The Finance Minister presented the Union Budget 2021 before Parliament on 1 February 2021. In addition to the tax measures reported previously, the Finance Bill 2021 proposes the following direct tax measures, including the non-application of the equalization levy on royalties or fees for technical services, incentives for start-up and financial service companies and amendments to the tax treatment of certain income earned by individuals.
Equalization levy (EL)
- The tax on royalties or fees for technical services (FTS) and the EL will be mutually exclusive effective from 1 April 2020. Accordingly, the EL shall not be charged on the consideration which is taxable as royalties or FTS.
- For purposes of defining e-commerce supply or service, online sale of goods and online provision of services shall include one or more of the following activities taking place online:
- accepting offers for sale;
- placing purchase orders;
- acceptance of purchase orders;
- payment of consideration; or
- supply of goods or provision of services, partly or wholly.
- Consequently, provisions referring to income arising from the afore-mentioned activities that would have been exempt under section 10(50) of the Income Tax Act (ITA) and chargeable to the EL will be amended to give effect to the afore-mentioned amendments.
- Consideration received or receivable from e-commerce supply or services will include:
- consideration for sale of goods irrespective of whether the e-commerce operator owns the goods; and
- consideration for provision of services irrespective of whether the service is provided or facilitated by the e-commerce operator.
Financial services
- There will be no capital gains tax on transfer of capital assets by a primary co-operative bank to a banking company and on issuance of shares by the banking company to the shareholders of the primary co-operative bank.
- Income on transfers of non-deliverable forward contracts entered into by non-residents with offshore banking units will be exempt from income tax.
- Transfers of assets from offshore funds to a resultant Alternative Investment Fund in any International Financial Services Centre will not be treated as taxable transfers. Further, the exchange of units by share and/or unit holders will not be considered as transfers.
- Capital gains on transfer of shares of an Indian company acquired or relocated from offshore funds will be exempt if such capital gains on such shares were not chargeable to tax had that relocation not taken place.
Start-ups
- Available tax deductions will be extended to eligible start-ups incorporated before 1 April 2022.
- The time limit for exemption from capital gains tax on the investment of net consideration from the transfer of residential properties in start-ups will be extended from 31 March 2021 to 31 March 2022.
Personal tax
- Maturity proceeds from unit-linked insurance policies issued on or after 1 February 2021 will be taxable, if the aggregate annual premium exceeds INR 250,000 in any of the financial years during the term of these policies.
- The income of a resident in India who has opened a specified account in a notified country while being a non-resident in India and a resident in the other country from a specified account for retirement benefits shall be taxed in the manner and in the year as prescribed by the Central Government.
- The tax deducted at source under section 196D of the ITA in respect of income from securities held by Foreign Portfolio Investors can be deducted at the rate provided under tax treaties if such rate is lower than the existing rate of 20% and if a tax residence certificate has been obtained.
- Exemption under the Leave Travel Concession (LTC) cash scheme:
- In view of the COVID-19 pandemic, the cash allowance in lieu of the LTC will be exempt, subject to fulfilment of certain conditions to be notified subsequently.
- Taxability of interest on various funds where income is exempt:
- Employees contributing substantial amounts to provident funds benefit from the tax exemption on the entire interest accrued and/or received from such contribution under section 10 of the ITA.
- The Finance Bill proposes to remove the exemption for interest accrued during the previous year on the recognized provident fund to the extent it relates to the amount or aggregate of amounts of employee contribution in excess of INR 250,000 in a previous year, on or after 1 April 2021.
Note: Income from such account is not taxable on accrual basis and is taxable by such country at the time of withdrawal or redemption.