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Income Tax announcements in Budget Speech:Union Budget 2021

Income Tax announcements in Budget Speech:Union Budget 2021

Finance Minister Smt. Nirmala Sitharaman has presented the Union Budget 2021-22 in the Parliament today on 1st Feb., 2021.


In her Budget Speech, the Finance Minister stated that the world is facing a serious challenge of the pandemic and its aftershock. In these trying times, when many economies are  struggling  to  revive,  our  people  and  our  industry  have  exhibited remarkable resilience.



Further, post-pandemic, a new world order seems to be emerging, one in which Asia is poised to occupy a prominent position and India will have a leading role therein.  In this scenario, our tax system has  to  be  transparent,  efficient,  and  should  promote  investments  and employment  in  our  country.  At  the  same  time  it  should  put  minimum burden on our tax payers.


The Direct Tax Proposals from her Budget Speech are reproduced below:


Direct Tax Proposals


Keeping this in mind, our Government introduced a series of reforms in the Direct tax system for the benefit of our taxpayers and economy.  Few months prior to the pandemic, in order to attract investments  we slashed our  Corporate  tax  rate to  make  it  among the lowest  in  the  world.  The Dividend Distribution Tax too was abolished. The burden of taxation on small taxpayers was eased by increasing rebates. In 2020, the return filers saw a dramatic increase to 6.48 crore from  3.31 crore in 2014.


In the Direct Tax administration, we had recently introduced the Faceless Assessment and Faceless Appeal. I now seek to take further steps to simplify the tax administration, ease compliance, and reduce litigation.


Relief to Senior Citizens

I begin my direct tax proposals by offering my pranaam to our senior citizens. Many of them, despite having foregone several basic necessities of their own, have strived to build our nation.


Now in the 75th year of Independence of our  country, when we continue our  endeavour with renewed vigour, we shall reduce compliance burden on our senior citizens who are 75 years of age and above. For senior citizens who only have pension and interest income, I propose exemption from  filing  their  income  tax  returns.  The  paying  bank  will  deduct  the necessary tax on their income.


Reduction in Time for Income Tax Proceedings


Honourable Speaker, presently, an assessment can be re-opened up to 6 years and in serious tax fraud cases for up to 10 years. As a result, taxpayers  have  to  remain  under  uncertainty  for  a  long  time.


I  therefore  propose  to  reduce  this  time-limit  for  re-opening  of assessment to 3 years from the present 6 years. In serious tax evasion cases too, only where there is evidence of concealment of income of Rs. 50 lakh or more in a year, can the assessment be re-opened up to 10 years. Even this reopening  can  be  done  only  after  the  approval  of  the  Principal  Chief Commissioner,  the  highest  level  of  the  Income  Tax  Department.


Setting up the Dispute Resolution Committee


Honourable Speaker, it has been the resolve of this Government to reduce  litigation,  which  mars  the present  taxation  system.

  

The Government came out with the Direct Tax Vivad Se Vishwas Scheme to give taxpayers an opportunity to settle long pending disputes and be relieved of further strain on their time and resources. The response  from the taxpayers has been the best ever as  over 1 lakh ten thousand  taxpayers have already opted to settle tax disputes of over  Rs. 85,000 crores under this Scheme.


To  further  reduce  litigation  for  small  taxpayers,  I  propose  to constitute a Dispute Resolution Committee for them, which will be faceless to ensure efficiency, transparency and accountability. Anyone with a taxable income up to  Rs. 50 lakh and disputed income up to  Rs. 10 lakh shall be eligible to approach the Committee.


Faceless ITAT


For ease of compliance and to reduce discretion, we  are committed to  make  the  taxation  processes  faceless.  The  Government  has  already introduced faceless assessment and appeal this year.


The next level of income tax appeal is the Income Tax Appellate Tribunal.  I now propose to make this Tribunal faceless. We shall establish a National Faceless Income Tax Appellate Tribunal Centre. All communication between the Tribunal and the appellant shall be electronic. Where personal hearing  is  needed,  it  shall  be  done  through  video-conferencing. 


Relaxation to NRI 


When Non-Resident Indians return to India, they have issues with respect to their accrued incomes in their foreign retirement accounts. This is usually due to a mismatch in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions. I propose to notify for of rules their double taxation. hardship removing 


Exemption from Audit 


Currently, if your turnover exceeds `1 crore, you have to get your accounts audited. In the February 2020 Budget, I had increased the limit for tax audit to `5 crore for those who carry out 95% of their transactions digitally. To further incentivise digital transactions and reduce compliance burden, I propose to increase this limit for tax audit for such persons from `5 crore to `10 crore. 


Relief for Dividend 


In the previous Budget, I had abolished the Dividend Distribution Tax (DDT) in order to incentivise investment. Dividend was made taxable in the hands  of  shareholders.  Now,  in  order  to  provide  ease  of  compliance,  I propose  to  make  dividend  payment  to  REIT/  InvIT  exempt  from  TDS. Further, as the amount of dividend income cannot be estimated correctly by  the  shareholders  for  paying  advance  tax,  I  propose  to  provide  that advance  tax  liability  on  dividend  income  shall  arise  only  after  the declaration/payment  of  dividend.  Also,  for  Foreign  Portfolio  Investors,  I propose to enable deduction of tax on dividend income at lower treaty rate.


Attracting foreign investment into infrastructure sector


In  the  last  budget,  for  attracting  foreign  investment  in  the infrastructure  sector,  we  had  granted  100%  tax  exemption,  subject  to certain conditions, to foreign Sovereign Wealth Funds and Pension Funds, on their income from investment in Indian infrastructure. We have noticed that few of such Funds are facing difficulties in meeting some of these conditions. In order to ensure that a large number of Funds invest in India, I propose to relax some of these conditions relating to prohibition on private funding,  restriction  on  commercial  activities,  and  direct  investment  in infrastructure.   

 

In order to allow funding of infrastructure by issue of Zero Coupon Bonds, I propose to make notified Infrastructure Debt Funds eligible to raise funds by issuing tax efficient Zero Coupon Bonds.


Affordable Housing/Rental Housing


This Government sees ‘Housing for All’ and affordable housing as priority areas. In the July 2019 Budget, I provided an additional deduction of interest, amounting to  Rs. 1.5 lakh, for loan taken to purchase an affordable house. I propose to extend the eligibility of this deduction by one more year,  to  31st  March  2022.  The  additional  deduction  of  Rs. 1.5  lakh  shall therefore  be  available  for  loans  taken  up  till  31st March  2022,  for  the purchase of an affordable house.

Further, to keep up the supply of affordable houses, I propose that affordable housing projects can avail a tax holiday for one more year – till 31st March, 2022.


We are committed to promote supply of Affordable Rental Housing for migrant workers. For this, I propose to allow  tax exemption for notified Affordable Rental Housing Projects.


Tax incentives to IFSC


As  I  mentioned  in  Part  A  of  this  speech,  the  Government  is committed to make the International Financial Services Centre (IFSC) in GIFT City  a  global  financial  hub.  In  addition  to  the  tax  incentives  already provided, I propose to include, among others, tax holiday for capital gains for aircraft leasing companies, tax exemption for aircraft lease rentals paid to foreign lessors; tax incentive for relocating foreign funds in the IFSC; and to  allow tax exemption to the investment division of foreign banks located in IFSC. 


Pre-filling of Returns


169. Honourable Speaker, in order to ease compliance for the taxpayer, details of salary income, tax payments, TDS, etc. already come pre-filled in income tax returns. To further ease filing of returns, details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. will also be pre-filled.


Relief to Small Trusts


We hope to reduce compliance burden on small  charitable trusts running  educational institutions and hospitals. So far, there is a blanket exemption  to  such  entities,  whose  annual  receipt does  not  exceed Rs. 1 crore. I now propose to increase this amount to Rs. 5 crore.


Labour Welfare


We have noticed that some employers deduct the contribution of employees  towards    Provident funds,  superannuation  funds,    and  other social  security  funds  but  do  not  deposit  these  contributions  within  the specified time. For the employees, this means a loss of interest or income. In cases where an employer later becomes financially unviable, non-deposit results in a permanent loss for the employees.


In order to ensure that employees’ contributions are deposited on time, I reiterate that the late deposit of employee’s contribution by the employer will not be allowed as deduction to the employer.


Incentives for Start-ups


In order to incentivise  start-ups in the country, I propose to extend the eligibility for claiming tax holiday for start-ups by one more year - till 31st March, 2022. Further, in order to incentivise funding of the start-ups, I propose to extend the capital gains exemption for investment in start-ups by one more year - till 31st March, 2022.


As per Annex to Part B of Budget Speech, the following the Direct Tax Proposals as per Budget 2021-22 


Annex to Part B of Budget Speech


Direct Tax Proposals:


Sl. No.ProposalsProposed Amendments in brief
1.Relief to Senior CitizensIn order to ease compliance burden on senior citizen pensioners who are of 75 years of age or above, it is proposed to exempt them from the requirement of filing of income tax if the full amount of tax payable has been deducted by  the  paying  bank.  This  exemption  is proposed to be made available to such senior citizens who have only interest income apart from the pension income.
2.Reduction in Time LimitsIn  order  to  reduce  compliance  burden,  the time-limit  for  re-opening  of  assessment  is being reduced to 3 years from the current 6 years  from  the  end  of  the  relevant assessment year.  Re-opening up to 10 years is  proposed  to  be  allowed  only  if  there  is evidence of undisclosed income of ` 50 lakh or more for a year. Further, it is proposed to completely  remove  discretion  in  re-opening and henceforth re-opening shall be made only in cases flagged by system on the basis of data analytics,  objection  of  C&AG  and  in search/survey cases. 
Further, in order to bring certainty in income tax  proceedings  at  the  earliest,  it  is  also proposed to reduce the time limits for general assessment  or  processing  of  income  tax return by three months and also for filing of returns.
3.Relief for DividendIn  order  to  provide  relief  to  taxpayers, advance-tax liability on dividend income shall arise  only  after  the  declaration/payment  of dividend.  The  dividend  paid  to  Real  Estate Infrastructure  Trusts  or  Infrastructure Investment  Trusts  (REIT/InvIT)  shall  be exempt from TDS. It is also proposed to clarify that  deduction  of  tax  on  incomes  including dividend income of Foreign Portfolio Investors may  be  made  at  treaty  rate.  It  is  also proposed to exempt dividend payment from levy  of  Minimum  Alternate  Tax  (MAT)  for foreign company if the applicable tax rate is less than the rate of MAT.
4.Setting  up  of  Dispute Resolution  Committee (DRC)For reducing litigation and to give an impetus to the dispute resolution for small taxpayers, a Dispute Resolution Committee is proposed to be constituted. A taxpayer having taxable income up to Rs. 50 lakh and disputed income up to Rs. 10 lakh shall be eligible to approach the  Committee.  For  ensuring  efficiency, transparency  and  accountability,  the procedure  of  the  Committee  will  be conducted in a faceless manner.
Consequently,  the  Settlement  Commission shall  be  discontinued  from  01.02.2021. However, the pending cases shall be decided by an Interim Board if opted by the applicant.
5.Faceless  Income  Tax Appellate Tribunal (ITAT)In order to provide transparent tax appellate mechanism, it is proposed to the make the Income  Tax  Appellate  Tribunal  faceless  and jurisdiction-less. A National Faceless Income- tax  Appellate  Tribunal  Centre  shall  be established  and  all  the  communication between the Tribunal and the appellant shall be  made  electronically.  Wherever  personal hearing is needed, it shall be done through video-conferencing.
6.Tax  Neutrality  of conversion  of  Urban Cooperative  Bank  (UCB) into a Small Finance Bank (SFB)In order to facilitate the transition of UCBs to SFBs, it is proposed to provide tax neutrality for the transition of UCBs to SFBs. Hence, the UCB shall not be required to pay capital gains for the assets transferred to the SFBs.
7.Tax  incentives  for Affordable  Housing  and Affordable  Rental Housing ProjecIn order to incentivise purchase of affordable house, It is proposed to extend the eligibility period for claim of additional deduction for interest of ` 1.5 lakh paid for loan taken for purchase of an affordable house to 31st March 2022. 
In order to increase the supply of affordable house,  it  is  proposed  to  extend  eligibility period for claiming tax holiday for affordable housing  project  by  one  more  year  to  31st March, 2022.
In  order  to  promote  supply  of  Affordable Rental Housing for the migrant workers, it is also proposed to allow a new tax exemption for  the  notified  Affordable  Rental  Housing Projects. 
8.Tax benefit for Start-upsIn  order  to  incentivise  setting-up  of  more start-ups  in  the  country,  it  is  proposed  to extend  the  eligibility  period  to  claim  tax holiday for the start-ups by one more year to 31st March, 2022.
In order to incentivise investment in start-up, it is proposed to extend the eligibility period of  claiming  capital  gains  exemption  for investment  made  in  the  start-ups  by  one more year to 31st Match, 2022.
9.Relaxation  to  NRI  for Income  of  Retirement Benefit AccountIn  order  to  remove  the  genuine  hardship faced by the NRIs in respect of their income accrued on foreign retirement benefit account due to mismatch in taxation, it is proposed to notify rules for aligning the taxation of income arising on foreign retirement benefit account.
10.Exemption from AuditTo  incentivise  digital  transactions  and  to reduce the compliance burden of the person who is carrying almost all of their transactions digitally, it is  proposed to increase the limit for tax audit for persons who are undertaking 95%  of  their  transactions  digitally  from Rs. 5 crore to Rs. 10 crore.
11.Relaxation  of  Condition for  carry  forward  of  loss for DisinvestmentIn order to promote strategic disinvestment of PSU,  it  is  proposed  to  relax  the  condition regarding carry forward of loss for disinvested PSU in amalgamation.
12.Relaxation  of  Condition for tax neutral Demerger for disinvestmentIn order to promote strategic disinvestment, it is proposed to deem the transfer of assets by the  PSU  to  the  resulting  company  as  tax neutral demerger.
13.Zero  Coupon  Bonds  by Infrastructure  Debt  Fund (IDF)In order to allow funding of infrastructure, it is proposed to make Zero Coupon Bonds issued by notified IDF eligible for tax benefit.
14.Rationalisation  of taxation  of  Unit  Linked Insurance Plan (ULIP)In order to rationalise taxation of ULIP, it is proposed to allow tax exemption for maturity proceed of the ULIP having annual premium up  to  ` 2.5  lakh.  However,  the  amount received  on  death  shall  continue  to  remain exempt  without  any  limit  on  the  annual premium. The cap of ` 2.5 lakh on the annual premium of ULIP shall be applicable only for the  policies  taken  on  or  after  01.02.2021. Further, in order to provide parity, the non- exempt  ULIP  shall  be  provided  same concessional capital gains taxation regime as available to the mutual fund.
15.Rationalisation  of  Tax- free Income on Provident FundsIn order to rationalise tax exemption for the income earned by high income employees, it is proposed to restrict tax exemption for the interest  income  earned  on  the  employees’ contribution to various provident funds to the annual  contribution  of  Rs. 2.5  lakh.  This restriction  shall  be  applicable  only  for  the contribution made on or after 01.04.2021. 
16.Taxability  of  Surplus amount  received  by partnersIn order to provide certainty, it is proposed to rationalise the provisions relating to taxation of the assets or amount received by partners from the partnership firm in excess of their capital contribution.
17.Clarification  on Depreciation on Goodwilln order to provide certainty, it is proposed to clarify that no depreciation on Goodwill shall be allowed. However, the deduction for the amount paid for acquiring Goodwill shall be allowed on sale of Goodwill. 
18.Clarification for the Slump SaleIn order to provide certainty, it is proposed to clarify that slump sale shall include all types of transfer.
19.Fake              Invoice/sham transactionIn order to protect the revenue, it is proposed to  provide  that  the  penalty  proceedings initiated for fake invoice/sham transactions of more than ` 2 crore shall also be eligible for provisional attachment of assets.
20.Exemption      for      Small TrustsIn order to reduce compliance burden on the small  charitable  trusts  running  educational institutions  and  hospitals,  it  is  proposed  to increase the limit on annual receipts for these trusts from present ` 1 crore to ` 5 crore for non-applicability  of  various  compliances  like approval etc. 
21.Carry Forward of loss by Charitable OrganisationsIn order to provide certainty, it is proposed to clarify  that  charitable  trusts  shall  not  be permitted  to  claim  carry  forward  of  loss. However,  the  loan  repayment  and replenishment of corpus shall be allowed as application.
22.Clarification                    for Equalisation LevyIn  order  to  provide  certainty,  it  is  being expressly  clarified  that  transaction  taxable under  income-tax  are  not  liable  for equalisation levy. Further, it is also proposed to  clarify  regarding  applicability  of equalisation levy on physical/offline supply of goods and services.  
23.Timely  deposit  of Employees’  contribution to  labour  welfare  funds by Due DateDelay  in  deposit  of  the  contribution  of employees towards various welfare funds by employers  result  in  permanent  loss  of interest/income for the employees. In order to  ensure  timely  deposit  of  employees’ contribution to these funds by the employers, it is proposed to reiterate that that the late deposit  of  employees’  contribution  by  the employer shall never be allowed as deduction to the employer.
24.Relaxation  in  conditions for  exemption  to Sovereign Wealth Fund & Pension Fund (SWF/PF)In  order  to  incentivise  more  number  of SWF/PF to invest in Indian Infrastructure, it is proposed  to  relax  some  of  conditions  for availing 100% tax exemption introduced in the last  budget.  The  conditions  which  are proposed to be relaxed include prohibition on loans  or  borrowings,  restriction  on commercial  activities,  direct  investment  in entity owning infrastructure, etc.    
25.Tax incentives for IFSCIn order to promote IFSC, It is proposed to provide  more  tax  incentives  which  includes tax  holiday  for  capital  gains  incomes  of aircraft leasing company, tax exemptions for aircraft lease rental paid to foreign lessor, tax incentive  for  re-location  of  foreign  funds  in IFSC  and  tax  exemptions  to  investment division of the foreign banks located in IFSC. 
26.Non-filing   of   Return   by Deductee/CollecteeIn  order  to  discourage  the  practice  of  not filing  returns  by  the  persons  in whose  case substantial  amount  of  tax  has  been deducted/collected, it is proposed to provide that  a  person  in  whose  case  TDS/TCS  of Rs. 50,000 or more has been made for the past two  years  and  who  has  not  filed  return  of income, the rate of TDS/TCS shall be at the double of the specified rate or 5%, whichever is higher. This provision shall not be applicable for the transactions where full amount of tax is required to be deducted e.g. salary income, payment to non-resident, lottery, etc.
27.Levy of TDS on Purchase of GoodsIn  order  to  widen  the  scope  of  TDS,  it  is proposed to levy a TDS of 0.1% on a purchase transaction exceeding Rs. 50 lakh in a year. In order to reduce the compliance burden, it is also  proposed to  provide  that  the responsibility  of  deduction  shall  lie  only  on the  persons  whose  turnover  exceeds  Rs. 10 crore.
28.Substitution  of  Authority for Advance Rulings with Board  for  Advance RulingsTo  ensure  faster  disposal  of  cases,  it  is proposed  to  replace  the  Authority  for Advance  Rulings  with  a  Board  for  Advance Rulings. It is also proposed to provide appeal against the order of such Board to the High Court
29.Alignment  of  Minimum Alternate  Tax  (MAT)  for Advanced  Pricing Agreement  (APA)  and secondary adjustmentIn order to provide relief to the taxpayers in whose case MAT liability has arisen in the year of repatriation on account APA or secondary adjustment, it is proposed to provide relief by aligning the MAT provisions with the year of taxability of such income. 
30.Exemption  for  Leave Travel  Concession  (LTC) cash schemeIn order to provide relief to employees, it is proposed  to  provide  tax  exemption  to  the amount given to an employee in lieu of LTC subject to incurring of specified expenditure. 
31.Increase  in  safe  harbor limit  for  primary  sale  of residential unitsIn order to incentivise home buyers and real estate developers, it is proposed to increase safe harbour limit from 10% to 20% for the specified primary sale of residential units. 
32.Miscellaneous>It  is  proposed  to  make  consequential amendment  in  the  provisions  relating  to processing  of  returns  for  allowing  certain deductions and to provide clarification for adjustment  of  income  reported  in  Audit Report.
>It  is  also  proposed  to  enable  issuance  of notice  for  calling  for  returns  by  the prescribed authority.
>It  is  proposed  to  empower  the  Board  to relax the rule relating to defective return for  a  class  of  taxpayers  and  to  align  due dates of return for certain taxpayers,
>It is proposed to clarify that Limited Liability Partnership  shall  not  be  eligible  for presumptive tax for professionals.
>It is proposed to define the term “liable to tax” to provide certainty.



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