As On 1st Feb, 2021 and much to the expectation of all, our finance minister has infused capital expenditure much needed for the development. As much in a budget for income tax there was no change in slab rates as well as introduction of any covid cess which are doing rounds in social media. But much to surprise for all the professionals there was so much for them to ponder upon and analyse them for their applicability of provisions on their clients.
Amendment in Section 10
In Section 10(10D) sub-clause (c ) the fourth, fifth and sixth has been inserted in which fourth Proviso says that if amount Contributed towards ULIP (Unit Linked Insurance Policies) is more than Rs. 2.5 Lakhs then the exemption will not be given and this section will not apply. Fifth Proviso says if a person has more than one ULIP,for the purpose of calculating the limit of Rs.2.5 lakhs, aggregate of the contribution towards the policies will be taken into account. The Corresponding effect was made in provisions of section 45 and section 112A as section 45 states the any person receives the amount under ULIP on which exemption under section 10(10D) does not apply i.e. in excess of Rs.2.5 lakhs will be taxed as capital gain and as the same is arising on account of equity it will be taxed at concessional rate of 10% under section 112A.Sixth proviso says proviso fourth and fifth will not apply in case of death of a person. Also in section 10(11) and 10(12) interest income earned on contribution made in excess of Rs.250000 in PPF(Public Provident Fund),RPF (Recognised Provident Fund) or ULIP will be taxable.
In section 10(23C) the exemption on account of receipt of educational institution or any hospital has been increased to Rs.5 crore in comparison to previous limit of Rs.1 crore.
After Explanation 1 in Section 10(23C) Explanation 2 has been inserted which says application for charitable or religious purpose from corpus will not be treated as application of funds as referred in explanation 1.It will be treated as application in the previous year in which the same amount or part thereof is invested or deposited back as specified u/s 11(5) specifically for such corpus from income of that previous year and to the extent of such investment or deposit. Following the same any loan or borrowing will not be application in the year in which the loan is applied towards charitable or religious purpose but it will be treated as application in the year in which the loan is repaid back.
Also Explanation 5 has been inserted which states that for computation of income of any previous year there will not be any setoff allowed of any excess application of any year preceding the previous year.
Amendment in Section 32
Now Goodwill is not taken eligible for depreciation. Goodwill will be part of capital asset but no depreciation will be calculated on it. This amendment is made from current financial year i.e.2020-21 A.Y. 2021-22.Corresponding changes made in provisions of section 48 and section 55 in terms of how to calculate capital gain in case of transfer. The cost of acquisition will be only for purchased goodwill and in case of self generated goodwill there will be nil cost of acquisition. As regarding in past goodwill if considered in block of asset and depreciation was claimed the WDV of goodwill be taken as cost of acquisition for that purpose. This amendment also overruled the Supreme court judgements which states that goodwill is an intangible asset on which depreciation is to be allowed.
Amendment in Section 36 and Section 43B
The deduction from employees salary is income in hands of employer u/s 2(24) and when deposit made towards ESIC & PF is an eligible expenditure u/s 36(1)(va)before budget. For The purpose of Section 36(1)(va),as section 43B was amended supreme court has said that even if the deposit is made after due date of respective acts but before due date of filing income tax returns it will be eligible expenditure, but now amendment made in this budget if the deposit is not made according to the due dates as mentioned in ESIC act or PF act, the same will not be allowed as expenditure and will be disallowed.
Amendment in Section 43CA
The sale of first time allotted residential unit to a person by a real estate developer from the period 12th day of November 2020 and ending on 30th day of june ,2021 and the consideration received or accruing must not exceed Rs. 2 crore, then the concession of 110 percent allowed earlier will be taken as 120 percent of the value at which the property is sold below circle rate. Corresponding changes have been made in section 56(2)(x) in which the difference between sale consideration and circle rate was deemed as income from other sources now the difference if within 20 percent will not be considered as deemed income earlier it was 10 percent.
Amendment in Section 44AB
The Limit of Rs. Five crore has been substituted with Rs.10 Crore.
Amendment in Section 44ADA
In this section now LLP are excluded from the eligibility u/s 44ADA.
Amendment in Section 45
As discussed earlier section 45(1B) has been inserted with an non obstante clause that the contribution of ULIP above Rs.2.5 Lakhs will be treated as an capital asset and on which there will be an applicability of capital gain provisions.
45(4) and 45(4A) has been introduced which states provisions applicable to partnership firm, AOP or BOI. Section 45(4) states that in case of dissolution or reconstitution of firm if any asset has been transferred to any partner or member which represent his capital account balance then any profits or gains arising on transfer of capital asset will be treated as “capital Gain” of partnership firm or AOP or BOI as the case may be. For the purpose of section 48,the FMV of the asset will be taken as on the date of transfer by partnership firm/AOP/BOI. The COA will be as per the books of account. Also one proviso has been inserted which says that capital account balance of the specified person is to be calculated without revaluation of any asset or self generated goodwill or any other self generated asset.
Section 45(4A) states that if the specified person receives money or asset in excess of his capital balance at the time of dissolution or reconstitution of specified entity i.e.partnership firm/AOP/BOI then there will be capital gain in the hand of specified entity. The difference between value of money or FMV of asset on date of transfer and the balance in capital account on date of reconstitution or dissolution as COA will be Capital gain in hands of specified entity. Same proviso as inserted in section 45(4) has been inserted here which restricts increase in asset value through revaluation.
Amendment in Section 80EEA
The deduction of interest under affordable housing scheme in which investment in house of value upto Rs.45 lakhs which was valid upto 31st march,2021 has been increased to 31st march,2021.
Amendment in Section 80IBA
Subsection (1A) has been inserted which provides for the deduction of 100 percent of profits and gains derived from business of developing and building rental housing project.
Amendment in Section 115JB
As we know for computing book profit there is an exemption under chapter III which provides for incomes which are to be deducted while computing book profit. Now in this budget, the exemption u/s 10(34) has been diluted which specifies dividend income. As a result, the dividend income will not be deducted while computing book profit from retrospective effect i.e. from 1st April,2020.
Amendment in Section 139
The due date of filing of return for a partner will be same as per that of the partnership firm before the budget. But now after the budget, spouse of partner will also have the same due date as that of the partnership firm and that of the partner.
The time limit of filing the return is now reduced to 31st December of the relevant assessment year earlier which was 31st march. The budget has substituted words “return for any previous year at any time before” with “a return for any previous year at any time within three months prior to”.
Revised return time limit has also been reduced from six months to three months now.
Amendment in Section 143
Sub section (2) has been modified to provide for three months now in place of six months. Meaning thereby the notice of scrutiny which is to be served within six months from the end of financial year in which return was filed is now to be served within three months from end of financial year in which return was filed.
Amendment in Section 147
The income escaping assessment has now to be completed within nine months from the end of relevant assessment year earlier which was one year.
Amendment in Section 149
Time limit for serving the notice u/s 148 has been changed which divides it into two parts. In part one income which has escaped assessment is less than Rs.50 Lakhs then the period of serving notice will be three years from end of relevant assessment year.
In part two,if income escaping assessment is Rs.50 Lakhs or more, the time limit for serving the notice u/s 148 will be ten years from end of relevant assessment year.
Amendment in Section 153
In respect of order of assessment relating to assessment year commencing on or after 1st day of april ,2021 the time limit will now be nine months in place of twenty one months.
New section 194P
In this section, senior citizen aged 75 years or more who is having income in the form of pension in the bank and receiving interest income in the same bank will have to submit declaration to the bank so that the specified bank will calculate the total income after taking into account deduction under chapter VI-A and rebate under section 87A and deduct TDS on income at the specified rates in force.It states in subsection(2) that the provisions of section 139 that is return filing section will not be applicable to specified senior citizen.
New section 194Q
This provision is applicable to a buyer whose sales/turnover is more than Rs. 10 crore in preceding financial year and who has purchased value of goods exceeding Rs.50 lakhs, the buyer will have to deduct TDS @ 0.1 percent at the time of credit of such sum to the account of seller or payment to seller, whichever is earlier.
This provision is just opposite of section 206(1H) introduced last year under which seller is required to collect the tax other condition remaining same. The Provision of section 194Q will not be applicable in case tax is deductible under any other provision of the income tax act or tax is collectible u/s 206(1H).
Corresponding amendment is made under section 206AA which states that person not furnishing pan will attract 5 percent of TDS instead of 20 percent under 194Q.
New section 206AB
This section contains non obstante clause which state notwithstanding anything contained in any provisions of act where tax is required to be deducted at source under provision of chapter XVIIB, other than sections 192,192A,194B,194BB,194LBC or 194N on any sum of income or amount paid or payable the tax will be deducted at higher of (1)twice the rate specified in relevant section (2)twice the rate in force (3) at rate of five percent. If the provision of 206AA also gets attracted with this section then the rate applicable for deducting tax will be highest of the rates mentioned under these two sections.
This section is applicable on the specified person who according to this section is a person who has not filed income tax return for previous two financial year before the financial year in which tax is required to be deducted for which time limit of filing of return u/s 139(1) has expired and aggregate of TDS and TCS in any of the abovementioned two previous years is Rs.50000 or more.
The major changes have been discussed in this article but from the budget the conclusion we can draw is that the law has been amended in most of the cases to overrule the supreme court judgements. Some provisions are very difficult to comply and only a handful of provision give relaxation. It is good that the time limit of cases to be reduced for assessment and search & seizure cases but at the same time compliance burden of charitable trust will not do any good for them. The provisions of section 206AB is really a new and a complex provision of law which is to be followed and this is a big task for professionals as well as for the assessee.
Source: The Finance Bill,2021 and Memorandum Explaining the Provisions in the Financial Bill.
Name :CA Ankit Khajanchi (Practising CA) – Email id :email@example.com