Union Budget 2021: Impact on the Indian Tax

Union Budget 2021: Impact on the Indian Tax The Union Minister of Finance and Corporate Affairs, Smt. Nirmala Sitharaman presented the Union Budget in the Parliament on 1 February 2021. The budget comes under the backdrop of the pandemic and was completely digital. Here are the key tax highlights of the union budget 2021

Direct Taxes Individual Tax 1. Exemption for LTC cash scheme ● Proposal for the exemption of cash allowance in place of LTC. To avail, the benefits of the scheme certain conditions must be met.

2. Other Key Proposals ● Tax the interest accrued on employee contributions to provident fund exceeding INR 250,000 in a year ● Tax exemption to not be granted on maturity concerning ULIPs, if the premium payable for any year is more than INR 250,000, on or after 1 February 2021 ● Senior citizens over 75 years to be exempt from tax return filing requirement

Corporate Taxation 1. Tax Incentives ● Proposal to include bonds issued by an infrastructure debt fund to the definition of ‘zero-coupon bond’ ● Extension of the deadline for approval of affordable housing projects for tax holidays till 31 March 2022 ● Tax holiday proposed to be granted to rental housing projects, that have been notified till 31 March 2022 and meet the conditions ● Proposal for extension of tax holiday for eligible startups on or before March 2022

2. Employee Contribution to Welfare Funds ● Employee’s contribution to welfare funds will be tax deductible if the sum is credited to the relevant fund on or before the due date prescribed by the law 3. Other Key Proposals ● TDS on payments of dividends will not apply to income credited or paid by an SPV to a business trust ● Amendment to the law to enable M&A transactions of public sector companies to facilitate strategic disinvestment ● Amend the law for tax neutral conversion of an urban cooperative bank into a banking company

International Taxation 1. Equalisation Levy ● Provision of ‘online sale of goods’ and including one or more listed online activities to ‘online provision of services’ ● The consideration liable for equalisation levy will exclude consideration that is taxable as royalty or fees for technical services in India. ● The exemption will apply from 1 April 2020 2. IFSC Units’ Incentives ● Proposal to exempt transfer of specified capital assets on a recognised stock exchange in an IFSC, to investment division of OBU ● The exempt income of non-resident due to transfer of non-deliverable forward contracts entered into with an OBU of an IFSC 3. SWF and PF Exemption ● If a Category-I or Category-II AIF has a 50% investment in eligible infrastructure companies or InvIT, SWF/ PF can invest in the AIF ● Holding investments through a domestic holding company that was set up on or after 1 April 2021 and has at least 75% investment in one or more infrastructure companies

● Permission to invest in NBFCs subject to minimum 90% lending to infrastructure entities 4. Other Key Proposals ● Tax treaty benefits to be granted from 1 April 2021 on time of withholding tax from income regarding securities of FPIs ● Dividend income and related expenditure to be excluded from the scope of MAT where the dividend income has tax at a rate that is lower than MAT

M&A 1. Goodwill not an Intangible Asset for Tax Depreciation ● Goodwill, including the existing one to not be eligible for tax depreciation under a list of conditions 2. Slump Sale to Include Slump Exchange ● Slump sale definition to be amended for the inclusion of all types of transfers, inter-alia, sale, exchange, etc.

3. Dissolution or Reconstitution of Firm, etc. ● Firm/AOP/BOI to be liable to capital gains tax on the distribution of capital asset, money, or other assets that represent balance or excess balance in the capital account to a partner or member according to dissolution or reconstitution

Transfer Pricing 1. Additional Income on Account of an APA or a secondary adjustment to be considered for MAT Purposes ● AO to recompute the book profit and tax payable for previous years as well as the FY. Any additional income to be included in the books of account due to an APA conclusion or a secondary adjustment ● Recomputation will be affected after an application is sent to the AO by the assessee

Procedural and Miscellaneous 1. Proposal to Revamp the Reassessment ● Concept of re-assessment revamped and concept of ‘reason to believe’ dropped ● The reopening will only happen if AO has information that suggests that income chargeable to tax has escaped ● Time limit to re-open reduced to three years, 10 years only if AO has proof that the income, represented in the form of asset, is more than INR 5 million 2. Litigation Rationalisation ● Proposal for the settlement commission to be discontinued effect from 1 February 2021. Pending applications to be taken by the interim board ● To constitute a dispute resolution committee if taxpayers’ returned income is INR 5 million or less and variation is 1 million or less 3. Tax Filing and Assessment Time Limits ● Time limit reduced to nine months from the end of the year in which returns are filed for processing tax returns ● For initiating as assessment, the time limit lowered to three months from the end of the year in which return of income is filed 4. TDS/TCS on non-filers at High Rates ● TDS and TCS rates on certain payments to ‘specified persons’ to be higher as stated ● A ‘specified person’ is someone who has not filed an income tax return for the two preceding years and the aggregate of TDS and TCS is INR 50,000 or more each year 5. TDS on Purchase of Goods ● The proposal that TDS of 0.1% on the purchase of goods from a resident exceeding INR 5 million in an FY be introduced from 1 July 2021 6. Presumptive Taxation ● Presumption taxation on professional services to apply to individuals, HUF, and firms (not LLPs)

7. Other Key Proposals ● Processing of tax return to consider account adjustments for an increase in income specified in the audit report but not considered while computing the total income ● The threshold for tax audit to increase INR 100 million with at least 95% of transactions undertaken digitally

Indirect Taxes Goods and Services Tax 1. Legislative Changes ● The input tax credit can only be claimed after it matches the details provided by the supplier ● A retrospective amendment is being made to levy interest on late payment of GST only on the net cash liability, from 1 July 2017

Customs 1. Procedural Changes ● Amendment of bills of entry or shipping bill after clearance of goods can be made through customs- automated system based on risk evaluation ● Service of notice, order, summon, etc, can be available on the common portal 2. Legislative Changes ● Two years is the mandatory time limit prescribed for the completion of an inquiry that culminates into the issuance of SCN ● The power to confiscate goods that entered for exportation is granted if they are under the wrong claim of remission or refund of a duty/ tax 3. Customs Tariff Act, 1975 ● A proposal to introduce notified changes in the Customs Tariff Act’s Schedule I with effect for 1 January 2022 to align with HSN 2022

4. Changes under IGCR Rules, 2017 ● IGCR rules have been amended to provide various changes including job work of materials imported under a concessional rate of duty 5. New Levy ● A new cess, AIDC is imposed on the import of specified good, and the BCD rate is reduced

Central Excise Duty 1. Rate Movement ● The imposition of AIDC: A new cess called AIDC to be imposed on petrol of INR 2.5 per liter and INR 4 per liter while the rate of BED and SAED has been reduced ● Blended Fuels Exempted: Exemption from excise duty, surcharges, and cess on blended fuels has been extended to 20% ethanol blended petrol and 15% methanol blended petrol ● Alignment with HSN 2022: New tariff items inserted under Chapter 24 following upcoming HSN 2022 Here is the Deloitte India Detailed Analysis of Union Budget 2021