Direct Tax Highlights of Union Budget 2021

Sl. No

Proposals

Proposed Amendments in brief

1

Relief to Senior Citizens

Exemption from the filing of ITR where Indian Citizen age is 75 or above and his income source is income from interest apart from Pension Income

2

Reduction in Time Limits

Reopening of Assessment from 6 to 3 years and 10 years where undisclosed income of Rs. 50 lakh or more for a year as well as 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.

3

Relief for Dividend

TDS 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)

The Assesses having taxable income up to Rs. 50 lakh and disputed income up to Rs. 10 lakh shall be eligible to approach the Committee. 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.

Income Tax Appellate Tribunal (ITAT)

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 47 videoconferencing.

6

Tax Neutrality of Conversion of Urban Cooperative Bank (UCB) into a Small Finance Bank (SFB)

It is 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

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.

Extend eligibility period for claiming tax holiday for affordable housing project by one more year to 31st March, 2022.

To promote supply of Affordable Rental Housing for the migrant workers, it allow a new tax exemption for the notified Affordable Rental Housing Projects.

8

Tax benefit for Start-ups

Extend the eligibility period to claim tax holiday for the start-ups by one more year to 31st March, 2022.

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 for NRI Income of Retirement Benefit Account

notify rules for aligning the taxation of income arising on foreign retirement benefit account

10

Audit Exemption

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

Zero Coupon Bonds by Infrastructure Debt Fund (IDF)

Zero Coupon Bonds issued by notified IDF eligible for tax benefit to boost infrastructure funding

12.

Unit Linked Insurance Plan (ULIP) tax  relaxation

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

13

Restrict tax exemption on interest earned from PF

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

14

Taxability of Surplus amount received by partners

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.

15.

Depreciation on Goodwill

No depreciation on Goodwill shall be allowed. However, the deduction for the amount paid for acquiring Goodwill shall be allowed on sale of Goodwill.

16

Slump Sale

'Slump sale' means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. slump sale shall include all types of transfer.

17

Fake Invoice/sham transaction

the penalty proceedings initiated for fake invoice/sham transactions of more than Rs. 2 crore shall also be eligible for provisional attachment of assets.

18

Exemption for Small Trusts

It is 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.

19

Carry Forward of loss by Charitable Organisations

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.

20

Equalisation Levy

Equalisation Levy is a direct tax, which is withheld at the time of payment by the service recipient. The two conditions to be met to be liable to equalisation levy:

• The payment should be made to a non-resident service provider;
• The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.

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.

21

Employees' contribution to labour welfare funds by Due Date

Late deposit of employees' contribution by the employer shall never be allowed as deduction to the employer

22

Exemption to Sovereign Wealth Fund & Pension Fund (SWF/PF)

Relaxed include prohibition on loans or borrowings, restriction on commercial activities, direct investment in entity owning infrastructure, etc.

23

Non-filing of Return by Deductee/Collectee

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.

24

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.

25

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.

26

Exemption for Leave Travel Concession (LTC)

Tax exemption to the amount given to an employee in lieu of LTC subject to incurring of specified expenditure.

27

Increase in safe harbor limit for primary sale of residential units.

Safe harbour is defined as circumstances in which the tax authority shall accept the transfer price declared by the taxpayer to be at arm's length.
To increase safe harbour limit from 10% to 20% for the specified primary sale of residential units

28

Miscellaneous

Limited Liability Partnership shall not be eligible for presumptive tax for professionals