India: Budget 2021 Highlights
The Union Minister for Finance & Corporate Affairs, Smt. Nirmala Sitharaman presented the Union Budget 2021-22 in Parliament on February 1, 2021. The budget seeks to further simplify tax administration and litigation management while easing the compliance of direct tax administration, and customs duty. The key highlights of the budget are as follows:
For Individuals
There are no changes in Personal Income Tax slabs and rates. The rates applicable for FY 2021-22 will be as follows. Taxpayer has the option to choose a regime for tax purposes.
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* Individual taxpayers having taxable income up to INR 500,000 get full tax rebate and are not required to pay income tax. Please note that taxable income exceeding INR 500,000 does not receive any benefit from the tax rebate and individuals have to pay income tax on full taxable income.
**The new tax regime will be optional for taxpayers and therefore an individual who is currently taking deductions is exempt under the Income Tax Act and may choose to forgo them and pay tax. Some of the common deductions that will no longer be allowed include: House rent allowance, leave travel allowance, standard deductions, Interest on property, and investment related deductions under 80C, 80D, 80DD etc.
Note – surcharge and cess will continue to apply on existing rates, depending up on the level of individual’s income.
Senior citizens who are of 75 years of age and above having only pension and interest income will be exempted from filing their income tax return.
Extension to the eligibility period for claim of additional deduction for interest of INR 150,000 paid for loan taken for purchase of an affordable house (Section 80EEA of Income Tax Act) from March 31, 2021 to March 31, 2022.
To ease the filing of returns, details of capital gains from listed securities, dividend income and interest from banks, post office etc. will be pre-filled in the returns. Currently, details of salary income, tax payment, TDS etc., are currently pre-filled in returns.
Taxpayer’s advance-tax liability on dividend income shall arise only after the declaration or payment of dividend.
Effective from April 1, 2021, exemption for leave travel concession (LTC) cash scheme has been proposed (i.e., in order to provide relief to employees), it is proposed to provide tax exemption upto the amount given to an employee in lieu of LTC subject to incurring specified expenditure.
Effective from April 1, 2021, the interest earned on the annual provident contribution above INR 250,000 will be taxable.
It is proposed to notify rules for removing hardship of double taxation faced by Non-Resident Indians returning to India with respect to accrued incomes in their foreign retirement accounts.
For Employers
In order to ensure timely deposit of employee’s provident fund contribution, late deposit of employee’s contribution by employer will not be allowed as a deduction to the employer for tax purposes.
For Companies
There is no change in Corporate Income Tax (CIT) rates. The CIT rate for a domestic company for FY 2021-22 will be 30% (or 25% for companies with turnover below INR 4 billion in previous year) plus applicable surcharge and cess. The reduced CIT rate of 22% (instead of 30% or 25% for companies with turnover below INR 4 billion) or 15% for new domestic manufacturing companies (incorporated after October 01, 2019 making fresh investments in manufacturing), plus surcharge and cess is applicable subject to the condition that all exemptions/incentives are foregone.
Tax Audit Limit (Section 44AB of Income Tax Act) for persons who are performing 95% of their transactions digitally has been increased from INR 50 million to INR 100 million.
Time limit for reopening of income tax proceedings has been reduced from 6 years to 3 years. However, assessment can be reopened for upto 10 years (after the approval of the Principal Chief Commissioner) in case of serious tax evasion, where there is evidence of concealment of income of INR 5 million or more in a year.
There is a revision in the ‘Small Companies’ definition under the Companies Act, 2013 that is increasing the threshold for paid capital from ‘not exceeding INR 5 million’ to ‘not exceeding INR 20 million’ and by increasing the turnover from ‘not exceeding INR 20 million’ to ‘not exceeding INR 200 million’. This will benefit many small companies by easing their compliance requirements.
To further reduce litigation of small taxpayers, it is proposed to constitute a Dispute Resolution Committee, which will be faceless to ensure efficiency, transparency, and accountability. Anyone with a taxable income up to INR 5 million and disputed income up to INR 1 million will be eligible to approach the Committee.
Setting up of a National Faceless Income Tax Appellate Tribunal Centre was also announced. All communication between the Tribunal and the appellant shall be electronic. Where a personal hearing is needed, it shall be done through video-conferencing.
To promote the establishment of start-ups in India, there is a proposed eligibility period to claim tax holiday for a start-ups by an additional year, i.e., up to March 31, 2022.
It has been clarified that a transaction taxable under income-tax is not liable for equalization levy. There is also a proposal to clarify the applicability of equalization levy on physical/offline supply of goods and services.
Goods and Service Tax (GST)
Certain changes have been made in the Central GST Act, 2017 (CGST Act) and Integrated GST Act, 2017 (IGST Act) on the basis of recommendations made by the GST Council. These include measures for:
Facilitating taxpayers, such as removing the mandatory requirement of getting annual accounts audited and reconciliation statements, filing of the annual return on self-certification basis and charging interest on net cash liability effective from July 1, 2017.
Improving compliance, such as a tax credit when the details have been furnished by the supplier in the statement of outward supplies etc.
Custom Duty
There is a proposal to review 400 old exemptions in the custom duty structure this year. An extensive consultation will be conducted and a revised customs duty structure free of distortions will be put in place.
It is also proposed that any new customs duty exemptions will be valid up to March 31st following 2 years from the date of issue of the exemption.
© Shan & Co 2021