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. | Proposals | Proposed Amendments in brief |
|---|
| 1. | Relief to Senior Citizens | In 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 Limits | In 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 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. |
| 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 Projec | In 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-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. | 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 Rs. 5 crore to Rs. 10 crore. |
| 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 ` 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 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 | n 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 ` 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 ` 1 crore to ` 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) | 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 | 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. |
| 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 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 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. |
| 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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