Union Budget 2021-22

Last Updated at: Feb 04, 2021
union budget

The Finance Minister announced the union budget for the FY 2021-2022 on 1 Feb 2021. A budget which was described as ‘never seen before in 100 years’, brought a plethora of changes into direct and indirect taxes. Key changes are highlighted below in this article, which every entity should take into consideration from 1 April 2021.

Changes in Income Tax Provisions

Change Made in Budget
Impact of the Same
Increased the tax audit limit under Section 44AB to Rs.10 crores for incentivising digital transactions
Earlier, an entity having receipts of more than Rs. 1 crore in a year was automatically subject to a tax audit. However, last year, the limit was increased to Rs. 5 crores, subject to the condition that less than 5% of income and expenses should be in cash.
Now, through this budget, the said limit has been increased to Rs.10 crores.
Higher deduction of TDS/TCS in case of non-filing of returns
TDS/TCS was deductible as per the rates specified in the respective section. However, a higher rate of TDS was deductible, in case PAN is not submitted by the recipient.
Now, a higher rate of deduction will be applicable even in case of a recipient who hasn’t filed an income tax return for the past 2 years. In such cases, the TDS rate shall be the higher between
  1. 5%, or
  2. double the rate of TDS under the respective section
However, this additional clause introduced now is not applicable to TDS under salaries and few other non-resident payments.
Leave travel concession scheme has been given statutory approval
LTC is a scheme announced by the government during Covid to claim a deduction instead of leave-travel allowance. Any expenditure incurred in forms other than cash on goods having a GST rate of more than 12% from a GST registered vendor, with a proper invoice can be claimed as a deduction subject to a maximum of Rs. 36000 or 1/3rd of the actual expenditure, whichever is less.
Investment in a unit-linked Insurance policy is taxable
Where premium payment exceeds Rs. 2.5 lakhs, the maturity amount will be taxable under capital gains @10%. However, it is exempt, if the proceeds are paid on the death of the insured.
Relaxations for NRIs from double-taxation
NRIs returning to India are facing hardships because of different financial years followed in different parts of the world. Hence, new rules will be notified to resolve the issue.
Senior citizens – exemption from filing ITR
Senior citizens above 75 years of age will be exempted from filing their income tax returns, provided their only sources of income are from pensions and income from interest. The applicable tax on such incomes will be deducted directly by their bank.
Changes to 50% presumptive taxation scheme
50% of gross receipts of professionals will be considered as actual income under this scheme. This will be applicable only for the individuals, HUFs, and partnership firms, excluding LLPs.
Rationalising the tax on dividends
Until last year, dividends were not taxable in the hands of the individuals receiving it. However, through the last budget, it was made taxable. To rationalise the provisions, two changes were brought to dividend taxation:
  1. advance tax is payable on dividends only after the company declares the same
  2. entities having pass-through status have been exempted from TDS deduction on dividends
  3. relaxation in TDS rate on dividends for foreign portfolio investors, based on the DTAA provisions
Online ITAT
Faceless assessments and faceless appeals are already permitted. Now, an online Income tax tribunal is proposed going forward.
Additional deduction for affordable housing will continue
An additional deduction of interest of Rs. 1.5 lakhs will continue under Sec. 80EEA, where the cost of the house is less than Rs.45 lakhs.
Startup exemptions continue
The exemption provided for inter-ministerial board-registered startups will continue into the next year.
  1. investments in such startups can claim as a deduction
  2. capital gains arising on account of sale of residential property will be exempt if such an amount is invested in eligible startups
  3. Further, startups incorporated in the year 2021-22 can also apply for recognition
Changes for charitable trusts
A. Charitable trusts exemption limit has been increased to Rs. 5 crores from Rs. 1 crore if in case they are running schools or hospitals
B. Voluntary contributions for a specific purpose and corpus donation be exempt only if invested or deposited in eligible deposits prescribed in 11(5)
C. Loan repayment can have an allowance as an application. However, spends from borrowing shall not allow as an application [Section 10(23C) and 11]
Taxability on dissolution/reconstitution of the firm or AOP or BOI
Any capital asset received on the dissolution of a firm in excess of the amount in the capital account of the partner in the firm shall be taxable.
Delayed contribution of EPF, ESI, etc.
Employee’s share of EPF contribution for ESI or any other superannuation benefit will not be eligible for an income tax deduction.
Capital gains relaxation even if actual consideration is less than 20%
If actual consideration received on account of sale of a capital asset is less than the stamp duty value, to the extent of 20% of such consideration, such shortfall will not be added to the income from other sources (subject to transfers executed before June 2021 with the value being less than 2 crores).
Other major changes introduced
A. Assessment re-opening period reduced to 3 years from 6 years
B. Income escaping assessment can be triggered within 10 years only in case of Income more than Rs.50 lakhs, and tax evaded is more than Rs.10 lakhs
C. Rationalisation of TDS provisions relating to FIIs and entities in IFSC
D. TDS of 0.1% is introduced on the purchase of goods if turnover is more than 10 crores and value of a purchase from a vendor is more than Rs. 50 lakhs. Further, this is in addition to the existing TCS on the sale of goods
E. Time limits are reduced for belated returns and revised returns by 3 months
F. Pre-filled income tax returns with capital gains through listed shares, bank interests and few other incomes
G. The time limit for processing of returns reduced by 3 months
H. In case of any adjustment in prior years due to transfer-pricing adjustment, the assessee with the prior permission of the assessing officer may re-compute the book profit of the past year(s) and tax payable [Section 115JB]
I. Goodwill cannot be recognised as an intangible asset going forward

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Changes in GST Provisions

Changes Introduced Implications of the Change
Restriction on availing the input tax credit ITC can be available only if the vendor furnishes GSTR 1 and such communication has sent to the recipient of the invoice/debit note
GST audit is not mandatory The section relating to GST audit and reconciliation (GSTR 9C) has been deleted. Hence, from FY 2021-22, GST audits will not be applicable. Even annual returns (GSTR 9) will have an exemption, in certain cases, by the CBIC
Interest on delayed payment on net liability A long-debated provision on interest calculation has finally retrospectively made with the amendment. Interest shall be payable only on net cash liability and not on the total liability
Changes in provisions relating to exporters Exporters had two different options under GST

  1. export through the payment of IGST and claiming a refund thereafter
  2. export under LUT/bond

Going forward, option 1 will be available only to restricted taxpayers

Procedural changes A. 25% of the penalty amount should deposit before appealing against an order against detention or seizure

B. The jurisdictional commissioner can call for the information of any person relating to any matter in connection with the act