Union budget 2021 – Highlights of Key Proposals, Personal Tax & Corporate Tax

The Finance Minister’s statement that “100 years of India wouldn’t have seen a budget being made post-pandemic like this”, had raised the bar of expectations of the tax payers of great reliefs from taxes and simple compliances. And, otherside there were apprehensions regarding introduction of new taxes such as Covid Cess, Wealth Tax, etc. However, Budget proposals announced by Hon’ble Finance Minister Smt. Nirmala Sitharaman on 1^st February, 2021 has, as expected, brought relief for the tax payers and laid down foundation stone for expansion of economy of India and recovery of growth from the impact of pandemic Covid-19.

KEY PROPOSALS

• Personal and corporate income tax rates remain unchanged under the Income-tax Act, 1961 (‘the Act’)
• The term ‘liable to tax’ defined in relation to a person to mean 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.
• Threshold limit for tax audit of entities carrying out 95% business transactions digitally increased from five crore rupees to ten crore rupees
• Goodwill of a business or profession 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.
• Advance tax on dividend income (other than deemed dividend) payable only after its declaration
• It is proposed to provide for TDS on purchase of goods from resident @ 0.1% (5% for Non-PAN cases) on the sum exceeding fifty lakh rupees, subject to certain conditions.
• The last date for filing of belated or revised returns of income, as the case may be, proposed to be reduced by three months before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.
• It is proposed that while processing the return of income to allow for the adjustment on account of increase in income indicated in the audit report but not taken into account in computing the total income
• The time limit for sending intimation proposed to be reduced from one year to nine months from the end of the financial year in which the return was furnished.
• The time limit for completion of assessment is proposed to be nine months from the end of the assessment year in which the income was first assessable, for the assessment year 2021-22 and subsequent assessment years.
• The Bill proposes a completely new procedure for assessment or reassessment or re-computation of income escaping assessment and the assessment of search related cases. No notice to be issued if three years have elapsed from the end of the relevant assessment year. However, cases where income escaping assessment, represented in the form of asset, amounts to or is likely to amount to fifty lakh rupees or more, notice can be issued beyond the period of three year but not beyond the period of ten years from the end of the relevant assessment year.
• Assessing Officer empowered to make provisional attachment of property of the assessee if the penalty amount, for false entry / omit an entry from his books of accounts, imposable is likely to exceed two crore rupees.
• It is proposed to insert a special provision providing for higher rate of TDS/TCS for the non-filers of return of income
• It is proposed to discontinue Income-tax Settlement Commission and to constitute Interim Board of settlement for pending cases
• In order to provide early tax certainty to small and medium taxpayers, a new scheme is proposed for preventing new disputes and settling the issue at the initial stage
• Faceless scheme be launched for ITAT proceedings on the same line as faceless appeal scheme

PERSONAL TAX

• No changes proposed in the personal tax rates under old as well new regime of taxation
• No changes proposed in rebate, surcharge and health and education cess rates
• Senior citizen resident in India (age of 75 years and more) having pension income and also interest income from the same specified bank in which pension income is received are exempted from filing income tax return upon furnishing declaration to such bank
• Any sum received (other than on the death of a person) from Unit Linked Insurance Policy (ULIP) issued (one or more policy) on or after 1st February, 2021 not exempt if aggregate premium amount payable for any of the previous year during the term of the policy exceeds two lakh and fifty thousand rupees. Further, gain arising on redemption of such ULIPs will be taxable as deemed profit and gains i.e. as capital gain.
• Cash allowances received in lieu of LTC to be exempt from tax only for the FY 2020-21 in respect of specified expenditure to the extent of thirty-six thousand rupees per person or one-third of specified expenditure, whichever is less
• New provision is proposed to address mismatch in taxation of income from notified overseas retirement fund account opened by a person resident in India who opened a specified account in a notified country while being non-resident in India and resident in that country
• Time limit for sanctioning of loan, for claiming additional deduction in respect of interest on loan taken for a first residential house property from any financial institution up to one lakh fifty-thousand rupees, extended to 31st March, 2022.
• Due date for filing return of income of partner of a firm requiring to furnish transfer pricing report proposed to be extended to 30^th November
• Interest accruing/ received from a Recognized Provident Fund on employee contributions exceeding two lakh and fifty thousand rupees in a previous year on or after 1st April, 2021 will be taxable
• It is proposed to provide the relief to buyers of residential units under section 56(2)(x) of the Act by increasing the safe harbour limit from 10% to 20%. 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%

CORPORATE TAX

• No changes proposed in the corporate tax rates
• It is proposed that in cases where past year income is included in books of account during the previous year on account of an Advance Pricing Agreement (APA) or a secondary adjustment, the Assessing Officer shall, on an application made to him in this behalf 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.
• Where dividend income of foreign company is taxed at lower than MAT rate due to DTAA, the dividend income and relatable expenditure are to be excluded while calculating the book profit
• No Equalisation Levy on ‘Royalty’ or ‘Fees for Technical Services’ transaction which are taxable under the Act or DTAA.
• It is proposed to amend the scope of the definition of the term ‘slump sale’ to include all types of transfer
• Last date of incorporation for eligible start up for exemption and for investment (capital gain on transfer of residential property) in eligible start-up extended to 31^st March, 2022.
• Infrastructure debt funds permitted to issue zero coupon bonds and also no tax withholding proposed from interest paid or payable by an infrastructure debt fund in relation to a zero coupon bond issued
• Provisions relating to investments by Sovereign Wealth Fund (SWF) and Pension Fund (PF) are rationalized in order to remove the difficulties and to encourage investments by SWF and PF with certain conditions
• Incentives for ‘affordable housing project’ extended to ‘affordable rental housing projects’ notified by the Central Government. Time-limit for approval of affordable housing project extended to 31^st March, 2022
• 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 to increase the safe harbour threshold from existing 10% to 20% if the transfer of residential unit takes place during the period from 12th November, 2020 to 30th June, 2021 by way of first time allotment of the residential unit to any person provided the consideration received or accruing as a result of such transfer does not exceed two crore rupees.
• Limited Liability Partnership professional not eligible for presumptive taxation under section 44ADA of the Act
• Various tax incentives proposed for units located in International Financial Services Centre (IFSC)
• Exemption of deduction of tax at source on payment of dividend to business trust in whose hand dividend is exempt
• It is proposed to deduct tax on dividend income of Foreign Portfolio Investors (FPI) at DTAA rate.

Hope you find the above information relevant and useful.

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(The Author is a CA in practice at Mumbai and can be contacted at E-mail: [email protected])