Section A – Direct Taxation
1. Income Tax Audit Limit Increased (Section 44AB)
To promote the digital economy and to reduce compliance burden, the threshold limit for tax audit under section 44AB has been proposed to increase from INR 5 crore rupees to INR 10 crore rupees in case of those assessees where the amount received in cash is less than 5% of total receipts and amount paid in cash is less than 5% of Aggregate payments during the year. This amendment will take effect from 1st April, 2021 and will accordingly apply for the assessment year 2021-22 and subsequent assessment years.
2. Exemption for LTC Cash Scheme
Actual expenditure incurred on Leave Travel is, subject to other conditions, exempt under section 10(5) of the Income Tax Act. However, due to the imposition of travel restriction in view of the outbreak of the COVID pandemic, it became difficult for the taxpayer to go on a travel and claim exemption. Thus, it is proposed to provide tax exemption on expenditure incurred on the purchase of any goods or services on which GST is paid @12% or more. However, the maximum deduction allowed is INR 36,000 which shall be incurred between October 12, 2020 and March 31, 2021.
This amendment will apply in relation to the financial year 2020-21 only.
3. Incentives for affordable rental housing
The existing provision of section 80-IBA of the Act provides that where the gross total income includes any profits derived from the business of developing and building housing project, there shall be allowed a deduction of 100% of the profits derived from such business.
To help migrant labourers and to promote affordable rental, it is proposed to allow deduction under section 80-IBA of the Act also to such rental housing project which is notified by the Central Government.
Further, it is also proposed that the outer time limit for getting the affordable housing project approved to be extended by one year to 31st March 2022. This outer time limit is also proposed to be applicable for the affordable rental housing project.
4. Time for Deduction of interest on Housing Loan extended - Section 80EEA
The individuals, who have availed loans for purchase of residential property which was sanctioned between 1st April 2019 and 31 March 2021, can avail the deduction of interest payment on such loan. The government has proposed to extend the deduction u/s 80EEA by one year i.e. up to 31st March 2022. Thus loan sanctioned up to 31 March 2022 shall be eligible for a deduction of interest u/s 80EEA subject to other conditions.
5. Relaxation for eligible startups under Section 80 IAC and Section 54GB
Section 80-IAC of the Act provides for a deduction of 100 % of the profits of an eligible start-up for three consecutive assessment years out of ten years at the option of the assessee. This is subject to the condition that eligible start-up is incorporated on or after 1st day of April, 2016 but before 1st day of April 2021. Now section 80-IAC proposed to amend the last date of incorporation of an eligible start-up before 1st April, 2022. Thus exemption has been extended to eligible start-ups incorporated till 31 March 2022.
Existing provisions of section 54GB provide an exemption from capital gains (for the transfer of residential property on or before 31st March, 2021) utilised for subscription in the equity shares of an eligible start-up. The Finance Bill, 2021, has extended the period of transfer of residential property up to 31 March 2022.
6. Increase in safe harbour limit of 10% for home buyers and real estate developers selling such residential units
In order to boost the demand in the real-estate sector and to enable the real-estate developers to liquidate their unsold inventory, it is proposed to increase the safe harbour threshold from the existing 10% to 20% under section 43CA and 56(2)(x). This limit is applicable only in case of transfer of residential units by way of first allotment between 12th November, 2020 to 30th June, 2021 and where consideration for the transfer of unit is not more than 2 Crore. Thus residential unit purchased/sold at a value less than stamp duty and the difference between consideration and SDV is not more than 20%, no addition shall be made u/s 43CA and 56(2)(x). This was announced by the finance minister through a press release in Nov 2020 but legal enactment has been proposed through budget 2021.
7. No depreciation on goodwill - Section 32
It has been proposed that goodwill of a business or profession will not be considered as a depreciable asset and there would not be any depreciation on the goodwill of a business or profession in any situation. In a case where goodwill is purchased by an assessee, the purchase price of the goodwill will continue to be considered as cost of acquisition for the purpose of computation of capital gains under section 48 of the Act subject to the condition that in case depreciation was obtained by the assessee in relation to such goodwill prior to the assessment year 2021-22, then the depreciation so obtained by the assessee shall be reduced from the amount of the purchase price of the goodwill.
8. Rationalisation of the definition of slump sale – Section 2
The definition of slump sale u/s 2(42C) has been expanded to mean the transfer of an undertaking by any means and now transfer of any type as covered by section 2(47) shall be considered as means of transfer. Therefore, now, exchange or consideration in any form for transfer of an undertaking shall make it a slump sale.
9. Clarification on provisions of Equalisation Levy inserted by Finance Act 2020
It has been clarified vide the Budget that the transactions which are considered as payment for royalty or FTS as per the Income Tax Act or the DTAAs shall not be covered for chargeability under the provisions of Equalisation Levy. With respect to e-commerce sale or supply it has also been clarified that even one or more of any of the activity, namely, acceptance of offer for sale, placing of purchase order, acceptance of purchase order, payment or supply partly or wholly shall be considered as online sale or provision of service. And Equalisation levy is applicable irrespective of whether the non-resident e-commerce operator owns the goods or not, or facilitates the services or not. it is also provided transactions on which equalization levy is chargeable and on which exemption from taxation is given u/s 10(50) shall not be applicable on transaction of royalty or FTS.
10. Presumptive Taxation not application on LLP - Section 44ADA
Section 44ADA provides for presumptive taxation in the case of professional income. There was an ambiguity whether the section applies in the case of LLP or other assessees. Now amendment has been proposed in section 44ADA specifying the assessees on which this section shall be applicable. Now section 44ADA shall be applicable in the case of an individual, HUF, and Partnership firms other than LLP.
11. Provisional attachment of property during proceeding u/s 271AAD – Section 281B
Section 281B of the Act provides that in cases of assessment or reassessment the Assessing Officer may provisionally attach any property of the assessee, if necessary, in order to protect the interest of revenue. It is proposed to amend the provision of section 281B of the Act to enable the Assessing Officer to provisionally attach any property of the assessee, if necessary, during the pendency of proceedings for imposition of penalty under section 271AAD of the Act. Section 271AAD of the Act was inserted vide the Finance Act, 2020 to impose penalty on a person or a person who causes such person to make a false entry or omit an entry from his books of accounts.
12. Higher rate of TDS and TCS on non-filing of return - Section 206AB and 206CC
Section 206AB and 206CC have been inserted to provide for a higher rate for TDS and TCS, respectively, for the non-filers of the income tax return. As per these sections, TDS and TCS shall be deducted at twice the rate specified or rate in force or 5% whichever is higher in case of a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing return of income under sub-section (1) of section 139 has expired. These provisions shall be applicable in case of deductee/collectee where the aggregate of tax deducted at source and tax collected at source is rupees fifty thousand or more in each of these two previous years for which return is not filed.
13. Rationalization to avoid double claim as application of funds by Trusts
Voluntary contributions received by the institutes or trusts registered u/s 10(23C) or 11/12A/12AB with specific directions that it shall form part of the corpus will now be eligible for claim as application if such amount is invested in the specified modes prescribed u/s 11(5). Further, application by these institutes or trusts from loans or borrowings shall be considered as application of income only at the time of repayment of the loan. These amendments shall come into effect from AY 2022-23 onwards.
14. Reduction of time limit for completing the assessment
It has been proposed that the time limit for completion of assessment proceedings to be reduced further by three months. Thus, the time for completing 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 year
15. Time limit for filing Revised Return or Belated Return reduced – Section 139
The time period for filing belated return u/s 139(4) or revised return u/s 139(5) has now been reduced by 3 months. It was earlier allowed to be filed or revised up to the end of the relevant assessment year or before completion of assessment, whichever is earlier. Now, w.e.f. AY 2021-22, it is proposed to reduce the time limit for filing belated return or revised prior to 3 months before the end of the relevant assessment year, or before the completion of assessment, whichever is earlier.
16. Relaxation in Conditions for treating a return as Defective – Section 139(9)
Under Explanation to section 139(9), certain situations are prescribed w.r.t. which if there is a non-compliance while filing the ITR, it makes the ITR defective and if that could not be rectified within 15 days from intimation by the Tax department, such defect renders the return as invalid. As per the Budget, CBDT will now notify the class of assessees in whose cases even if such situations are not complied in the ITR, still it will not make the return as invalid or defective. This will be applicable from AY 2021-22 onwards.
17. Income escaping assessment and search assessments – Section 148 & 153A
A new procedure has been prescribed to conduct re-assessment proceedings and search assessments specifically in view of the risk management strategy formulated by CBDT from time to time. Further, w.e.f. 1st April 2021, Re-opening u/s 148 cannot be made after 3 years from the end of the relevant assessment year. Further beyond 3 years but not beyond 10 years, in case of income escaping assessment exceeds or likely to exceed Rs. 50 Lakhs.
18. Time limit for completion of assessment – Section 153
The time limit as prescribed u/s 153 for completion of assessment by the Income Tax department u/s 143(3) or 144 has now been further reduced. W.e.f. AY 2021-22, the assessment is to be completed within 9 months from the end of the relevant assessment year.
19. Income Tax Appellate Tribunal proceedings to be made faceless
The faceless scheme of conducting the income tax assessments and first appellate body has now been extended to the second appellate body under the Income Tax Act, i.e., ITAT. This faceless scheme has been proposed to be made applicable from 1st April 2021, however, the directions in this regard are to be issued by the Central Government before 31st March 2023.
20. Constitution of Dispute Resolution Committee for small assesses
The Budget has proposed u/s 245MA, the constitution of Dispute Resolution Committees to resolve disputes of small assessees having returned income of less than Rs. 50 Lakhs, proposed addition is not more than Rs. 10 Lakhs and the matter does not relate to issues under specified laws where detention, prosecution, or conviction provisions are there. The section is made applicable from AY 2021-22 and the scheme under this is to be issued by the Central Government before 31st March 2023.
21. Changes to the advance ruling process
· The existing Authority for Advance Ruling (AAR) will cease to operate with effect from the date to be notified by the central government.
· One or more Boards for Advance Ruling will be Constituted and notified.
· Central government will introduce a new scheme to impart great efficiency, transparency, and accountability and also to introduce dynamic jurisdiction
· Advance rulings issued by the Board will be appealable before the high court.
· The cases pending before the Authority for Advance Ruling on the notified date will be transferred to the Board.
22. Discontinuance of Settlement Commission
The Income Tax Settlement Commission has been discontinued w.e.f. 1st February 2021. All the pending applications before the Settlement Commission are either allowed to be withdrawn by the assessee and shall be continued before the Assessing Officer and if such application is not withdrawn, it will be transferred to an Interim Board. The scheme of the Interim Board will be notified by the Central Government on or before 31st March 2023.
23. Rationalization of provisions of Minimum Alternate Tax (MAT)
It has been proposed that MAT shall not be applicable on the past year’s income which is included in the current year’s books of account on account of an Advance Pricing Agreement (APA) or a secondary adjustment.
The Assessing Officer shall based on an application made to him in this behalf by the taxpayer, recompute the book profit of the past year(s) and tax payable, if any, during the previous year, in the prescribed manner.
Re-computation of past years' book profits will be done through rectification proceedings.
This amendment shall be applicable from AY 2021-22 onwards.
24. Faceless proceedings before the Income Tax Appellate Tribunal (ITAT)
Faceless scheme has been announced for ITAT proceedings in line with the faceless appeal scheme. It is likely that it will apply to appeals involving transfer pricing grounds as well. The faceless scheme for ITAT proceedings shall be effective from 1 April 2021.
25. Delay in payment of the contribution of PF and ESI - Section 36(1)(va) and Section 43B
In case of delay in payment of employee’s contribution of PF and ESI from the due date of the respective act (PF and ESI Acts), it is not allowed under section 36(1)(va). However, There were various judgments of Courts wherein an employee’s contribution was deposited after the due dates of the respective act but deposited before the due date of ITR, was allowed under section 43B. It has been clarified that the provision of section 43B does not apply and is deemed to never have been applied for the purposes of determining the due date under section 36(1)(va). Thus employee’s contribution if deposited after the due date prescribed in PF and ESI acts, shall not be allowed as deduction.
26. TDS on purchase of Goods – Section 194Q
With Effect from 1 July 2021, TDS is required to be deducted at the rate of 0.1% in case of purchase of goods. This is applicable where total sales, gross receipts, or turnover of buyer exceed INR 10 Crore during the financial year immediately preceding the financial year in goods is purchased and goods purchased from the seller exceed INR 50 Lakh in the previous year. However, TDS is not required to be deducted under this section if TDS / TCS is deductible or collectible under any other the provisions of Income Tax Act Except TCS under section 206C(1H). Thus in case, TCS is collectible under section 206C(1H), TDS under this section shall be applicable and deducted by the buyer.
27. TDS on divided to Business Trust is exempt – Section 194
Section 194 of the Act provides for deduction of tax at source (TDS) on payment of dividends to a resident. It is proposed to amend the second proviso to section 194 of the Act to further provide that the provisions of this section shall also not apply to dividend credited or paid to a business trust by a special purpose vehicle or to any other person as may be notified.
Section B- Indirect taxation
Part -1- Goods and Service Tax
It has been proposed to amend the CGST act which are as under:
1. Requirement of Input Tax Credit reconciliation with the invoice statement
It has been proposed to amend Section 16 to allow taxpayers’ claim of the input tax credit based on GSTR-2A and GSTR-2B.
Therefore the additional requirement of Input Tax Credit reconciliation with the invoice statement uploaded by the supplier has been proposed to be inserted in section 16 of the CGST Act.
2. Retrospective interest on net cash liability
Section 50 of the CGST Act has been proposed to amend to provide for a retrospective charge of interest on net cash liability with effect from the 1st July 2017.
3. Requirement of furnishing Audit report in Form 9C has been removed
Mandatory requirement provided under Section 35(5) for getting annual accounts audited and the reconciliation statement submitted by specified professional (subject to condition) has been proposed to be removed.
Further, it is also proposed to amend section 44 by replacing the requirement of furnishing the GSTR-9 Annual return form with a self-certified reconciliation statement; however, the Commissioner can exempt a class of taxpayers from the requirement of filing the annual return.
4. Others
· Jurisdictional commissioner empowered to call for information from any person relating to any matters dealt with in connection with the Act and use of such information would be subject to providing an opportunity of being heard to the concerned person.
· Scope of “Supply” term provided under Section 7 further widened to include transactions involving the supply of goods or services by any person, other than an individual, to its members or constituents or vice-versa, for a consideration. For this purpose, the supplier and the recipient shall be deemed as two separate persons. The same is proposed to be retrospectively applied from 1 July 2017.
· Proceedings involving seizure and confiscation of goods and conveyances in transit to be treated as a separate proceeding from the recovery of tax.
· Appeal against the order of adjudicating authority in relation to seizure and confiscation of goods and conveyances in transit (provided by Section 129) can be made only if 25% of the penalty is paid by the appellant.
· Provisions relating to detention, seizure, and release of goods and conveyances in transit as provided under Section 129 and those relating to the confiscation of such goods or conveyances have been de-linked; post which proceedings initiated and penalty imposed under both sections would be identical
· The option to make zero-rated supply on payment of integrated tax would be restricted only to a specified class of taxpayers or specified supplies of goods or services, to be notified in due course.
· The foreign exchange remittance in case of export of goods would be linked with refunds claimed on such supplies.
· Zero-rating of supplies made to the special economic zone would be valid only when such supplies are for authorised operations
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Part -2- Customs
· It has been proposed to revise the custom duty rates on the following items:
Ø Reduced duty on copper scrap from 5% to 2.5%
Ø Basic and Special additional excise duty on petrol and high-speed diesel oil (both branded and unbranded) is reduced
Ø Increased duty on solar inverters from 5% to 20%
Ø Increased duty on solar lanterns from 5% to 15%
Ø The basic customs duty on gold and silver reduced.
Ø The department will rationalise duty on textile, chemicals and other products.
Ø The revised rates will be applicable from 2nd February 2021 onwards.
· New tariff items under 2404 11 00 and 2404 19 00 have been inserted in accordance with the upcoming HS 2022 nomenclature. Further, an NCCD of 25% is prescribed on these tariff items with effect from 1st January 2022.
· Agriculture Infrastructure And Development Cess (AIDC) has been newly imposed on petrol and diesel at Rs2.5 and Rs.4 per litre respectively.
· Regarding agricultural products, the customs duty is increased on cotton, silks, alcohol, etc.
· Exemption of Social Welfare Surcharge on the value of AIDC imposed on gold and silver. Therefore, these items would attract surcharge at the normal rate, only on value plus basic customs duty.
· The exemption on the import of leather will be withdrawn as they are domestically produced.
· A new initiative called ‘Turant Customs’ will be introduced for faceless, paperless, and contactless customs measures.