The Finance Minister provided relief to senior citizens in filing of income tax returns, reduced time limit for income tax proceedings announced setting up of the Dispute Resolution Committee, faceless ITAT, relaxation to NRIs, increase in exemption limit from audit and relief for dividend income. She also announced steps to attract foreign investment into infrastructure, relief to affordable housing and rental housing, tax incentives to IFSC, relief to small charitable trusts, and steps for incentivizing Start-ups in the country.
Smt. Nirmala Sitharaman, in her Budget speech, said that post-pandemic, a new world order seems to be emerging and India will have a leading role therein. She said in this scenario, our tax system has to be transparent, efficient and should promote investment and employment in the country. The Minister said that at the same time, it should put minimum burden on our tax payers. She said that a series of reforms had been introduced by the Government for the benefit of tax payers and economy, including slashing of corporate tax rate, abolition of dividend distribution tax, and increasing of rebate for small tax payers. In the year 2020, the income tax return filers saw a dramatic increase to 6.48 crore from 3.31 crore in 2014.
Summary of Direct/ Indirect Tax Proposals made by the Finance Minister in the Budget 2021:
A. DIRECT TAX PROPOSALS;
1. Relief to Senior Citizens (75 years or more)
ITR filing exemption has been proposed in Budget 2021 for Senior Citizens (age 75 years or more) having only pension/ interest income, to reduce their compliance burden. In such cases, the banks paying such pension/ interest will be responsible to deduct necessary tax at source (TDS) on their income.
2. Reduction in Time Limit for Re-opening Assessment/ Income Tax Proceedings
Reduction in Time Limit has been proposed in Budget 2021 for Re-opening of Income Tax Proceedings within 3 years, as against existing limit of 6 years, except in serious tax evasion cases of Rs. 50 lacs or more, wherein existing limit of 10 years will continue subject to approval of Principal CCIT.
3. Relief for Dividend
In 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.
The Budget provides that advanced tax liability on dividend income shall arise only after the declaration or payment of dividend. The Minister said that this was being done as the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax.
4. Setting up of Dispute Resolution Committee (DRC)
Dispute Resolution Committee is proposed to be constituted, for reducing litigation and to give an impetus to the dispute resolution for small taxpayers, i.e. preventing fresh disputes and also settlement thereof in the early stage for certain SMEs.
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. ITAT shall be made faceless, like in the case of Faceless Appeals/ Penalty Scheme. 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 Project
In order to incentivise purchase of affordable house, It is proposed to extend the eligibility period for claim of additional deduction for interest of Rs. 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-ups
In 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 Account
In 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. Enhanced Tax audit Exemption Limit of Rs. 10 crore for promoting Digital Transactions
Enhanced Tax Audit Exemption limit of Rs. 10 crore, as against existing limit of Rs. 5 crore, has been proposed in Budget 2021, for taxpayers having 95% or more Digital Turnover.
11. Relaxation of Condition for carry forward of loss for Disinvestment
In 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 disinvestment
In 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 Rs. 2.5 lakh. However, the amount received on death shall continue to remain exempt without any limit on the annual premium. The cap of Rs. 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 Funds
In 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 partners
In 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 Goodwill
In 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 Sale
In order to provide certainty, it is proposed to clarify that slump sale shall include all types of transfer.
19. Fake Invoice/ sham transaction
In order to protect the revenue, it is proposed to provide that the penalty proceedings initiated for fake invoice/ sham transactions of more than Rs. 2 crore shall also be eligible for provisional attachment of assets.
20. Exemption for Small Trusts
In 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 Rs. 1 crore to Rs. 5 crore for non-applicability of various compliances like approval etc.
21. Carry Forward of loss by Charitable Organisations
In 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 Levy
In 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 Date
Delay 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) to attract Foreign Investments
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 IFSC
In 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/ Collectee
In 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 Goods above Rs. 50 lacs
TDS of 0.1% on transaction of purchase of goods exceeding Rs. 50 lakh in a year has been proposed in Budget 2021, applicable in the case of persons whose turnover exceeds Rs. 10 crore.
28. Substitution of Authority for Advance Rulings with Board for Advance Rulings
To ensure faster disposal of cases, it is proposed to replace the Authority for Advance Rulings (AAR) with a Board for Advance Rulings. It is also proposed to provide appeal against the order of such Board to the High Court. For the purpose, Central Government will constitute one or more Board(s) for Advance Rulings, comprising of two members (not below the rank of Chief Commissioner). Ruling of the Board shall not be binding on the IT Department as well as the taxpayer and shall be subject to appeals in the High Court.
29. Alignment of Minimum Alternate Tax (MAT) for Advanced Pricing Agreement (APA) and secondary adjustment
In 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 Scheme
In 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 units
In 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.
i) 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.
ii) It is also proposed to enable issuance of notice for calling for returns by the prescribed authority.
iii) 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,
iv) It is proposed to clarify that Limited Liability Partnership shall not be eligible for presumptive tax for professionals.
v) It is proposed to define the term “liable to tax” to provide certainty.
vi) In order to ease filing of returns, the Budget proposes that details of capital gains from listed securities, dividend income and interest from banks, post office etc. will also be pre-filled in returns. Details of salary income, tax payment, TDS, etc., already come pre-filled in returns.
B. INDIRECT TAX PROPOSALS
On the issue of Indirect Tax proposals, the Minister said that record GST collections have been made in the last few months. She said several measures have been taken to further simplify the GST. The capacity of GSTN system has been announced. Deep analytics and artificial intelligence have been deployed to identity tax evaders and fake billers, launching special drives against them. The Finance Minister assured the House that every possible measure shall be taken to smoothen the GST further and remove anomalies such as the inverted duty structure.
With respect to the custom duty policy, the Finance Minister said that it has the twin objectives of promoting domestic manufacturing and helping India get on to global value change and export better. She said that the thrust now has to be on easy access to raw materials and exports of value added products. In this regard, she proposed to review 400 old exemptions in the custom duty structure this year. She announced that extensive consultation will be conducted and from 1st October, 2021, a revised custom duty structure free of distortions will be put in place. She also proposed that any new custom duty exemptions henceforth will have validity upto to the 31st March following 2 years of the date of its issue.
The Finance Minister announced withdrawal of a few exemptions on parts of chargers and sub-parts of mobile phones further some parts of mobiles will move from “NIL” rate to a moderate 2.5 per cent. She also announced reducing custom duty uniformly to 7.5 per cent on semis, flat, and long products of non-alloy and stainless steel. She also announced exempting duty on steel scrap for a period upto 31st March 2022.
Stressing on the need to rationalize duty on raw material inputs to man-made textile, the Finance Minister announced bringing nylon chain on par with polyester and other man-made fibers. Announcing uniform deduction of the BCD rates on Caprolactam, nylon chips and nylon fiber and yarn to 5 per cent, the Minister said this will help the textile industry, MSMEs and exports too. She also announced calibration of customs duty rate on chemical to encourage domestic value addition and to remove inversions. The Minister also announced rationalization of custom duty on gold and silver.
The Finance Minister said that a phased manufacturing plan for solar cells and solar panels will be notified to build up domestic capacity. She announced raising duty on solar inverter from 5 per cent to 20 percent and on solar lanterns from 5 per cent to 15 per cent.
The Finance Minister in her Budget speech said that there is immense potential in manufacturing heavy capital equipment domestically and the rate structure will be comprehensively reviewed in due course. However, she announced revision in duty rates on certain items immediately including tunnel boring machine and certain auto parts.
The Budget proposes certain changes to benefit MSMEs which include increasing duty on steel screws, plastic builder wares and prawn feed. It also provide for rationalizing exemption on import of duty free items as an incentives to exporters of garments leather and handicraft items. It also provides withdrawing exemption on imports of certain kind of leather and raising custom duty on finished synthetic gem stones.
To benefit farmers, the Finance Minister announced raising custom duty on cotton, raw silk and silk yarn. She also announced withdrawing end-use based concessions on denatured ethyl alcohol. The Minister also proposed an Agriculture Infrastructure and Development Cess on a small number of items. She said “while applying the cess, we have taken care not to put additional burden on consumers on most items.
Regarding rationalization of procedures and easing of compliance, the Finance Minister proposed certain changes in the provisions relating to ADD and CVD levies. She also said that to complete customs investigation, definite time-lines are being prescribed. The Minister said that the Turant Custom Initiative rolled out in 2020 has helped in putting a check of misuse of FTAs.