Finance Minister Nirmala Sitharaman in her third Budget speech made some important announcements on both the direct and indirect tax front. For instance, she has proposed to set up a faceless dispute resolution mechanism for small taxpayers and reduce the time allowed to re-open tax investigations to 3 years versus 6 years now.
Commenting on the budget speech, Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors LLP, said, “On the direct tax front, the FM has given great relief by not increasing the rate. For the first time, the taxpayers may not complain about not reducing the rates and appreciate for maintaining the rates given the extent of fiscal deficit.”
He further added, “The most important relief for all businesses would be the reduction in the time limit for reopening of assessment from 6 to 3 years for normal cases and only in the case of concealment of income of over Rs 50 lakh, it has been retained at 10 years. This would go a long way in boosting investors’ confidence and ensuring tax certainty.”
The FM also proposed threshold for tax audit to be increased to Rs 10 crore versus Rs 5 crore (for those transacting 95 per cent digitally).
Gopal Bohra, Partner – Direct Tax, NA Shah Associates, said, “Currently assessment can be reopened up to 6 years from the end of the assessment years in certain cases on account of concealment of income and 10 years in case of serious fraud cases. The Finance Minister has reduced the 6 years reopening period to 3 years and also proposed that serious fraud cases will be where the undisclosed income is above Rs 50 lakh. This is a very welcome proposal and will reduce significant uncertainty for the taxpayers and litigation”.
Additionally, no filing of income tax for senior citizens above 75 years of age having only pension and interest income has been proposed. Experts said the exemption from filing ITRs for senior citizens with only pension and interest income is a welcome move for taxpayers.
Also, on notified rental housing projects, affordable housing deduction has been extended by 1 year to FY22. Vijayasarathy said, “The increase in the time limit for affordable housing projects deduction and additional interest on loan borrowed for affordable housing will compensate the time lost due to the pandemic.”