The Finance Bill is a part of the Union Budget, stipulating all the legal amendments required for the changes in taxation proposed by the Finance Minister. This Bill encompasses all amendments required in various laws pertaining to tax, in accordance with the tax proposals made in the Union Budget. The Finance Bill, as a Money Bill, needs to be passed by the Lok Sabha – the lower house of the Parliament. Post the Lok Sabha’s approval, the Finance Bill becomes Finance Act.
The Finance Bill 2021 which was tabled in the Parliament has proposed 80+ amendments to the Income-tax Act and other related Acts. The Govt. has decided not to change the tax rates for the next year. Increase in the tax audit turnover, Faceless Appeals, Dispute Resolution Committee, reduction in time-limit for re-opening of assessments, etc. are a few key proposals which have been introduced in the Finance Bill, 2021.
Key Highlights of the finance bill 2021
Major amendments in Direct Taxation
- Taxability of Interest on Provident Fund: -It has been proposed that the exemption shall not be available for the interest income accrued during the previous year on the recognised and statutory provident fund in the account of the person to the extent it relates to the contribution made by the employees in excess of Rs. 2,50,000 in a previous year.
- No MAT on dividend income of a foreign company: – Dividends received by a foreign company on its investment in India shall be excluded for calculation of book profit in case the tax payable on such dividend income is less than MAT liability on account of concessional tax rate provided under DTAA.
- No deduction for employee’s contribution if not deposited before the due date: – The deduction under Section 36(va) for contribution received by the employers from his employees towards any welfare fund shall be allowed only if such sum is credited by the employer to the employee’s account in the relevant fund on or before the due date prescribed under the relevant Act.
- LLPs are not eligible for presumptive taxation scheme under Section 44ADA: –Section 44ADA allows specified professionals to calculate and pay tax on a presumptive basis. The amendment proposes to specify an exclusive list of the assesses who are eligible for the presumptive taxation scheme prescribed under Section 44ADA. Now only an Individual, HUF or a Partnership Firm, not being an LLP, shall be eligible to opt for presumptive taxation scheme under Section 44ADA.
- No depreciation shall be allowed on goodwill: – The Finance Bill, 2021 has proposed to amend various sections under the Income Tax Act to ensure that no depreciation is claimed on goodwill. It has been proposed to amend section 2(11) to specifically provide that “block of assets shall not include goodwill” be it acquired or self-generated.
- No Equalisation Levy on royalty or FTS: –It has been proposed that equalisation levy shall not be levied on consideration received or receivable for specified services or for e-commerce supply which is taxable as royalty or fees for technical services.
- Reduction in the time limit for filing of belated or revised return: -The time limit for filing of belated return or revised return is proposed to be reduced by 3 months. Now the belated or revised return can be filed on or before December 31 of the assessment year or before the completion of the assessment, whichever is earlier.
- Exemption from the filing of return by an individual whose age is 75 years or above: –Resident Senior citizen who is of the age of 75 years or above shall not be required to file the return of income if he has only pension income and interest income from the same bank in which he is receiving his pension. However, the bank shall be required to deduct tax at the rates in force.
- TDS on purchase of goods: -New Section 194Q is proposed to be inserted for deduction of TDS by a person (whose turnover exceeds Rs. 10 crores) who is paying any sum to any resident for purchase of any goods of the value exceeding Rs. 50 lakhs in any previous year. The tax shall be deducted at the rate of 0.1%, which shall be increased to 5% if the seller does not provide his PAN.
- Section 80-IBA deduction to rental housing projects: –Section 80-IBA provides for deduction of an amount equal to 100% of the profits and gains derived by an assessee from the business of developing and building affordable housing project approved on or before 31-03-2021. This date has been further extended to 31-03-2022.
- Extension in the due date for the incorporation of start-up co. for Section 80-IAC: –A start-up is eligible for deduction under section 80-IAC if it satisfies certain conditions. One of the conditions provide that it should be incorporated between 01-04-2016 and 31-03-2021. The Finance Bill 2021 proposes to extend the outer date of incorporation to 31-03-2022.
- Extension in the due date for the incorporation of start-up co. for Section 80-IAC: – A start-up is eligible for deduction under section 80-IAC if it satisfies certain conditions. One of the conditions provide that it should be incorporated between 01-04-2016 and 31-03-2021. The Finance Bill 2021 proposes to extend the outer date of incorporation to 31-03-2022.
- Extension in the time-limit for sanction of housing loan for deduction under Section 80EEAAdditional deduction under Section 80EEA for the interest on housing loan is allowed if such loan is sanctioned on or before 31-03-2021. The Finance Bill proposes to extend the said outer date for sanction of such housing loan by one year to 31-03-2022.
Charitable and Religious Trust
- Amount applied out of loans not to be considered as an application of Income: -Utilization of borrowed money shall not be considered as an application of income for charitable or religious purposes. However, when loan or borrowing is repaid from the income of the previous year, such repayment shall be allowed as an application in the previous year in which it is repaid.
- Corpus Contributions to be exempt only if invested: -Voluntary contributions made with a specific direction that it shall form part of the corpus shall be eligible for exemption only if it is invested/deposited in modes specified under Section 11(5) maintained specifically for such corpus. Further, the amount spent from such corpus shall not be considered as an application against the mandatory 85% application of non-corpus income.
- Exemption to educational or medical institutions having annual receipt of up to Rs. 5 crores: -Educational or Medical institutions are entitled to exemption under section 10(23C)(iiiad) and 10(23C)(iiiae) respectively, if the annual receipt of such institutions does not exceed Rs. 1 crore. The said limit is proposed to be increased to Rs. 5 crores.