Budget 2021: Key takeaways of Direct Tax proposals

Updated: Feb 10, 2021 12:52 PM

Union Budget 2021: Direct Tax proposals have been unveiled by the government with an objective to move ahead with digitalisation, promote growth and simplify tax administration in a post Covid-19 pandemic era.

The government has provided some relief to senior citizens by exempting them from filing returns in case of pension and interest income along with certain other measures viz. pre-filing of information in the income-tax returns, etc.

Union Budget 2021-22: The Finance Minister announced Budget 2021, which is projected as an extension of the several mid-term announcements made during Calendar 2020 and at a time when the entire world is taking steps to address the fall outs of Covid-19 pandemic. The government estimated the fiscal deficit for 2021-2022 at 6.8 per cent of the GDP as against the revised estimates for 2020-21 at 9.5 per cent and has attempted to push the agenda of growth with a view to achieve greater digitalisation and provide the impetus to various sections of the economy. Though the stock markets have reacted positively, history has been testimony as a word of caution, that once the fine print has been analysed, at times the details have led to converse impact of the Budget announcements not only on the markets but on the overall impact on the economy.

With an objective to further simplify the tax administration, ease compliance and reduce litigation, pursuant to introduction of the faceless assessment and faceless appeal schemes, the government proposes to make the Income-tax Appellate Tribunal faceless and establish the National Faceless Income Tax Appellate Tribunal Centre. With the assessment procedure being overhauled pursuant to introduction of the faceless assessment scheme, the time limit for completion of assessments has also been reduced to 9 months from the end of the assessment year in which income is first assessable.

With a view to have greater certainty, the timeframe for re-opening the assessments have been reduced from the existing 6 to 3 years with an exception in case of serious tax evasion cases where the time period is ten years.

The government would also constitute a Dispute Resolution Committee with an objective to further reduce litigation for small taxpayers.  With a view to provide an alternative method of providing advance ruling which can give rulings to the taxpayers in a timely manner, the government has proposed to constitute a Board of Advance Ruling and to make amendments in the existing provisions of AAR.

With a view to incentivise start-ups, the government has taken certain measures to provide an impetus to the new ventures by extending the eligibility period to claim tax holiday for the start-ups by one more year to 31 March 2022 along with extending the eligibility period of claiming capital gains exemption for investment made in the start-ups also to 31 Match 2022.

In the last Budget, the government abolished the Dividend Distribution Tax to incentivise investments. With a view to provide ease of compliance, the government has taken some more measures viz. withholding tax in case of foreign portfolio investors to be made at lower of the treaty rates, dividend income of REIT and INVIT being exempt from TDS, advance tax liability on earning dividend income has been aligned with the declaration or payment of dividend.

However, in the context of allowability of depreciation on goodwill, the government has proposed that goodwill of a business or profession shall not be considered as an asset and hence resultantly not be eligible for depreciation.

The government has established a world class financial centre, ‘International Financial Services Centre’ (IFSC). In order to make location in IFSC more attractive, the government has provided additional incentives which, inter alia, provides tax holiday for capital gains for aircraft leasing companies, tax exemption for aircraft lease rentals paid to foreign lessors; tax incentive for relocating foreign funds in the IFSC; and tax exemptions to investment division of the foreign banks located in IFSC.

The government has provided some relief to senior citizens by exempting them from filing returns in case of pension and interest income along with certain other measures viz. pre-filing of information in the income-tax returns, etc. There were several measures that were anticipated more so with a view the address issues arising post Covid-19 pandemic and its undesirable effects.

As the economy attempts to limp back to the normalcy, with a view to help migrant labourers and to promote affordable rental, the housing sector has been provided the necessary flip by extending the benefits of additional deduction of INR 1.5 lakh in case of loans taken upto 31 March 2022 as well extension of the dates for availing the tax holiday in case of approval of housing projects till 31 March 2022.

As we see the government across the globe struggling to push their economies out of the subdued situations, and while it seems that our government has made efforts to set the economy back on track, one may have to further analyse the impact of the amendments announced in greater detail to have the finer nuances deciphered and see if the proposals announced would achieve the desired results as contemplated by the government.

(By Sanjiv K.Chaudhary, Chartered Accountant)

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