Direct Tax- Highlights of Union Budget 2021-2022

In order to ease the 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.

Reduction in Time for Income Tax Proceedings

In order to reduce the 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 Rs. 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 the system on the basis of data analytics, objection of C&AG, and in search/survey case

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.

Setting up the Dispute Resolution Committee

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 `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 50 lakh and disputed income up to10 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 the 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 rules for removing their hardship of double taxation.

Exemption from Audit

To 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 5 crore to 10 crore.

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 the foreign company if the applicable tax rate is less than the rate of MAT.

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.

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 the 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

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.

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.

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.

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.

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 nonexempt ULIP shall be provided same concessional capital gains taxation regime as available to the mutual fund.

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.

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.

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.

Clarification for the Slump Sale

In order to provide certainty, it is proposed to clarify that slump sale shall include all types of transfer.

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.

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.

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.

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 the applicability of equalisation levy on physical/offline supply of goods and services.

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.

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

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.

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.

Levy of TDS on Purchase of Goods

In 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.

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 with a Board for Advance Rulings. It is also proposed to provide appeal against the order of such Board to the High Court.

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.

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.

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.

Miscellaneous

1. 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.

2. It is also proposed to enable issuance of notice for calling for returns by the
prescribed authority.

3. 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.

4. It is proposed to clarify that Limited Liability Partnership shall not be eligible for presumptive tax for professionals.

5. It is proposed to define the term “liable to tax” to provide certainty.

Source: Union Budget