Budget Speech 2021: Tax Highlights

Here are a few highlights from the Budget Speech this morning. Detailed analysis of the same shall follow soon after our study of the Memorandum to the Finance Bill 2021.

Relevant for Businesses

Tax Audit Turnover Threshold: The turnover threshold for mandatory requirement of Tax Audit has been increased from Rs. 5 crores to Rs. 10 crores if less than 5% of the gross receipts and total expenses are through modes other than banking channels.

Late deposit of employee's contribution of PF shall not be allowed as deduction from income for the purpose of tax calculation.

Small Companies: Definition under Companies Act, 2013 to change as follows:
a) Paid up share capital threshold: from Rs. 50 lakh to Rs. 2 crore
b) Turnover threshold: from Rs. 2 crore to Rs. 20 crore

Incentivised incorporation of One Person Companies (OPC) by proposing:
- No restriction on paid-up capital and turnover
- Allowing easier conversion of OPC to any other type of company
- Reducing residency limit from 182 days to 120 days
- Allowing NRIs to incorporate OPCs in India

Margin money requirements for start-ups to reduce from 25% to 15%.

New Customs Duty structure to be put into place by 01-Oct-2021:
- Revoking ADD and CVD on certain steel products
- Reducing duties on copper scrap from 5% to 2.5%
- Few mobiles parts to move from NIL to 2.5% rate
- Cutting duty on copper scrap 2.5% from 5%
- Exempting duty on steel scrap for a specified period

Eligibility for tax holiday claim for start-ups extended by one more year. This applies to start-ups recognized by the Inter-Ministerial Board and not those registered solely under the Start Up India scheme.

Capital gains exemption for investment in start-ups extended till 31-Mar-2022. This should be under section 54EE of the Income Tax Act, whereby you invest in a start-up fund notified by the Govt. It does not apply to investing money in your own or a friend's start-up.

Relevant for Individuals

Prefilled Income Tax Return: The online filing portal would have pre-filled income from salaries, interest incomes, dividends, etc. for easier online filing of tax by an individual assessee. No tax relief though.

Advance Tax liability on Dividend incomes shall arise only after the declaration of dividend.

For Senior Citizens of age 75 years and above: Exemption from filing tax returns if earning only pension and interest incomes. The banks shall deduct the full amount of tax liability as TDS. No tax-saving though.

Additional exemption of housing loan interest up to Rs. 1.5 lakhs under section 80EEA on loan taken for affordable housing projects covered under this section extended by a year for loans taken up to 31-Mar-2022. In such cases, the stamp duty value of the house should not be over Rs. 45 lakhs.

General & Litigation

Reassessment of Income Tax matters which could be opened for the past 6 years, can now be reopened for not older than 3 years. However, for serious tax evasion cases where evasion evidence is Rs. 50 lakh or more, reopening may be done within 10 years.

Dispute Resolution Committee: Any person with Total Income less than Rs. 50 lakh and disputed income less than Rs. 10 lakh can approach this Committee to avoid the full process of tax litigation. Details on the same to be disclosed later.

Faceless ITAT: Hearings at the Income Tax Tribunal may be held using faceless method over Video Conferencing, as has already been happening during the time of the pandemic.

Enable faster resolution of cases through the National Company Law Tribunal (NCLT) framework:
- Implementation of e-Courts system
- Introduction of alternate methods of debt resolution and special framework for MSMEs

Here's linking the Press Release. We shall update a detailed note after studying the Memorandum to the Finance Bill 2021.