1
KEY HIGHLIGHTS
OF
INCOME TAX
(Finance Act, 2021)
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In the backdrop of the economic survey and contraction of economy due to global Covid-19
pandemic, the Hon’ble Finance & Corporate Affairs Minister Mrs. Nirmala Sitharaman
presented the Union Budget on 1st February 2021.
The Budget Proposals for the FY 2021-22 focused on 6 pillars which are as follows:
i. Health and Wellbeing;
ii. Physical & Financial Capital and Infrastructure;
iii. Inclusive Development for Aspirational India;
iv. Reinvigorating Human Capital;
v. Innovation and R&D; and
vi. Minimum Government and Maximum Governance
Our note is not the entire finance bill and we have tried to cover all such relevant points of
income tax which we believe needs your attention or action. All the amendments are
applicable with effect from F.Y 2021-22 relevant to A.Y 2022-23 unless otherwise specified.
In case of any additional information is required, kindly write to us
on info@kdpaccountants.com
In this time of lock down, we at KDP have made arrangements to work remotely and we are
working hard to ensure all compliances are met within the prescribed time lines. We
appreciate your support.
Disclaimer:
The above note is subject to further study and clarifications.
This note does not form an opinion from our end and before taking any decision based on
above, it is recommended to consult our experts on the subject.
Kamdar, Desai & Patel will not be liable for any damages (including, without limitation,
damages for loss of business projects, or loss of profits) arising in contract, tort or otherwise
from the use of or inability to use this article, or any of its contents, or from any action taken
(or refrained from being taken) as a result of using this article or any such contents.
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TABLE OF CONTENTS
Chapter
Particulars
Page No
1
Corporate Taxation
4-5
2
Personal Taxation
6
3
Changes in TDS & TCS provisions
7-8
4
Changes in filing and processing of Income Tax
Returns and Audit Reports
9
5
Significant Tax Amendments for Business Entities
10
6
Important Amendments for Non-Residents and
Foreign Companies
11
7
Amendments related to Assessment Procedures
12
8
Other Miscellaneous Provisions
13-14
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Chapter 1: Corporate Taxation
The Finance Act, 2021 has not made any changes in the tax rates applicable to domestic or
foreign companies for the F.Y 2021-22. There is even no change in rate of MAT.
Also, there is no change in Surcharge and Health & Education Cess rates.
Tax Rates for Domestic or Foreign Companies unchanged:
The effective tax rates (incl. surcharge, subject to marginal relief and cess) for companies are
as under:
Particulars
Effective
Tax Rates
Domestic companies who have already opted or opting for
concessional tax regime under Section 115BAA
25.17%
New domestic manufacturing companies opting for
concessional tax regime under Section 115BAB
17.16%
Domestic companies having turnover in the F.Y 2019-20
upto Rs. 400 crores
or
Those domestic manufacturing companies which have
opted for Section 115BA
Total Income upto Rs. 1 crore
26.00%
Total Income above Rs. 1 crore to Rs. 10 crores
27.82%
Total Income above Rs. 10 crores
29.12%
Other Domestic companies (not covered in any of the
above)
Total Income upto Rs. 1 crore
31.20%
Total Income above Rs. 1 crore to Rs. 10 crores
33.38%
Total Income above Rs. 10 crores
34.94%
Foreign Companies
Total Income upto Rs. 1 crore
41.60%
Total Income above Rs. 1 crore to Rs. 10 crores
42.43%
Total Income above Rs. 10 crores
43.68%
No Chapter VI-A deductions except deduction u/s Section 80M – Deduction in respect of
certain inter-corporate dividends and Section 80JJAA – Deduction in respect of employment
of new employees shall be allowed to companies which have opted for concessional tax
regime.
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Hence, those companies opting for concessional tax regime u/s 115BAA or 115BAB and
which are mandatorily required to comply with the provisions of CSR as per the Companies
Act, 2013 and are accordingly making donations to registered charitable or religious trusts
or other organizations, deduction u/s 80G for the donations made shall not be allowed.
Tax Rates for Partnership Firms, LLP & Local Authority:
The income tax rate for Partnership Firms, LLP & Local Authority continues to be at 30%.
Surcharge if the total income of Partnership Firms, LLP & Local Authority exceeds Rs. 1 crore
shall be levied @ 12%.
Marginal relief shall be available wherever surcharge is imposed.
Health & Education Cess shall be levied @ 4% on total tax liability plus surcharge.
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Chapter 2: Personal Taxation
The Finance Act, 2020 had provided a new concessional tax regime for Individuals / HUFs
with new income tax slabs and lower tax rates. This new regime to continue along with the
old tax regime. The Finance Act, 2021 has not made any changes in both these regimes.
Tax Rates for Individuals/HUF unchanged:
The tax rates for Individuals / HUF under both the regimes are as follows:
Total Income (Rs.)
Tax Rates –
Old Regime
Tax Rates –
New Regime
Upto Rs. 250,000
NIL
NIL
Rs. 250,001 to 500,000
5%
5%
Rs. 500,001 to 750,000
20%
10%
Rs. 750,001 to 10,00,000
20%
15%
Rs. 10,00,001 to 12,50,000
30%
20%
Rs. 12,50,001 to 15,00,000
30%
25%
Above Rs 15,00,000
30%
30%
The basic exemption limit of Rs 2.50 lacs shall be increased to –
Rs. 300,000 if the assessee is Resident Senior Citizen (Age from 60 to 79 years)
Rs. 500,000 if the assessee is Resident Super Senior Citizen (Age 80 years & above)
Surcharge shall be levied as under:
Total income
Rate of surcharge
(% of tax)
Upto Rs. 50,00,000
NIL
Above Rs. 50 lacs to 1 crore
10%
Above Rs. 1 crore to 2 crores
15%
Above Rs. 2 crores to 5 crores
25%
Above Rs. 5 crores
37%
Surcharge on dividend income and incomes chargeable to tax u/s 111A & 112A (i.e., short
term or long-term capital gains income arising on transfer of listed equity shares, units of
equity-oriented funds or units of business trust) shall be restricted to 15%.
Marginal relief shall be available wherever surcharge is imposed.
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Health & Education Cess shall be levied @ 4% on total tax liability plus surcharge.
Chapter 3: Changes in TDS & TCS provisions
The Finance Act, 2021 has inserted a new Section 194Q for deduction of TDS on purchase of
goods.
Section 194Q - TDS on purchase of goods (w.e.f. 1
st
July, 2021)
Any buyer to deduct TDS @ 0.10% on the purchase of goods of value or aggregate of such
value exceeding Rs. 50 lacs in any financial year.
TDS shall be deducted @ 5% in case no PAN or Aadhar is provided by the seller.
TDS needs to be deducted on amount exceeding Rs. 50 lacs.
TDS is to be deducted at the time of credit or payment, whichever is earlier.
Buyer is defined as any person whose total sales, gross receipts or turnover from the
business exceed Rs. 10 crores in the preceding financial year.
This Section is not applicable if any other TDS provision or TCS provision (except TCS
on sale of goods u/s 206C(1H)) applicable on the same transaction.
Insertion of 2 new Sections 206AB and 206CCA for deducting TDS at higher rates
The Finance Act, 2021 has also inserted 2 new Sections 206AB and 206CCA for deduction of
TDS / TCS at higher rates for non-filers of income tax return. Both these sections are
applicable w.e.f 1st July, 2021.
In case where TDS is required to be deducted in respect of a specified person, TDS shall
be deducted at higher of the following –
(a) twice the rate specified in the relevant provision;
(b) twice the rate or rates in force;
(c) 5%
In case the specified person does not have PAN, the tax shall be deducted at higher of the
rates provided in this section or section 206AA of the Income Tax Act.
Specified person means a person (other than non-resident not having a permanent
establishment in India) who has not filed the income tax return for the immediately
preceding 2 financial years for which the time limit for filing of return has been expired
and the aggregate of TDS or TCS in his case exceeds Rs. 50,000 in each of these 2 financial
years.
Section 206AB and 206CCA shall not apply for deduction of TDS under section 192
(payment of Salaries), section 192A (Payment of accumulated balance to employee),
Section 194B (Winnings from Lotteries), section 194BB (Winnings from horse race),
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section 194LBC (Income from securitization trust) and section 194N (Withdrawal of
cash).
Amendment in Section 194 – TDS on dividend income
No TDS to be deducted on payment of dividend to a business trust as defined u/s 2(13A) by
a Special Purpose Vehicle (SPV).
Amendment in Section 196D – TDS on payments to FIIs
Benefit of lower treaty rate for TDS deduction made available to Foreign Institutional
Investors (FIIs) on income from securities.
Relevant amendment in TDS provisions for individuals / HUF which are not liable for tax audit
Under Section 194A (Payment of Interest), 194C (Payment to Contractors / Sub
Contractors), 194H (Payment of Commission), 194-I (Payment of Rent) & 194J (Payment of
Professional / Technical Fees or Royalty), individuals & HUF are required to deduct TDS only
if they are covered under tax audit in the immediately previous year.
However, if the turnover of any Individual / HUF exceeds Rs 1 crore but does not exceed Rs
10 crores and is accordingly not subjected to tax audit in a particular year, still he needs to
deduct TDS under those sections.
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Chapter 4: Changes in filing and processing of
Income Tax Returns and Audit Reports
Increase in turnover limit for tax audit:
In order to promote cashless economy, the threshold limit for tax audit of business under
section 44AB of the Income Tax Act has been increased from Rs. 1 crore to Rs. 10 crores
subject to fulfillment of BOTH the following conditions:
i. Aggregate cash receipts during the year does not exceed 5% of the total receipts.
ii. Aggregate cash payments during the year does not exceed 5% of the total payments.
Reduction in time line for filing belated or revised return
The due date for filing belated or revised return advanced to 31st December from 31 March
of the relevant assessment year.
Relaxation from filing of income tax return by Resident senior citizen of age of 75 years or
more earning pension and interest income:
Section 139 amended to provide relaxation from filing of return of income by specified senior
citizen who is earning only pension and interest income on the fulfilment of the certain
specified conditions.
Extension of due date for partner of a firm to which transfer pricing audit applies
Due date for filing income tax return for partner of a firm liable to furnish report under
transfer pricing provisions extended to 30th November of the assessment year.
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Chapter 5: Significant Tax Amendments for
Business Entities
No Depreciation on Goodwill
Goodwill not to be considered as a depreciable asset for the purpose of claiming
depreciation.
In case of acquired goodwill, purchase price shall be available as cost of acquisition for the
purpose of computing capital gains.
In case depreciation is already claimed by the assessee for the period upto FY 2019-20, the
cost of acquisition shall be purchase price as reduced by the depreciation so claimed.
Tolerance limit increased for the difference between actual sale consideration and stamp duty
value for certain specified immovable property:
In order to provide relief to buyers and real estate developers and home buyers, the CBDT
vide its Press Release dated 13th November, 2020 increased the Safe harbour threshold
under section 43CA and 56(2)(x) increased from 10% to 20% for those transfers which
satisfies all the following conditions: -
a) The transfer of residential unit takes place during the period from 12th November
2020 to 30th June 2021.
b) The transfer is by way of first-time allotment of the residential unit to any person and
c) The consideration received or accruing as a result of such transfer does not exceed Rs.
2 crores.
Widening the scope of ‘slump sale’
Scope of ‘slump sale’ enlarged to include transfer of undertaking by any means including an
‘exchange’ where no cash consideration is involved. Also, the taxation shall be based on fair
value of property and other assets for slump sale thereby making slump sale less tax
effective.
Taxation on dissolution / reconstitution of the specified entity
The Finance Act, 2021 has introduced a completely new system of taxation on dissolution or
reconstitution of the Firm / AOP / BOI.
Profits or gains arising on receipt of capital asset by partner / member (specified person) on
dissolution or reconstitution of the firm / AOP/ BOI (specified entity) shall be chargeable as
capital gains in the hands of the specified entity. FMV of the capital asset so distributed shall
be deemed to be full value of consideration.
Profits or gains arising on receipt of money or other assets by specified person in excess of
his capital account on dissolution or reconstruction of specified entity chargeable as capital
gains in the hands of specified entity.
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Chapter 6: Important Amendments for Non-
Residents and Foreign Companies
Addressing mismatch in taxation of income from notified overseas retirement fund
Income from withdrawal of overseas retirement fund by an Indian resident who had opened
such fund when he was a non-resident shall be subjected to tax in a manner as may be
prescribed to avoid double taxation of such withdrawal in India and the foreign country.
Rules on taxation of withdrawals from overseas retirement fund are yet to be prescribed.
Change in definition of “Liable to Tax”
The term ‘liable to tax’ defined for purposes of section 6, section 10(23FE) and various DTAA
agreements ––‘liable to tax’, in relation to a person, means that there is a liability of tax on
such person under any law for the time being in force in any country, and shall include a case
where subsequent to imposition of tax liability, an exemption has been provided.
Adjustment to book profit under MAT provisions
Where dividend income of foreign company is taxed at lower than MAT rate due to Tax
Treaty, the dividend income and relatable expenditure are to be excluded while calculating
the book profit of a foreign company.
In the case where there is an increase in book profit of the financial year due to income of
past years on account of any Advance Pricing Agreement (APA) or secondary adjustment,
application can be made to the AO to recompute the book profit of the past years and tax
payable.
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Chapter 7: Amendments related to Assessment
Procedures
Reduction in time limit for issuance of notice for assessment
In order to impart greater efficiency, transparency and accountability to the assessment
process under the Act a new assessment scheme has already been launched which is known
as Faceless Assessment Scheme. With the advent of this scheme, most of the functions /
processes under the Act, including filing of return, processing of returns, issuance of refunds
or demand notices and assessment, which required person-to-person contact between the
taxpayer and the Income Tax Department, are now in the electronic mode.
So, to ensure that quick and faster completion of assessments, the time limit for issuing
notice under section 143(2) for regular scrutiny assessment reduced from 6 months to 3
months from the end of the Financial Year in which the return of income is furnished.
Furthermore, the time limit for issuance of notice for initiating reassessment proceedings:
Serious tax evasion cases and where income escaped / likely to have escaped
assessment is more than Rs. 50 lacs – 10 years from the end of relevant AY.
Other cases – Reduced from 6 years to 3 years from the end of relevant AY.
Reduction in time limit for completion of assessment proceedings
Time limit for completion of assessment reduced from 12 months to 9 months from the end
of relevant assessment year.
Revamping of procedure for reassessments and search cases
A completely new and dynamic procedure has been introduced for re-opening of the cases
pertaining to earlier years and search cases on or after 01.04.2021.
Formation and setting up of Dispute Resolution Committee (DRC)
Dispute Resolution Committee shall be constituted to resolve disputes and provide relief and
certainty to ‘small and medium taxpayers’
Taxpayers whose returned income is upto Rs. 50 lacs and total variation proposed (disputed
income) is upto Rs. 10 lacs shall be eligible to make application before DRC.
DRC shall also have the powers to reduce or waive off the penalty or to grant immunity from
prosecution.
Launching of faceless proceedings before ITAT
On the lines of faceless assessment scheme, the Government of India has already launched
faceless appeal proceedings for the appeals filed to CIT – (A). It is now proposed to launch
faceless scheme for appeals before ITAT. Personal hearings can be done via video
conferencing if required.
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Chapter 8: Other Miscellaneous Provisions
Rationalization of provisions for start-ups:
The date of incorporation of start-up for claiming deduction of profits under Section 80-IAC
extended from 31st March 2021 to 31st March 2022.
Also, the date of transfer of residential property for investment in eligible start-up,
extended from 31st March 2021 to 31st March 2022.
Timeline extended for approval of affordable housing projects:
In order to incentivize business of developing and building affordable housing projects and
to boost the supply of such houses, the period of approval of the project for claiming
deduction under section 80-IBA is extended from 31st March 2021 to 31st March 2022.
Timeline extended for approval of loan for first time buyers of Residential House property:
In order to continue promoting purchase of affordable housing, the period of sanctioning of
loan by the financial institution for claiming deduction u/s 80EEA has been extended from
31st March 2021 to 31st March 2022.
Taxation of sum received under Unit Linked Insurance Plan (ULIP)
The Finance Act, 2021 has withdrawn the exemption u/s 10(10D) for the receipt of money
under ULIP.
Any sum received under an ULIP shall now be taxable in case of ULIP issued on or after 1st
February 2021 where annual premium exceeds Rs. 2.50 lacs for any of the year over term of
ULIP. Such sum shall be taxable as capital gains from sale of equity-oriented fund.
Payment by employer of employees’ contribution to funds
It has been clarified that employees’ contribution to various funds shall be disallowed if the
same has not been paid within the respective due date specified under the fund.
Presumptive taxation for profession income not allowed to LLP
Section 44ADA relating to presumptive taxation for profession income amended to clearly
provide that LLPs and HUF shall not be covered within the said section.
Rationalization of tax treatment of interest from employee provident fund
Interest accruing in Employee Provident Fund on employee contributions exceeding Rs.
250,000 per annum will be taxable w.e.f 01.04.2021.
Changes in exemption under Leave Travel Concession (LTC)
Leave Travel Concession exemption shall be allowed for incurring expenditure on goods or
services liable to GST at 12% or above during the period from 12th October 2020 to 31st
March 2021 subject to fulfilment of certain conditions. (This amendment is applicable w.e.f
AY 2021-22.)
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Rationalization of provisions relating to charitable trusts
Corpus donation exempt only if it is invested or deposited in modes specified in section
11(5).
Excess application of income of earlier years not eligible to be set-off in calculating exempt
income of current year.
Utilization of loans and borrowings will not be allowed as application for charitable or
religious purposes. However, repayment of loan will be allowed as application in the year of
such repayment.
Additional incentives for units in IFSC
The finance Act, 2021 has provided some additional incentives specifically for those units
which are located in International Financial Service Centre (IFSC)
Power of AO to provisionally attach property
The Assessing Officer has been empowered for provisional attachment of property in case
where imposition of penalty under section 271AAD for making a false entry or omitting an
entry from books of account is likely to exceed Rs.2 crores.
Payment of advance tax in case of dividend income
Interest under section 234C not applicable to shortfall in payment of tax owing to failure in
estimation of dividend income [except dividend under section 2(22)(e) of the IT Act]
provided that such tax is paid by way of remaining instalment of advance tax or before 31st
March, as may be applicable.
Clarifications on Equalization Levy (EL)
The Finance Act, 2021 has provided with the following clarifications in relation to
equalization levy.
EL will not applicable on transactions in the nature of royalty or fees for technical services
which are taxable under the IT Act read with relevant tax treaty.
The definition of ‘online sale of goods’ and ‘online provision of services’ is expanded to
include the following activities
a) Acceptance of offer for sale;
b) Placing the purchase order;
c) Acceptance of the Purchase order;
d) Payment of consideration; or
e) Supply of goods or provision of services, partly or wholly.