable to tax at an aggregate rate of twelve per cent or above under various GST laws and goods are purchased or services procured from GST registered vendors/service providers;
• The amount of exemption shall not exceed thirty-six thousand rupees per person or one-third of specified expenditure, whichever is less;
• the payment to GST registered vendor/service provider is made by an account payee cheque drawn on a bank or account payee bank draft, or use of electronic clearing system through a bank account or through such other electronic mode and tax invoice is obtained from such vendor/service provider;
  

2. Interest on Housing Loan – A deduction in respect of interest on loan taken for a residential house property from any financial institution up to one lakh fifty-thousand rupees.

The condition that the loan has been sanctioned during the period beginning on 1st April, 2019 and ending on 31st March, 2021 is now proposed to be extended to 31st March 2022.

Other conditions to note:

• The stamp duty value of the residential house property does not exceed forty-five lakh rupees
• The assesse does not own any residential house property on the date of sanction of loan.

3. The exemption of capital gain which arises from the transfer of a long-term capital asset, being a residential property (a house or a plot of land), owned by the eligible assesse, if utilised for subscription in the equity shares of an eligible start-up, before the due date of furnishing of return of income under sub-section (1) of section 139 of the Act is now available when the residential property is transferred on or before 31st March, 2022.

4. Exemption under Section 10(10D) for maturity of life insurance policies, shall not apply with respect to any ULIP issued on or after the 1st February, 2021, if the amount of premium payable for any of the previous year during the term of the policy exceeds two lakh and fifty thousand rupees. This shall not apply to any sum received on the death of a person.

Such ULIP is a capital asset in the definition of equity oriented fund in section 112A and profit and gains from the redemption of ULIP will be taxed as capital gains so as to provide them same treatment as unit of equity oriented fund. Thus provisions of section 111A and 112A would apply on sale/redemption of such ULIPs.

These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22

5. Interest income from provident fund will now be taxable on encashment if the contribution made by the person exceeds two lakh and fifty thousand rupees in a previous year in that fund, on or after 1 st April, 2021.

6. In order to provide relief to senior citizens who are of the age of 75 year or above and to reduce compliance for them, it is proposed to provide a relaxation from filing the return of income, if the following conditions are satisfied:-

• The senior citizen is resident in India and of the age of 75 or more during the previous year;
• 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;
• This bank is a specified bank. The Government will be notifying a few banks, which are banking company, to be the specified bank; and
• He shall be required to furnish a declaration to the specified bank.
• 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 and rebate allowable under section 87A of the Act, for the relevant assessment year and deduct income tax 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. This amendment will take effect from 1 st April, 2021.

7. The provision where any person receives any immovable property for a consideration and the stamp duty value of such property exceeds ten per cent of the consideration or fifty thousand rupees, whichever is higher, the stamp duty value of such property as exceeds such consideration shall be charged to tax under the head ―Income from other sources, is now increased to twenty percent of the consideration.

B. For Corporates, businesses and start-ups:

1. In order to reduce compliance burden on small and medium enterprises, the threshold limit for a person carrying on business whose accounts are required to be audited, is now proposed to be increased to ten crore rupees in cases where,-

• aggregate of all receipts in cash during the previous year does not exceed five per cent of such receipt; and
• aggregate of all payments in cash during the previous year does not exceed five per cent of such payment.

2. The provisions of presumptive taxation for professionals having gross receipts of not more than Rs. 50 Lakhs is now clarified to not be applicable to Limited Liability Partnership (LLP) as defined under clause (n) of sub-section (1) of section 2 of Limited Liability Partnership Act, 2008.

3. On a cautionary note, businesses will need to be more vigilant towards the deposit of employee’s contribution to PF. The due date as given under the respective statute will be the due date for deposit of the employee contribution, ie. 15^th of every month for EPF and 21^st of every month for ESI. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. This amendment shall apply retrospectively.

4. For the businesses into developing and building affordable housing project, the deduction of an amount equal to hundred per cent of the profits and gains derived from such business was allowed, subject to certain conditions specified therein, be. One of the conditions is that the project is approved by the competent authority after the 1st day of June 2016 but on or before the 31st day of March 2021. The same is now extended to 31st March 2022.

5. Extension of date of incorporation for eligible start up for exemption and for investment in eligible start-up:

The deduction of an amount equal to hundred percent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years at the option of the assessee was available under section 80-IAC,

• Subject to the condition that the total turnover of its business does not exceed one hundred crore rupees
• The eligible start-up is required to be incorporated on or after 1st day of April, 2016 but before 1st day of April 2021.

This is now extended to 1st April, 2022

6. Where the consideration received or accruing as a result of the transfer of land or building or both, is less than the stamp value, such stamp value will be deemed as the consideration for computing profits and gains from transfer of such assets. However, if stamp duty does not exceed one hundred and ten per cent of the consideration received then the consideration of such asset would be deemed to be the full value of the consideration. This has now increased from existing 10% to 20%, if the following conditions are satisfied:-

• The transfer of residential unit takes place during the period from 12th November, 2020 to 30th June, 2021
• The transfer is by way of first time allotment of the residential unit to any person
• The consideration received or accruing as a result of such transfer does not exceed two crore rupee

7. It is proposed to amend the scope of the definition of the term ―slump sale – so that all types of “transfer” as defined in the Act are included within its scope.

8. It is proposed to provide for TDS by person responsible for paying any sum to any resident for purchase of goods. The rate of TDS is 0.1%.

The tax is only required to be deducted by those person (i.e ―buyer) whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out.

These amendments will take effect from 1st July, 2021.

9. Following clarifications made with respect to various provisions concerning Equalization levy:

• Consideration received or receivable for specified services and consideration received or receivable for e-commerce supply or services shall not include consideration which are taxable as royalty or fees for technical services in India

• For the purposes of defining e-commerce supply or service, ―online sale of goods and ―online provision of services shall include one or more of the following activities taking place online: (a) Acceptance of offer for sale; (b) Placing the purchase order; (c) Acceptance of the Purchase order; (d) Payment of consideration; or (e) Supply of goods or provision of services, partly or wholly

• Consideration received or receivable from e-commerce supply or services shall include: (i) consideration for sale of goods irrespective of whether the e-commerce operator owns the goods; and (ii) consideration for provision of services irrespective of whether service is provided or facilitated by the e-commerce operator.

These amendments will take effect retrospectively from 1st April, 2020.

10. The computation of book profit under section 115JB – Minimum Alternate Tax – is now proposed to be adjusted for

• in cases where past year income is included in books of account during the previous year on account of an APA or a secondary adjustment, the Assessing Officer shall, on an application made to him by the assessee, recompute the book profit of the past year(s) and tax payable, if any, during the previous year, in the prescribed manner

• similar treatment to dividend as already there for capital gains on transfer of securities, interest, royalty and Fee for Technical Services (FTS) in calculating book profit for the purposes of section 115JB of the Act, so that both specified dividend income and the expense claimed in respect thereof are reduced and added back, while computing book profit in case of foreign companies where such income is taxed at lower than MAT rate due to DTAA

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

C. For Charitable Trusts

1. The exemption of income received by any person on behalf of different funds or institutions etc. is available if the annual receipts do not exceed Rs 1 crore, it has been proposed that the exemption shall be increased to Rs 5 crore and such limit shall be applicable for an assessee with respect to the aggregate receipts from university or universities or educational institution or institutions as well as from hospital or hospitals or institution or institutions.

This amendment will take effect from 1st April, 2022 and will accordingly apply to the assessment year 2022-23 and subsequent assessment years.

2. Application out of corpus shall not be considered as application for charitable or religious purposes. However, when it is invested or deposited back, into one or more of the forms or modes specified, 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.

3. Application from loans and borrowings shall not be considered as application for charitable or religious purposes. 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.

4. No set off or deduction or allowance of any excess application, of any of the year preceding the previous year, shall be allowed

These amendments will take effect from 1st April, 2022 and will accordingly apply to the assessment year 2022-23 and subsequent assessment years

D. Certain other amendments to note:

1. Dividend income is now proposed to be included in the relaxation from payment of interest under section 234C of the Act since accurate determination of advance tax liability is not possible due to the intrinsic nature of the income. This amendment will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.

Hence advance tax liability for such income will arise only subsequent to accrual of dividend income.

2. Pre-filled forms will be available for ease of compliance in filing of return which will include:

• Capital gains from listed securities
• Dividend income
• Interest from Bank, Post Office

3. Lastly, it is proposed that the last date for filing of belated or revised returns of income, as the case may be, be reduced by three months. Thus, the belated return or revised return could now be filed only upto 31^st December of the relevant assessment year.

If the proposals are implemented in letter and spirit, they will provide more confidence and clarity to investors and stakeholders.

“Faith is the bird that feels the light and sings when the dawn is still dark…”

{Disclaimer: The above amendments have been proposed in Finance Bill,2021 and yet to be notified. This publication contains information in summary form and is therefore intended for general guidance only. It cannot be taken as a substitute for detailed research or the exercise of professional judgement. No responsibility will be accepted for loss occasioned to any person acting or refraining from action as a result of any material in this publication.}