The Union Budget for 2021-2022 was announced on 1st February 2021. With the completion of almost a year since India got its first Covid case, this budget is seen as a well-balanced one, with neither too many highs nor too many lows. In this article, we discuss the key highlights of budget 2021 for employees and businesses.
Table of Contents
Highlights – Employees & Businesses
Income tax return
As a relief to senior citizens of age 75 years and above, they will be exempt from the requirement of filing of income tax. On condition that their full amount of tax payable is deducted by their paying bank. Such citizens also need to have only pension and interest as their sources of income.
All details for saving bank interest, post office deposit interest, capital gains, dividend income will come prefilled.
Reducing litigation for taxpayers
The time limit for reopening of assessment of income tax payment is reduced to 3 years from the previous 6 years timeline. This is applicable from the end of the relevant assessment year. Although, reopening of case up to 10 years is allowed provided there is evidence of undisclosed income of Rs 50 lakh or more for a year.
Moreover, discretion in reopening of cases will be removed. Reopening can only occur in case of flagging by system on basis of data analytics, objection of C&AG and in search/survey cases. Furthermore, to bring certainty in income tax proceedings at the earliest, the time limits for general assessment or processing of income tax return will be reduced by three months and also for filing of returns.
Secondly, for reducing litigation and to give an impetus to the dispute resolution for small taxpayers, a Dispute Resolution Committee will be constituted. A taxpayer having taxable income of up to Rs 50 lakh and disputed income of up to Rs 10 lakh shall be eligible to approach the Committee. For ensuring efficiency, transparency and accountability, the procedure of the Committee will be conducted in a faceless manner. Subsequently, the Settlement Commission will be discontinued from 1st February 2021. However, their pending cases will be decided by an Interim Board if opted by the applicant.
Vivad se vishwas scheme last date
The last date for filing of Vivad se vishwas scheme has been extended to 28th February, 2021.
Reducing Compliances
To incentivise digital transactions and to reduce the compliance burden of citizens who are doing all their transactions digitally, the limit for tax audit will be increased from Rs 5 crore to Rs 10 crore turnover. This is applicable for people who carry out 95% of all their transactions digitally.
Dividend Tax
All dividend will be exempt from TDS. Advance tax liability on dividend income will arise only after declaration or payment of dividend. For foreign investors, the lower treaty rate benefit will be given.
Affordable housing and affordable rental housing project
To incentivise purchase of affordable housing, the eligibility period for claim of additional deduction for interest of Rs 1.5 lakh paid will be extended for loan taken for purchase of affordable house to 31st March 2022. To increase the supply of affordable house, the eligibility period for claiming tax holiday for affordable housing project will be extended by one more year to 31st March 2022. Additionally, to promote supply of Affordable Rental Housing for migrant workers, a new tax exemption for notified affordable rental housing projects will be allowed.
Businesses/Startups
If employer pays PF employee contribution after the 15th of a month then employer will not be allowed to claim business deduction. This serves as a penalty on employer for not submitting PF employee contribution on time.
Additionally, there will be tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of Rs 2.5 lakh or more. This restriction shall be applicable only for the contribution made on or after 1st April 2021. Also, the tax holiday for startups extended to 31st March 2022. Meanwhile, capital gains exemption on investment in startups also extended to 31st March 2022.
Non-filing of return with high TDS deduction
To discourage practice of not filing returns by citizens who have substantial amount of tax to pay, it is now applicable that such citizens in whose case TDS/TCS deduction of Rs 50,000 or more has been made for the past two years and who has not filed return of income, the rate of TDS/TCS shall be at double of the specified rate or 5%, whichever is higher. Furthermore, this will not be applicable for the transactions where full amount of tax is required to be deducted. Example, salary income, payment to non-resident, lottery, etc.
Tax on ULIPs
To rationalize taxation of ULIP, it is now applicable to allow tax exemption for maturity proceed of the ULIP having annual premium up to Rs 2.5 lakh. However, the amount received on death shall continue to remain exempt without any limit on the annual premium. The cap of Rs 2.5 lakh on the annual premium of ULIP shall be applicable only for the policies taken on or after 1st February 2021. Furthermore, to provide parity, the non-exempt ULIP shall be provided same concessional capital gains taxation regime as available to mutual funds.
MCA, Companies Act, LLP Act
As a means of easing compliance requirements of small companies, the threshold of qualifying as a small company is increased. Share capital is increased up to Rs 2 crore from earlier Rs 50 lakh. Also, turnover is increased up to Rs 20 crore from earlier Rs 2 crore, to qualify as a small company.
Secondly, One Person Companies (OPC) will now be allowed to grow without any restriction in share capital or turnover. Moreover, NRIs will be allowed to set up OPCs. They need a presence in India for 120 days in a year to start an OPC.
Next, MCA Version 3.0 will be launched which will simplify e-scrutiny, e-adjunction and compliance management. Decriminalisation of LLP Act, 2008 will happen and Tribunals will be rationalised.
GST
No GST audit is required for specified taxpayers. Also, no requirement of filing the annual return for such specified taxpayers.
Others
Some other budget 2021 keypoints for employees and businesses are as follows:
For salaried individuals, there has been no change is income tax slab rates which is a good thing. But addition of agri-infra cess on petrol and diesel will be troublesome.
Exemption of Leave Travel Concession is applicable till 31st March 2021. Post that the scheme extension does not have any clarity.
PMAY subsidy is applicable on first property buy whereas affordable housing benefit is applicable when the builder builds an affordable housing property. So both are not the same, and are individual benefits.
PF tax will be applicable as per the income tax slab rate.
Watch further discussion on Budget 2021 highlights for employees and businesses in the video below.
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