Union Budget 2021 Detailed Highlights (Direct Tax Proposals)

On February 1, 2021, the Finance Minister Smt. Nirmala Sitharaman presented the first-ever Union Budget in the backdrop of the unprecedented COVID-19 crises, laying down a vision for Atma Nirbhar Bharat.

The Budget proposed for 2021-22 rest on 6 pillars:-

1. Health and Wellbeing
2. Physical and Financial Capital and infrastructure
3. Inclusive Development for aspirational India
4. Reinvigorating Human Capital
5. Innovation and R&D
6. Minimum Government and Maximum Governance 

Direct Tax Proposals                                                                                                      

1.          Relief to Senior Citizens
2.          Reduction in Time for Income Tax Proceedings
3.          Setting up the Dispute Resolution Committee
4.          Faceless ITAT
5.          Relaxation to NRI
6.          Exemption from Audit
7.          Relief for Dividend
8.          Attracting foreign investment into infrastructure sector
9.          Affordable Housing/Rental Housing
10.          Pre-filling of Returns
11.          Relief to Small Trusts
12.          Labour Welfare
13.      Incentives for start-ups

    1. Relief to Senior Citizens

To reduce the compliance burden on senior citizens who are 75 years of age and above. For senior citizens who only have a pension and interest income, It is proposed exemption from filing income tax returns. The paying bank will deduct the necessary tax on their income.

    2. Reduction in Time for Income Tax Proceedings

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.

Now onwards, this time-limit for re-opening of assessment has been reduced to 3 years from the present 6 years. In serious tax evasion cases too, only where there is evidence of concealment of income of 50 lakh or more in a year, can the assessment be re-opened up to 10 years.

(Note: Even this reopening can be done only after the approval of the Principal Chief Commissioner, the highest level of the Income Tax Department.)

    3. 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.

To further reduce litigation for small taxpayers, It is proposed 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 to 10 lakh shall be eligible to approach the Committee.

    4. Faceless ITAT (Income Tax Appellate Tribunal)

The Government has already introduced a faceless assessment and appeal this year. The next level of income tax appeal is the Income Tax Appellate Tribunal.  It is proposed to make this Tribunal faceless. We shall establish a National Faceless Income Tax Appellate Tribunal Centre. Where a personal hearing is needed, it shall be done through video-conferencing.

    5.Relaxation to NRI (Non-Resident Indians)

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. It is proposed to notify rules for removing their hardship of double taxation.

    6.Exemption from Audit

Currently, if companies turnover exceeds 1 crore, they have to get their accounts audited.

Increased this limit for tax audit to 5 crore for those who carry out 95% of their transactions digitally (February 2020 Budget).

To further incentivise digital transactions and reduce compliance burden, It is proposed to increase this limit for tax audit for such persons from 5 crores to 10 crores.

    7.Relief for Dividend

In the previous Budget, Dividend Distribution Tax (DDT) had been abolished in order to incentivise investment. The dividend was made taxable in the hands of shareholders.

Now, in order to provide ease of compliance, It is proposed to make a dividend payment to REIT/ InvIT exempt from TDS.

Further, It is proposed to provide that advance tax liability on dividend income shall arise only after the declaration/payment of dividend.

Also, for Foreign Portfolio Investors, It is proposed to enable deduction of tax on dividend income at lower treaty rate.

    8.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, It is proposed 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 the issue of Zero Coupon Bonds, It is proposed to make notified Infrastructure Debt Funds eligible to raise funds by issuing tax-efficient Zero Coupon Bonds.

    9. Affordable Housing/Rental Housing

In the July 2019 Budget, It was provided with an additional deduction of interest, amounting to 1.5 lakh, for the loan taken to purchase an affordable house. I propose to extend the eligibility of this deduction by one more year, to 31st March 2022.

Further, to keep up the supply of affordable houses, It is proposed that affordable housing projects can avail a tax holiday for one more year – till 31^st March 2022.

    10. Pre-filling of Returns

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.

    11. Relief to Small Trusts

To reduce the 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 1 crore.

It is now proposed to increase this amount to 5 crores.

    12. 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 order to ensure that employees’ contributions are deposited on time, it is reiterated that the late deposit of employee’s contribution by the employer will not be allowed as a deduction to the employer.

    13. Incentives for Start-ups

In order to incentivise start-ups in the country, it is proposed to extend the eligibility for claiming tax holiday for start-ups by one more year - till 31^st March, 2022.

Further, in order to incentivise funding of the start-ups, it is proposed to extend the capital gains exemption for investment in start-ups by one more year - till 31^st March 2022.