Budget Highlights – Income Tax Financial Highlights 2021

Budget Highlights – Income Tax Financial Highlights 2021

The Union Budget 2021-22 was presented by the Hon’ble Finance Minister Nirmala Sitharaman on 1st February 2021 in the Parliament. The Budget speech was given by the FM from 11 a.m. to 1 p.m.

It is the first budget of this decade, and it’s also a digital one. In this article, we shall look at the major highlights of this budget comprising of Direct and Indirect tax proposals proposed by the Finance Minister. 

Main objective of Union Budget 2021

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

6 Pillars for Reviving Economy

The Union budget 2021-22 focuses on six pillars for reviving the economy:

Snapshot of Union Budget 2021-22

The total capital expenditure for FY- 2021-22 is 5.54 lakh crore rupees. Since the health care sector needs improvement, the Finance Minister proposed a new centrally sponsored scheme called PM Aatmanirbhar Swasth Bharat Yojana with an outlay of approx. 64,180 crore rupees over six years.

The budget outlay for Health and well being is estimated to be 2,23, 846 crore rupees for FY 2021-22. The increased allocation might just expand and further strengthen the existing national health institutions, health emergency operation centres, and mobile hospitals.

Another key highlight to take note was the increase in FDI limits in the insurance sector. The limit was raised from 49% to 74%. The government is contemplating to divest two PSUs and insurance company.

Union Budget 2021-22: Direct Tax Proposals

The Finance Minister asserted the intentions of the government to simplify the tax administration, litigation management and ease the compliance of direct tax administration.  There were certain direct tax proposals that were introduced. The individual and corporate tax rates were not changed.

In a significant move, the limit for tax audits has been increased to 10 crore rupees from the existing 5 crore rupees. It has come as a relief for many corporate houses.

Let’s now take a look at other amendments proposed in Union Budget 2021-22:

• Income Tax relaxation for senior citizens

This budget provide relief to the senior citizens aged above 75 years from filing Income Tax Return who earn income by the source of either pension or interest, if the following conditions are satisfied:

1. He has pension and/or interest income from the same bank and the bank is specified bank as notified by the Government;
2. He is resident of India and of the age 75 years or more during the previous year;
3. He shall be required to furnish a declaration to the specified bank in such form and verified in such manner as prescribed.

• Rationalization of provisions relating to tax audit in certain cases Earlier through Finance Act, 2020, the threshold limit for tax audit for a person carrying on business is increased from Rs. 1 crore to Rs. 5 crore in cases where aggregate of all receipts and payments in cash during the previous year does not exceed 5% of such receipts/payments. In order to incentivize non-cash transactions to promote digital economy and to further reduce compliance burden of small and medium enterprises, it is proposed to increase the threshold from five crore rupees to ten crore rupees in above cases

• Constitution of ‘Dispute Resolution Committee’: Those assessed with a taxable income of up to Rs.50 lakh (for small and medium taxpayers) and any disputed income of Rs.10 lakh can approach this committee under section 245MA. It will prevent new disputes and settle the issue at the initial stage

• National Faceless Income Tax Appellate Tribunal Centre: Provision is made for faceless proceedings before the Income Tax Appellate Tribunal (ITAT) in a jurisdiction less manner. It will reduce the cost of compliance for taxpayers, and increase transparency in the disposal of appeals. Further, it will also help achieve even distribution of work in different benches and ensure efficient administration.

• Tax incentives to startups: The tax holiday for startups has been extended by one more year up to 31st March 2022.

• Relaxations to NRI:There is a proposal to notify rules for removing hardship for double taxation.

• Pre-filing of returns to be forefront: Pre-filling will be allowed for salary, tax payments, TDS, etc. Further, details of capital gains from listed securities, dividend income, etc. will be prefilled.

• Advance Tax on dividend income: Advance tax will henceforth be applicable on dividend income only after its declaration. Tax holidays are proposed for aircraft leasing and rental companies.

• Disallowance of PF contribution: In case the employee’s PF contribution was deducted but not deposited by the employer, it will not be allowed as a deduction for the employer.

• Section 43CA stands amended: The stamp duty value can be up to 120% (earlier 110%) of the consideration if the transfer of “residential unit”, which means an independent housing unit is made between 12th November 2020 and 30th June 2021.

• Amendment to Section 44ADA: Section 44ADA applied to all the assessees being residents in India. Now onwards, it applies only to the resident individual, Hindu Undivided Family (HUF) or a partnership firm, other than LLP.

• Section 80EEA deduction extended: The affordable housing additional deduction was extended till 31st March 2022. The tax exemption has been granted for affordable rental projects.

Union Budget 2021-22: Indirect Tax Proposals

In the case of indirect tax proposals, the Finance Minister claimed that record GST collections have been made in the past few months. She stated that many steps have been taken to simplify GST. Deep analytics and artificial intelligence have been deployed to identify tax evaders and fake billers.

Let’s now take a look at other major announcements under Indirect Tax Proposals:

• Custom duty rates on some items have been revised. Few of the examples include reduced duty on copper scrap from 5% to 2.5%, basic as well as special additional excise duty on petrol and high speed diesel oil has been reduced, increase in custom duty rates on solar inverters from 5 to 20%, basic customs duty on silver and gold reduced. It may be noted that the above-mentioned revised rates shall be applicable from February 2, 2021.
• Agriculture Infrastructure and Development Cess has been proposed on a small number of items. The Finance Minister, while applying the cess, commented that they have given due care not to put any additional burden on consumers.
• In case of agricultural products, the customs duty has been increased on cotton, silk, alcohol, etc.
• The exemption of social welfare surcharge on the value of Agriculture Infrastructure and Development Cess has been imposed on silver and gold. Hence, these items will attract surcharge at normal rate only on value plus basic customs duty.
• Considering the fact that leather is produced domestically, the exemption on leather import will be withdrawn.
• A new initiative called the Turant Customs has been proposed for paperless, faceless, and contactless customs measures.
• The Finance Minister further stated that there are certain changes proposed to benefit MSMEs. Duty on steel screws and plastic builder wares has been raised from 10% to 15%. Customs duty on finished synthetic gem stones has also been raised with a view to encourage their domestic processing.

Conclusion

In a nutshell, the Union Budget 2021, presented by our Union Finance Minister, Ms Nirmala Sitharaman is the first ever digital budget in the backdrop of unprecedented COVID 19 pandemic. By way of this budget, the government aims to work further on the vision of Aatma Nirbhar Bharat. The said budget will be known for its Pragmatic, Forward Looking, and Growth Oriented Approach, together with a Strategic Vision and Clear Action Pathway.

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