February 1 2021

India: Union Budget 2021 – Highlights

Source: IBFD Tax Research Platform News

On 1 February 2021, the Finance Minister presented the Union Budget 2021/22 before Parliament. The key highlights of the amendments introduced in the Finance Bill 2021 are summarized below.

Corporate tax

  • There will be no change in the corporate tax rate.
  • Late deposit of employees' contribution to the provident fund by employers shall not be allowed as a deductible expenditure in the hands of the Company.
  • Goodwill (other than acquisition of goodwill by purchase) of a business or profession shall not be considered as an asset and therefore not be eligible for depreciation.

Personal tax

  • There will be no change in the slab rates for individuals.
  • Additional annual deduction of INR 150,000 for interest on a loan taken for first time purchase of affordable housing property will be available up to 31 March 2022.
  • New rules were proposed for the removal of double taxation for non-resident Indians (NRIs).

Incentives for financial services

  • Dividend payments to real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) shall be exempt from tax deducted at source (TDS).
  • Advance tax liability on dividend income shall arise only after declaration or payment of dividend.
  • For foreign portfolio investors, treaty rates can be availed for withholding tax on dividend income.
  • To further incentivize operations of units in the International Financial Services Centre (IFSC) in GIFT City, the Finance Minister proposed to allow an exemption on capital gains for aircraft leasing companies, a tax exemption for aircraft lease rentals paid to foreign lessors, a tax incentive for relocating foreign funds in the IFSC and to allow a tax exemption for the investment division of foreign banks located in the IFSC.
  • To incentivize investment in eligible start-ups, the eligibility for claiming a tax holiday for start-ups is extended by 1 more year – until 31 March 2022. Further, in order to incentivize funding of start-ups, the capital gains exemption for investment in start-ups is also extended by one more year - until 31 March 2022.

Tax administration and other measures

  • Relief measures will be granted to senior citizens by removing the need to file income tax returns for those aged 75 years and above, having only pension and interest income. Paying banks will be required to deduct the necessary tax on their income.
  • Details of capital gains, dividend income, income from listed securities and interest income from bank deposits will also be pre-filled in the income tax return form.
  • The following amendments on tax audit, assessment and appellate proceedings were proposed:
    • The tax audit limit will be increased from INR 50 million to INR 100 million for persons carrying out 95% of their transactions digitally.
    • The time limit for re-opening income tax assessment cases will be reduced from 6 years to 3 years. Only in serious tax evasion cases, where there is evidence of concealment of income of INR 5 million or more in a year, can reassessment be opened for up to 10 years.
    • A National Faceless Income Tax Assessment Tribunal (ITAT) Centre will be set up. All communication between the ITAT and the appellant shall be electronic. Where personal hearing is needed, it shall be done through videoconferencing.
    • A dispute resolution committee will be created for small taxpayers with taxable income up to INR 5 million and disputed income up to INR 1 million.
  • The definition of the term "slump sale" will be amended so that all types of "transfers" as defined in section 2(47) of the Income Tax Act are included within its scope.
  • NRIs will be allowed to operate one person companies in India.

Further details will be reported as they develop.