9 Major Direct Tax Amendments in Budget 2021-22

On 1^st February 2021, Finance minister Nirmala Sitharaman introduced the Union Budget for the financial year 2021-22 of which the major Direct tax amendments have been discussed here:

Latest Tax Amendments 2021-22

1. Relief to tax payers on paying advance taxes on dividend:

From 1^st April, 2020 the corporate tax was reduced to 25% and subsequently dividend which was earlier exempt upto Rs 10,00,000 in the hands of taxpayer was now made to be taxable. Since this meant that the taxpayers were now required to pay advance tax on dividends which they were not aware of. This attracted interest under section 234C of the Income Tax Act, 1961. Now the section 234C has been amended to include advance tax on dividend only on its receipt.

2. Goodwill has been excluded from Block of Assets

From 1^st April, 2021 taxpayers would not be allowed to take depreciation on goodwill as the same has been excluded from the block of assets which means even the goodwill which has been paid for will not be allowed for depreciation under the amendments of Sec 32 and Sec 55 of Income Tax Act,1961.

3. Tax Audit Requirements:                  

From 1st April 2021 tax audit requirements have been changed from turnover of Rs 5 Crores to Rs 10 crores for businesses who have 95% of digitalized transactions. This is a welcome initiative by the government which will ease compliances of small tax payers and promote digital payments.

4. Relief to Senior Citizens

No filing Requirements for Senior Citizen having only pension income and interst income: Senior citizens above 75 years of age and having only Pension and interst income will now be not required to file ITR.

5. Interest and Principal repayment of loans extended to 31^st March, 2022

Repayment of principal and interest of home loans can now be availed under section 80C of Income Tax Act, 1961. For joint owners both the owners can obtain the deduction of Rs 1,50,000 each.

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6. Start-ups and innovators:

Start ups incorporated up to April 01, 2022 will be eligible to avail tax holiday. Similarly, capital gains arising from sale of residential property on or before March 31, 2022 and invested by eligible assesses to subscribe the equity shares of an eligible startup will be eligible for tax exemption. Such investment can be made by the due date of filing of return of income of such eligible assesse.

7. Increase in safe harbor threshold between purchase price of house and stamp value

As per Income Tax Act, 1961 homebuyers were taxed for differential between purchase price and stamp value if the stamp duty was more. For this purpose, a difference of 10% was considered normal. Due to Covid-19 as there is  reduction in real estate prices in recent times, this budget proposes to increase the safe harbor threshold from 10% to 20% thus avoiding uncalled for taxation in the hands of the home buyers.

8. LLPs to be excluded from the scope of Section 44ADA i.e Presumptive Income

It is proposed that benefit of the Section 44ADA is not extended to LLP. LLP are required to maintain books of accounts under LLP Act and accordingly, presumptive taxation u/s 44 ADA is not applicable

9. Reduction in Time limit for assessment or reassesment

The time limit for issuance of notice for assessment or reassessment has been reduced as under:

– From six years to three years;

– In cases of serious tax evasion, wherein there is evidence of concealment of income, the notice can be issued upto ten years provided such income is in excess of INR 50 lakh or more. Notice to be issued post prior approval from the specified authority being Principal Commissioner or Principal Director or Commissioner or Director (if three years or less have elapsed from the end of the relevant assessment year) and authority being Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General (if more than three years have elapsed).

This latest tax amendment will be applicable from assessment year 2021-22 i.e., from April 01, 2021

All public sector companies will now be allowed to carry forward losses and unabsorbed deprecation after amalgamation

Presently the said provisions were applicable only to company/(ies) in the business of operation of aircraft shall now be applicable to any public sector company/(ies) irrespective of its business. In case of amalgamation or divestment of erstwhile public sector company/(ies), through share purchase agreement, on expiry of period of five years, the loss of the amalgamating company/(ies) shall be the loss of the amalgamated company/(ies).

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