Implications of Union Budget 2021 on Income Tax: A Complete Guide

On 01.02.2021, our Union Finance Minister, Ms Nirmala Sitharaman, had presented the Union Budget 2021. Through which, there were several minor, and significant changes were made in the provisions of the Income Tax Act 1961. In this blog, we will discuss the Implications of Union Budget 2021 on Income Tax 1961.

Concept of Income Tax

The term Income Tax means the tax levied on the total income earned by the assessee in the previous financial year. Further, in common parlance, the term Income means the regular periodic return to a person from his/ her activities.

Further, it shall be significant to take in the consideration that it is mandatory for every taxpayer, who is earning income above the specified limit to file Income Tax Return on a periodic basis. Also, take into note that winning from crossword puzzles, lotteries, or income from winning of shows is subject to Income Tax as well.

Also, Read: Union Budget 2021: Key Highlights of the First Digital Budget

Reasons to Make Changes in Income Tax Act

The main reasons behind the changes made in the provisions of Income Tax Act are as follows:

• To Ease out the Working of Law;
• To Simplify the Interpretation of Law;
• To Minimise the Chance of Difficulty in the Enforcement of Law;
• To Confirm Seamless Tax System;
• To Ensure Continuous Flow of Credit;

Key Implications of Union Budget 2021 on Income Tax Act

The key implications of Union Budget 2021 on Income Tax Act are as follows:

Tax Slab

Based on the Union Budget 2021, no changes has been made in the Income Tax Slabs for salaried people.

No Need to File ITR

Now, there is no need for Senior Citizens to file Income Tax Return. However, the same is possible only after satisfying the conditions as follows:

• He must be the Resident of India;
• Must be of age 75 years or more in the previous financial year;
• Should have only Pension or/ and Interest Income as the source of earning;
• Needs to furnish a declaration to the respective bank in the form and manner prescribed (with effect from 01.04.2021);

Increased Threshold Limit

Based on the Union Budget 2021, the threshold limit for the Tax Audit has been increased from Rs 5 crore to Rs 10 crores. However, the same is possible only after satisfying the conditions as follows:

• The aggregate of all the cash receipts in the previous financial year must not exceed 5% of the total receipts, and;
• The aggregate of all the cash payments in the previous financial year must not exceed 5% of the total payments, i.e., 95% of the transactions must be from consideration other than cash. Also, the same will be applicable form the Assessment Year 2022 to 2023.

Reduction in Time Limit to File Belated or Revised Return

The time limit for filing the Revised or Belated Return has been reduced to 3 months.

For example: Normally, the due date to file the revised return by a taxpayer for the Assessment Year 2021 to 2022 is 31.03.2022. However, the same has been changed to 31.12.2021.

Reduction in Time Limit to Process ITR

Another one of the major implications of Union Budget 2021 on Income Tax is that the time limit to process an ITR and completion of assessment under the provisions of the section 143 (1) and 143 (3) of the Income Tax Act has been reduced by 3 months, i.e., 12 months from the end of the Assessment Year to 9 months.

For example: the time limit to complete an assessment for the Assessment Year 2021 to 2022 is 31.03.2022.

Delayed Payments of EPF are not eligible for Deduction

Now, based on the budget speech given by our Finance Minister, the delayed payments of EPF contribution made by employers in the employees account will not be eligible to be claimed as deduction.

No Advance Tax Liability on the Dividend Income

Now, based on the budget speech given by our Finance Minister, there will be no advance tax liability levied on the dividend income earned under the provisions of the Income Tax Act 1961.

Provisions of Section 80 IBA

Based on the provisions of the section 80 IBA, if in case an assessee is involved in the business of developing and constructing affordable housing projects, then, in that case, 100% of such profits will be allowed as deduction. However, the same is possible only after the fulfilment of the conditions as follows:

• The project must be approved on or after 01.06.2016 but prior to 31.03.2021. But, the same condition has been extended now for one or more year, i.e., the project should be approved prior to 31.03.2022.

Deduction of Interest under Section 80 EEA

Section 80 EEA of the Income Tax Act 1961 provides deduction of interest up to Rs150000 in regard to the loan taken for the purchase of residential house property. However, the same is possible only after satisfying the conditions as follows:

• Loan must be taken on or after 01.04.2019 but before 31.03.2021. However, the said time period has been extended up to 31.03.2022;
• The stamp duty value of a property must not exceed Rs 45 lakhs;

Increment in the Exemption Limit

Another one of the major implications of Union Budget 2021 on Income Tax is that the exemption limit of the annual receipts under the provisions of section 10 (23C) (iiiad) and 10 (23) (iiiae) of the Income Tax Act, for University/ Educational Institutions and Hospital/Institutions has been increased from Rs. 1 crore to Rs 5 crore.

Interest on PF Contribution

Now, based on the budget speech given by our Finance Minister, if the interest earned on PF Contribution is above 2.5 lakh, the same will taxable under the provisions of the Income Tax Act 1961.

Definition of Small Companies

Now, based on the budget speech given by our Finance Minister, the definition of Small Companies has been amended as follows:

• The Paid up share capital must be more than Rs 2 crore. The existing limit was Rs 50 lakhs;
• The Annual Turnover of the company must not be more than Rs 20 crore. The existing limit was Rs 2 crore;

Constitution of Dispute Resolution Committee

Another one of the major implications of Union Budget 2021 on Income Tax is that a Dispute Resolution Committee (DRC) has been constituted for those taxpayers who have a returned Income of up to Rs 50 lakhs and disputed tax of up to Rs 10 lakhs.

Establishment of Faceless Income Tax Appellate Tribunal

To reduce the cost of compliance for the taxpayer, the government has decided to establish Income Tax Appellate Tribunal under the provisions of the Income Tax Act.

TDS on Purchase of Goods

Any person, who being a buyer is responsible for paying any amount to any resident for the purchase of any goods of the worth or aggregate of such a value, which is exceeding Rs 50 lakhs in any previous year, will, at the time of credit of such amount to the account of the seller, or at the time of payment thereof by any mode, whichever is earlier, can deduct an amount equal to 0.1 % of such a sum exceeding Rs 50 lakhs as income tax.

Applicability of Provisions

The applicability of the provisions concerning TDS can be summarised as:

• To the buyer whose Gross Receipts/ Sale/ Turnover in the previous financial year exceeds the threshold of Rs 10 crore, and;
• The aggregate amount of purchase by such a particular buyer in the previous financial year exceeds Rs 50 lakhs;

Non Applicability of Provisions

The non-applicability of the provisions concerning TDS can be summarised as:

• The transaction on which the tax is deductible under the provisions of the Act;
• The transaction must be covered by TCS (Tax Collected at Source) under section 206C;

However, it shall be relevant to state that if in case the transaction is covered under section 206 (1H), then, in that case, provisions of TDS will become applicable on that transaction as well.

Rate of TDS

Particulars	Rate
Seller having PAN	0.1%
Seller not having PAN	5%

Conclusion

In a nutshell, the main purpose behind the implications of Union Budget 2021 on Income Tax Act was to make the interpretation, operation, enforcement, and working of law simplified along with the seamless tax system. Also, in case of any query or dilemma, contact our proficient and well experienced experts at Swarit Advisors, who are ever ready to cater to all your issues and doubts. Moreover, they will assist you in the process of Income Tax Return Filing as well.

Also, Read: Companies (Share Capital and Debentures) Amendment Rules 2021