Topic 2: Budget 2021: Much to cheer for taxpayers on procedural changes
The theme of the Budget 2021 is mainly Infrastructure, Public Health and Privatisation. Further, it is a step towards fulfilling the vision of ‘Aatmanirbhar Bharat’. It is heartening to note that the FM has not introduced any new taxes including surcharge/cess due to Covid19 pandemic, but has also kept unchanged the current income slabs and tax rates as well as exemptions/deductions applicable to individual taxpayers.
Exemption from filing I-T returns for those aged 75 and above
Budget 2021 has exempted resident senior citizens (being at least 75 years in age) from filing tax return if he/she is having pension and interest income from same bank subject to satisfaction of following conditions:
-The bank should be a specified bank (i.e. to be notified by government)
-The taxpayer is required to furnish a declaration to the specified bank containing such particulars, in such form and verified in such manner, as may be prescribed
-The bank will be required to compute the income of such senior citizen after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A of the Act and deduct income tax based on rates in force.
Relaxation to NRIs in respect of foreign retirement accounts
When NRIs return to India, they face challenges in respect of accrued incomes in their FRAs (foreign retirement accounts) as such income gets taxed in the overseas country on receipt basis or on withdrawal as well as in India on accrual basis, where the person is a Resident of India. This is usually due to a mismatch in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions. In view of the same, the government has proposed to insert a new section 89A of the Income-tax Act, 1961 (‘the Act’) wherein rules for avoiding double taxation will be notified.
This new section will be applicable to a person who is resident in India, who had opened a specified account in a notified country while being non-resident in India and resident in that country. Such specified account should be maintained for retirement benefits and the income from which should not be taxable on accrual basis but at the time of withdrawal or redemption in the overseas country. One would have to wait for the rules in this regard, to further clarify on the manner of taxation of such income.
Taxability of interest on EPF / RPF where income is exempt
Currently, the interest earned on Provident Fund (i.e. set-up under the Provident Funds Act, 1925 or any recognised provident fund) is exempt under section 10(11) / section 10(12) of the Act subject to certain conditions. This exemption did not have any threshold limit. Hence, employees were making higher voluntary contributions to the PF fund as the interest was considered tax exempt. Accordingly, it is now proposed that interest in respect of employee contributions made upto Rs 250,000 per annum will be exempt. Any interest earned above such limit would be taxable.
Advance tax payment on dividend income
Interest under section 234C of the Act is applicable to taxpayers who have delayed / failed to make advance tax payments by due dates on their estimated taxable income.
A relaxation to the interest under section 234C of the Act was available to some categories of income (such as capital gains) where it was not possible to determine the income value till the income was realised. Such relaxation is proposed to be provided in case of dividend income. Accordingly, advance tax liability on dividend income shall arise only after the declaration / payment of dividend.
Pre-filling of tax returns
Currently, the details of salary income, tax payments, TDS, etc. already come pre-filled in income tax return forms. To further ease filing of returns for the taxpayers, details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. will also come pre-filled in the tax return forms.
Due dates for filing the belated or revised tax returns
It is proposed that the last date for filing of belated or revised returns of income is reduced by three months. For example, the due date for filing the belated / revised India tax return for FY 2021-22 as per the current laws would have been 31 March 2023 (i.e. till the end of the assessment year) or before the completion of the assessment, whichever is earlier. The due date in this case is now proposed to be 31 December 2022.
Extension of tax incentive for affordable housing scheme
Budget 2020 had introduced an additional deduction up to Rs 150,000 for interest on loans taken by first home buyers for purchase of residential property whose stamp duty value did not exceed Rs 45 lakhs (subject to certain conditions). The deduction was eligible only if the loan was sanctioned during the period 1 April 2019 to 31 March 2021. The eligibility period for sanctioning the loan is proposed to be extended to 31 March 2022
Amendments pertaining to assessments / appeals
Budget 2021 has proposed various amendments to reduce the length of the assessment and appeal proceedings to mitigate the genuine hardship faced by the taxpayers:
-Number of prior tax years for a notice for reassessment of income to be issued, has now been proposed to be reduced to three years from the end of assessment year, from the earlier six years, except in few cases where the amount of escaped income is likely to amount to Rs 50 lakhs or more. In such cases, notice can be issued up to ten years from the end of the relevant assessment year (subject to necessary approvals).
-Provision for Faceless Proceedings with the Income-tax Appellate Tribunal
-To further reduce litigation for small taxpayers, a Dispute Resolution Committee is proposed to be set up wherein any taxpayer with a taxable income up to Rs 50 lakh and disputed income up to Rs 10 lakh shall be eligible to approach the Committee.
-In line with the change in the due dates for filing the belated or revised tax returns, a similar reduction of three months is proposed for time limit of completing scrutiny assessment. Accordingly, the due date for completing the assessment for FY 2021-22 would be 31 December 2023 (i.e. nine months from the end of the assessment year in which the income was first assessable).
Exemption from filing I-T returns for those aged 75 and above
Budget 2021 has exempted resident senior citizens (being at least 75 years in age) from filing tax return if he/she is having pension and interest income from same bank subject to satisfaction of following conditions:
-The bank should be a specified bank (i.e. to be notified by government)
-The taxpayer is required to furnish a declaration to the specified bank containing such particulars, in such form and verified in such manner, as may be prescribed
-The bank will be required to compute the income of such senior citizen after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A of the Act and deduct income tax based on rates in force.
Relaxation to NRIs in respect of foreign retirement accounts
When NRIs return to India, they face challenges in respect of accrued incomes in their FRAs (foreign retirement accounts) as such income gets taxed in the overseas country on receipt basis or on withdrawal as well as in India on accrual basis, where the person is a Resident of India. This is usually due to a mismatch in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions. In view of the same, the government has proposed to insert a new section 89A of the Income-tax Act, 1961 (‘the Act’) wherein rules for avoiding double taxation will be notified.
This new section will be applicable to a person who is resident in India, who had opened a specified account in a notified country while being non-resident in India and resident in that country. Such specified account should be maintained for retirement benefits and the income from which should not be taxable on accrual basis but at the time of withdrawal or redemption in the overseas country. One would have to wait for the rules in this regard, to further clarify on the manner of taxation of such income.
Taxability of interest on EPF / RPF where income is exempt
Currently, the interest earned on Provident Fund (i.e. set-up under the Provident Funds Act, 1925 or any recognised provident fund) is exempt under section 10(11) / section 10(12) of the Act subject to certain conditions. This exemption did not have any threshold limit. Hence, employees were making higher voluntary contributions to the PF fund as the interest was considered tax exempt. Accordingly, it is now proposed that interest in respect of employee contributions made upto Rs 250,000 per annum will be exempt. Any interest earned above such limit would be taxable.
Advance tax payment on dividend income
Interest under section 234C of the Act is applicable to taxpayers who have delayed / failed to make advance tax payments by due dates on their estimated taxable income.
A relaxation to the interest under section 234C of the Act was available to some categories of income (such as capital gains) where it was not possible to determine the income value till the income was realised. Such relaxation is proposed to be provided in case of dividend income. Accordingly, advance tax liability on dividend income shall arise only after the declaration / payment of dividend.
Pre-filling of tax returns
Currently, the details of salary income, tax payments, TDS, etc. already come pre-filled in income tax return forms. To further ease filing of returns for the taxpayers, details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. will also come pre-filled in the tax return forms.
Due dates for filing the belated or revised tax returns
It is proposed that the last date for filing of belated or revised returns of income is reduced by three months. For example, the due date for filing the belated / revised India tax return for FY 2021-22 as per the current laws would have been 31 March 2023 (i.e. till the end of the assessment year) or before the completion of the assessment, whichever is earlier. The due date in this case is now proposed to be 31 December 2022.
Extension of tax incentive for affordable housing scheme
Budget 2020 had introduced an additional deduction up to Rs 150,000 for interest on loans taken by first home buyers for purchase of residential property whose stamp duty value did not exceed Rs 45 lakhs (subject to certain conditions). The deduction was eligible only if the loan was sanctioned during the period 1 April 2019 to 31 March 2021. The eligibility period for sanctioning the loan is proposed to be extended to 31 March 2022
Amendments pertaining to assessments / appeals
Budget 2021 has proposed various amendments to reduce the length of the assessment and appeal proceedings to mitigate the genuine hardship faced by the taxpayers:
-Number of prior tax years for a notice for reassessment of income to be issued, has now been proposed to be reduced to three years from the end of assessment year, from the earlier six years, except in few cases where the amount of escaped income is likely to amount to Rs 50 lakhs or more. In such cases, notice can be issued up to ten years from the end of the relevant assessment year (subject to necessary approvals).
-Provision for Faceless Proceedings with the Income-tax Appellate Tribunal
-To further reduce litigation for small taxpayers, a Dispute Resolution Committee is proposed to be set up wherein any taxpayer with a taxable income up to Rs 50 lakh and disputed income up to Rs 10 lakh shall be eligible to approach the Committee.
-In line with the change in the due dates for filing the belated or revised tax returns, a similar reduction of three months is proposed for time limit of completing scrutiny assessment. Accordingly, the due date for completing the assessment for FY 2021-22 would be 31 December 2023 (i.e. nine months from the end of the assessment year in which the income was first assessable).