India – India Union Budget 2021 – Highlights

The Indian Finance Minister presented Budget 2021 resting on 6 pillars with focus on providing impetus to Infrastructure, Manufacturing, Financial Sector and generation of Employment. On the tax proposals, the proposals convey a holistic approach to accelerate India’s revival and growth. Please find below summarised points of interest:  

Corporate Tax

  • No changes to corporate tax rates
  • Depreciation on Goodwill: Goodwill ineligible for claim of depreciation whether acquired or self generated one; allowable as cost of acquisition instead on further sale to the extent of depreciated value
  • Employee related Social Security Contributions (such as provident fund, superannuation fund, ESIC) to be deductible only if deposited within the due dates as per relevant regulations
  • Slump Sale: Scope of slump sale widened to include any transfer of undertaking ‘by any means’ and covers transfer by way of Slump exchange
  • Startups: Start ups incorporation date for claiming tax holiday extended to March 31, 2022. Capital gains exemption if investment made in eligible start up extended to March 31, 2022
  • Minimum Alternative Tax (MAT) : Additional income (of the prior years) on account of Advance Pricing Agreement and / or secondary adjustment to be considered in the computation of book profits for MAT in the manner to be prescribed; application required to be made to the Tax Officer
  • Dissolution or reconstitution of partnership or Association of Person (AoP): Receipt of capital asset at FMV/money on dissolution or reconstitution of partnership or AOP in excess over the the capital balance of the partner or member ( without considering any revaluation reserve) taxable in the hands of the partnership/AOP as the case may be;

Withholding tax (WHT)/tax collection provisions (TCS)

  • Higher rate of WHT /TCS will be applicable to non-filers of tax return (specified persons), w.e.f. 1 July 2021. Rate will be  be at higher of (i) Twice the rate as specified in relevant provisions of Act/rate in force or (ii) 5 percent
  • Buyer (total sales/ turnover/ gross receipts > INR 100 mn in preceding FY) to withhold tax @ 0.1% on purchase of goods for a value/ aggregate of value > INR 5 mn from resident sellers

2% Equalisation Levy (India Digital tax) (effective 1 April 2020):

  • Online sale of goods and online provision of services shall include one or more of clarified activities taking place online i.e. – acceptance of offer for sale; placing the purchase order; acceptance of the purchase order; payment of consideration; or supply of goods or provision of services, partly or wholly
  • 2% EL will be chargeable on consideration received or receivable for online sale of goods/ online provision of services (and not restricted to ‘income’ of e-commerce operator (‘ECO’)) irrespective of whether ECO is owning the goods or providing/facilitating services 
  • Consideration ‘taxable’ as royalty/ FTS under the Act read with respective Tax Treaty shall not be included within the ambit of EL (both 6% and 2%);
  • In case where EL @ 2% is applicable, exemption from income-tax on such consideration would be applicable from 1 April 2020 (instead of 1 April 2021). However, the said exemption will not apply to royalty and FTS taxable under the Act read with respective Tax Treaty

Income-tax compliances and key proceedings

  • Reduction in time limit: 
CompliancesProposed amendment
Belated / revised tax returnTo be filed 3 months before end of relevant AY
Processing of tax return (intimation)Processing of tax return (intimation)
Selection of tax return for assessmentFrom 6 months to 3 months from end of FY in which tax return is filed
Completion of assessment for AY 21-22 and onwardsFrom 12 months to 9 months from end of relevant AY
  • Reassessment timelines curtailed to 3 years from end of relevant AY (vis-a-vis current 4 / 6 years). For reassessment timelines of 10 years from end of relevant AY made subject to where AO has evidence of income escaping assessment, represented in the form of assets, amounting to INR 5 Mn or more with prior approval from principal authority as specified
  • In case of penalty leviable exceeding INR 20 mn on any false entries or fake invoices or any omission relevant for computation of income, tax officers are now empowered with right of attachment of any property of such taxpayer
  • Any increase in income reported in Tax Audit Report but not reported in Income tax return shall be taken into account adjusted by income tax authorities at the time of online processing of ROI
  • Scope for reassessment widened to allow AO to make initial enquiries and reasons to be computer based.

Dispute Resolution:

  • The Authority for Advance Ruling (AAR) will be replaced by Board of Advance Ruling  once notified. Proceedings to be faceless. Advance Ruling pronounced by such Board shall not be binding on taxpayer and tax authorities, though appealable before the High Court
  • Faceless Tribunal to be introduced now in continuation to the Faceless Assessment and Appeal process introduced by the Government.
  • Income Tax Settlement Commission will cease to operate, pending cases before interim board to be formed
  • New Permanent Scheme for tax settlement in form of dispute resolution committee introduced for small taxpayers with returned income upto INR 5mn and aggregate of variation proposed below INR 1 mn
  • Vivad Se Vivad Scheme (Tax Amnesty Scheme) not to cover cases pending before Settlement Commission. Separately, the timeline to make an application under VSV scheme has been further extended till 28 February 2020

Indirect Taxes

A) Customs

  • Agriculture Infrastructure and Development Cess (AIDC) introduced on selected items which can be off-set against the Basic Customs Duty. Thus, no major increase in effective Customs duty rate;
  • Quicker dispute resolution: Time limit of 2 years stipulated (further extendable by 1 year) for completion of any proceedings under the Customs Act;

B) Goods and Service Tax (GST):

  • Restriction on input tax credit availment to the extent of invoices uploaded by suppliers;
  • GSTR audit report (Form GSTR-9C) to be scrapped and self certified reconciliation to be provided by taxpayer as part of GST annual return (Form GSTR-9);
  • Wide powers provided to authorities to call for information from any person in relation to any matter dealt under GST Act;
  • Refund of IGST paid on exports restricted – Refund of IGST paid on Exports (rebate) restricted to notified class of taxpayers or goods/ services.

C) Incentivising domestic manufacturing: 

  • Customs duty rate increased on various parts/ inputs (including those meant for electronics, mobiles, automobiles) to promote manufacturing of such goods in India;
  • Government may introduce a phased manufacturing plan (PMP) for manufacture of solar cells and panels in India.

Personal Taxes

  • Tax exemption for specified expenditure incurred (during the period October 12, 2020 to March 31, 2021) in lieu of Leave Travel Concession – now enacted
  • Accrued interest on employee’s contributions on or after April 1, 2021 to EPF exceeding INR 250,000 taxable. No exemption under Section 10(10D) for ULIP – Policy issued after 1 Feb 2021 and annual premium exceeds INR 250,000
  • Relief in filing of tax return for Resident senior citizens (75 years or above) having income from pension and interest from same specified bank – tax on such income is deducted by bank
  • Tax relief on income accrued from overseas retirement benefit account – Rules to be prescribed   

Milan Shah (milan.shah@pwc.com) would be happy to walk you through the above key proposals at length and address any clarifications or queries you may have. 

Image source: http://unsplash.com

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