Union Budget 2021 Summary / Highlights

Presenting the Union Budget for 2021-22, Finance Minister Nirmala Sitharaman said that the Budget proposals for this financial year rest on six pillars — health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D, and ‘Minimum Government, Maximum Governance’.

In this blog, we will be focusing exclusively on Key Tax Announcements. The following are the Key Highlights from the Union Budget 2021, as presented by the Hon’ble Finance Minister.

• VIVAD SE VISHWAS SCHEME

The Finance Minister said that the Direct Tax ‘Vivad se Vishwas’ Scheme announced by the Government has been received well.  Until 30th January 2021, over one lakh ten thousand tax payers have opted to settle tax disputes of over Rs. 85 thousand crores under the Scheme.  To further reduce litigation of small tax payers, Smt. Sitharaman proposed to constitute a Dispute Resolution Committee.  Anyone with a taxable income upto Rs. 50 lakh and disputed income upto Rs. 10 lakh, shall be eligible to approach the Committee which will be faceless to ensure efficiency, transparency and accountability.  She also announced the setting up of the National Faceless Income Tax Appellate Tribunal Centre.

• RELIEF TO SENIOR CITIZENS

Senior citizens above 75 years having an 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.

• REDUCTION IN TIME FOR REOPENING INCOME TAX PROCEEDINGS

The time limit for reopening of income tax assessment cases is reduced to three years from six years, while for serious tax fraud cases where concealment of income is Rs 50 lakh or more it would be 10 years.

• FACELESS TAX DISPUTE RESOLUTION COMMITTEE

It will ensure efficiency, transparency and reduce litigation for the small taxpayers.

The finance minister said that, “the faceless dispute resolution committee will be for taxable income up to Rs 50 lakh and disputable income of Rs 10 lakh”, adding that ”all communication between the appellant and tribunal will be via electronic mode”.

She had also waived off interest and penalty on disputed tax before March 31, 2020. It proposes to extend the faceless assessment scheme to at least eight processes in income tax law.

• RELAXATION TO NRIs, RELIEF FOR DIVIDEND

Removal of double taxation for Non-Resident Indians (NRIs) on income accrued through foreign retirement benefits accounts, the minister announced in the Union Budget session on Monday.

Double taxation refers to a situation in which NRIs are taxed on the same income twice, both in India and the country of residence. While NRIs are not taxed on global income in India, they are taxed on income earned or accrued within India. This can be salary earned in India, income on fixed deposits or savings accounts, income on housing property located within India, among others. Currently, double taxation can be avoided by seeking relief through The Double Tax Avoidance Agreement (DTAA).

The Minister said that this was being done as the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax.

 

• INCREASE IN TURNOVER LIMIT

From Assessment Year 2020-21, the turnover limit, for a person carrying on business, is increased from Rs. 1 Crore to Rs. 5 crores in the case when both the cash receipts and payments made during the year does not exceed 5% of the total receipts or payments, as the case may be. In other words, more than 95% of the business transactions should be done through banking channels.

The reason for the same is stated by the Finance Minister as follows, “Currently, businesses having turnover of more than one crore rupees are required to get their books of accounts audited by an accountant. In order to reduce the compliance burden on small retailers, traders, shopkeepers who comprise the  MSME sector, I propose to raise by five times the turnover threshold for audit from the existing Rs. 1 crore to Rs. 5 crores. Further, in order to boost less cash economy, I propose that the increased limit shall apply only to those businesses which carry out less than 5% of their business transactions in cash.”

• AFFORDABLE HOUSING/ RENTAL HOUSING

The Finance Minister proposed to extend the eligibility period for a claim of the additional deduction for the interest of Rs. 1.5 lakh on loan taken for the purchase of an affordable house to 31^st March 2022.  In order to increase the supply of affordable houses, she also announced an extension of the eligibility period for claiming tax holiday for affordable housing projects by one more year to 31^st March 2022.  For promoting the supply of affordable rental housing for the migrant workers, the Minister announced a new tax exemption for the notified affordable rental housing projects.

• RELIEF TO SMALL TRUSTS

In order to reduce the compliance burden on the small charitable trusts running educational institutions and hospitals, the Budget proposes to increase the limit on annual receipts for these trusts from present Rs.1 Crore to Rs. 5 Crore for non-applicability of various compliances.

• TIMELY DEPOSIT OF EMPLOYEES’ CONTRIBUTION TO LABOUR WELFARE FUNDS

The Finance Minister said that delay in deposit of the contribution of employees towards various welfare funds results in permanent loss of interest/income for the employees.  In order to ensure timely deposit of employee’s contribution to these funds by the employers, she announced that late deposit of employee’s contribution shall never be allowed as a deduction to the employer.

• TAX BENEFITS FOR STARTUPS

In order to incentivize startups in the country, Smt. Sitharaman announced an extension in the eligibility for claiming tax holiday for startups by one more year till 31st March 2022.  In order to incentivize funding of startups, she proposed extending the Capital Gains exemption for investment in start-ups by one more year till 31st March 2022.

• Tax Holiday for Capital Gains for Aircraft Leasing Companies and Tax Exemption to Lease paid to Foreign Persons
• Dividend Tax- Dividend will be exempt from TDS. Advance tax liability on dividend income will arise only after the declaration or payment of the dividend. For Foreign Investors – a lower treaty rate benefit will be given.
• Pre-Filling of Returns – Details of Capital Gains, Dividend Income, and Interest income will be pre-filled in the returns
• No change in tax slabs, no change in Chap VI-A

 

• MCA, Companies Act, LLP Act
• Easing Compliance requirements of Small Companies – Threshold increased to Share Capital upto Rs.2 crore and Turnover upto Rs.20 crore will be Small Companies
• Allow One Person Companies (OPC) to grow without any restriction in Share Capital or Turnover. NRIs will be allowed to set-up OPCs. Presence in India of 120 days in a year enough to start an OPC.
• Launching MCA Version 3.0 – E-Scrutiny, E-Adjudication and Compliance management to be simplified.
• Decriminalisation of LLP Act, 2008
• Tribunals to be rationalised