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Key Direct Tax Highlights of Union Budget 2021

Finance Minister Nirmala Sitharaman presented the Union Budget 2021-22 in Parliament on 1st Feb. 2021. Union Budget 2021 is completely paperless in the view of the ongoing COVID-19 pandemic. This will be the first time in independent India that the budget papers will not be printed. 

Direct Tax Proposals for Union Budget 2021 are as follows:

1. Senior citizens above 75 years having only pension and interest income, will be exempted from filing their income tax return. The paying Bank will deduct the necessary tax on their income.

2. Extension of the Capital Gains exemption for investment in start ups by one more year till 31 st March, 2022.

3. The Budget proposes to make notified infrastructure debt funds eligible to raise funds by issuing tax efficient zero coupon bonds.

4. The Budget proposes more tax incentives which include tax holiday for Capital gains from incomes of aircraft leasing companies, tax exemption for aircraft lease rentals paid to foreign lessors, tax incentives for relocating foreign funds in the IFSC and to allow tax exemption to the investment division of foreign banks located in IFSC.

5. The Budget proposes to increase the limit on annual receipts for small charitable trusts running educational institutions and hospitals from present Rs.1 Crore to Rs. 5 Crore for non-applicability of various compliances.

6. In search, survey or requisition cases initiated or made or conducted, on or after April 01, 2021, it shall be deemed that the Assessing officer has information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated. The outer time limit for reopening I-T assessment cases halved to 3 years from 6 years.

7. New Section 148A of the Act proposes that before issuance of notice the Assessing Officer shall conduct enquiries, if required, and provide an opportunity of being heard to the assessee. After considering his reply, the Assessing Office shall decide, by passing an order, whether it is a fit case for issue of notice under section 148 and serve a copy of such order along with such notice on the assessee.

8. Section 43CA safe harbour rules cap to 20% for first allotment, maximum 2 crores. The transfer takes place from 12th November 2020 to 30th June 2021.

9. MAT adjustments to exclude previous year income and dividends.

10. Filing of belated or revised ITR time reduced. Period of filing Belated / Revised returns reduced from 12 to 9 months or before the completion of assessment, whichever is earlier.

11. Section 43B clarifications on employers contributions only: Employee contribution shall not be allowed as deduction unless it is allowed under respective Act only and treated as income under 2(24)(x) and is applicable retrospectively.

12. Goodwill not to be a depreciable asset. Acquisition or purchase of goodwill used to be the cost of the asset but depreciation is not eligible.

13. Section 10(10)(D) – Amount paid for ULIP exceeds 2.50 lacs in any previous year, then the maturity amount will not be exempt. If there are two ULIPs, then cumulative amount to be seen. ULIPs to be considered as capital asset now and maturity amount to be capital gain minus the cost of acquisition. Section 45(1B) has been inserted to consider it as capital asset. It will be taxable at 10% under section 112A as equity oriented funds. This provisions are applicable for all the policies issued from 01-04-2021 onwards.

14. LLP has been specifically excluded from section 44ADA. LLP are now supposed to maintain books of accounts.

15. Affordable housing interest on housing loan deduction of 1.50 lacs extended by one year to 31st March 2022.

16. Substituted 45(4) 45(4A) – No more capital excess withdrawal.

17. No change in Tax Slabs Rates and no change in Chapter VI-A .

18. New Agri Infra Development Cess to be applicable from February 2, but constructed in a way not to impact end consumer.

19. Capping of PF contribution limit to 2.50 lacs: It has been proposed to insert proviso to clause(11) and clause (12) of section 10 of the Act, providing that the provisions of these clauses shall not apply to the interest income accrued during the previous year in the account of the person to the extent it relates to the amount or the aggregate of amounts of contribution made by the person exceeding Rs 250000 in a previous year in that fund, on or after 1st April, 2021, computed in such manner as may be prescribed.

20. Section 206C(1H) for TCS Deduction: 0.1% TDS on purchase of goods; 5% if PAN not provided.

21. Imposing Penalty under Section 271AAD: It is proposed to amend the provision of section 281B of the Act to enable the Assessing Officer to exercise the powers under this section during the pendency of proceedings for imposition of penalty under section 271AAD of the Act, if the amount or aggregate of amounts of penalty imposable is likely to exceed Rs 2 crore.

22. Tax dept to notify rules to remove hardships of double taxation faced by NRIs.

23. Income Tax Settlement Commission shall cease to operate on or after 1st February, 2021: All applications that were filed under section 245C of the Act and not declared invalid under sub-section (2C) of section 245D of the Act and in respect of which no order under section 245D(4) of the Act was issued on or before the 31st January, 2021 shall be treated as pending applications

24. Tax holiday for startups, capital gains exemption extended by 1 yr.

25. Tax exemption for aircraft leasing cos; tax exemption for notified affordable housing for migrant workers.

26. Exemption from tax audit limit doubled to Rs 10 cr turnover for companies doing most of their business through digital modes.

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Note: This Post was last updated on February 7, 2021

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