Finance Act, 2021: Everything you need to know

Finance Act, 2021: Everything you need to know

Finance Act 2021 - Taxscan

The Finance Bill, 2021 was introduced in Lok Sabha on 01st February 2021 and passed by Lok Sabha on 23rd March 2021 with 127 new amendments in comparison to the bill presented in Lok Sabha on 01st February 2021. The Finance Bill 2021 further received the Assent of President on 28th March 2021 and Become Finance Act, 2021.

Rate of Income Tax

In respect of income of all categories of assessee liable to tax for the assessment year 2021-22, the rates of income-tax have either been specified in specific sections (like section 115BAA or section 115BAB for domestic companies, 115BAC for individual/HUF, and 115BAD for cooperative societies) or have been specified in Part I of the First Schedule to the Bill. There is no change proposed in tax rates either in these specific sections or in the First Schedule. The rates provided in sections 115BAA or 115BAB or 115BAC or 115BAD for the assessment year 2021-22 would be the same as already enacted. Similarly, rates laid down in Part III of the First Schedule to the Finance Act, 2020, for the purposes of computation of “advance tax”, deduction of tax at source from “Salaries” and charging of tax payable in certain cases for the assessment year 2021-22 would now become part I of the first schedule. Part III would now apply for the assessment year 2022-23 and would remain unchanged except that it would also apply to the proposed section 194P.

The rates of income-tax in respect of income liable to tax for the assessment year 2021-22.

Rates for deduction of income-tax at source during the financial year (FY) 2021-22 from certain incomes other than “Salaries”

The rates for deduction of income-tax at source during the FY 2021-22 under the provisions of section 193, 194A, 194B, 194BB, 194D, 194LBA, 194LBB, 194LBC and 195 have been specified in Part II of the First Schedule to the Bill. The rates will remain the same as those specified in Part II of the First Schedule to the Finance Act, 2020, for the purposes of deduction of income-tax at source during the FY 2020-21. For sections specifying the rate of deduction of tax at source, the tax shall continue to be deducted as per the provisions of these sections.

Exemption for LTC Cash Scheme

Under the existing provisions of the Act, clause (5) of section 10 of the Act provides for exemption in respect of the value of travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding on leave to any place in India. In view of the situation arising out of the outbreak of the COVID pandemic, it is proposed to provide tax exemption to cash allowance in lieu of LTC.

Hence, the government inserted the second proviso in clause 5 of section 10, so as to provide that, for the assessment year beginning on the 1st day of April 2021, the value in lieu of any travel concession or assistance received by, or due to, an individual shall also be exempt under this clause subject to fulfillment of conditions to be prescribed. It is also proposed to clarify by way of an Explanation that where individual claims and is allowed exemption under the second proviso in connection with prescribed expenditure, no exemption shall be allowed under this clause in respect of the same prescribed expenditure to any other individual.

Incentives for affordable rental housing

The existing provision of the section 80-IBA of the Act provides that where the gross total income of an assessee includes any profits and gains derived from the business of developing and building affordable housing project, there shall, subject to certain conditions specified therein, be allowed a deduction of an amount equal to hundred percent. of the profits and gains derived from such business. One of the conditions is that the project is approved by the competent authority after the 1st day of June 2016 but on or before the 31st day of March 2021.

To help migrant labourers and to promote affordable rental, it is proposed to allow deduction under section 80-IBA of the Act also to such rental housing projects which are notified by the Central Government in the Official Gazette and fulfill such conditions as specified in the said notification.

Further, it is also proposed that the outer time limit for 31st March 2021 in this section for getting the affordable housing project approved be extended to 31st March 2022, and the same outer time limit be also provided for the proposed affordable rental housing project.

This amendment will take effect from 1st April, 2022 and will accordingly apply to the assessment year 2022-23 and subsequent assessment years.

Removing difficulties faced by taxpayers

In order to boost the demand in the real-estate sector and to enable the real-estate developers to liquidate their unsold inventory at a lower rate to home buyers, it is proposed to increase the safe harbour threshold from existing 10% to 20% under section 43CA of the Act, if the three conditions are satisfied.

Firstly, the transfer of residential unit takes place during the period from 12th November, 2020 to 30th June, 2021

Secondly, the transfer is by way of first time allotment of the residential unit to any person.

Thirdly, the consideration received or accruing as a result of such transfer does not exceed two crore rupees.

Payment by employer of employee contribution to a fund on or before due date

In order to provide certainty, it is proposed to amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the due date under this clause and amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies.

These amendments will take effect from 1st April 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.

Constitution of Dispute Resolution Committee for small and medium taxpayers

The Central Government shall constitute one or more Dispute Resolution Committee (DRC). This committee shall resolve disputes of such persons or class of person which shall be specified by the Board. The assessee would have an option to opt for or not opt for the dispute resolution through the DRC.

Only those disputes where the returned income is fifty lakh rupee or less (if there is a return) and the aggregate amount of variation proposed in specified order is ten lakh rupees or less shall be eligible to be considered by the DRC.

If the specified order is based on a search initiated under section 132 or requisition made under section 132A or a survey initiated under 133A or information received under an agreement referred to in section 90 or section 90A,of the Act, such specified order shall not be eligible for being considered by the DRC.

Assessee would not be eligible for benefit of this provision if there is detention, prosecution or conviction under various laws as specified in the proposed section.

Board will prescribe some other conditions in due course which would also need to be satisfied for being eligible under this provision.

The DRC, subject to such conditions as may be prescribed, shall have the powers to reduce or waive any penalty imposable under this Act or grant immunity from prosecution for any offence under this Act in case of a person whose dispute is resolved under this provision.

The Central Government has also been empowered to make a scheme by notification in the Official Gazette for the purpose of dispute resolution under this provision. The scheme shall impart greater efficiency, transparency, and accountability by eliminating interface to the extent technologically feasible, by optimizing utilization of resources, and introducing dynamic jurisdiction. The Central Government may, for the purposes of giving effect to the scheme, by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications, and adaptations as may be specified in the notification. However, no such direction shall be issued after the 31st day of March 2023. Every such notification shall, as soon as may be after the notification is issued, be laid before each House of Parliament.

This amendment will take effect from 1st April, 2021.

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