A rundown on Union Budget 2021

With the India’s economy already stalling before the COVID-19 crisis, the Union Budget 2021 has put  forward measures to return the economy to a high-growth track and tackle pressing issues in  relation to – health and wellbeing, capital productivity, infrastructure and governance. In spite of the  financial fallout from the pandemic, the Union Budget 2021 has proposed to maintain status quo on  tax rates. The Government intends to make allocations in all core areas of activity in order to  stabilise the Indian Economy. The Budget, therefore, proposes structural reforms that would  effectively address the issues of the Indian Economy thereby providing real growth impetus.  The Finance Minister proposed to enhance spending on healthcare and infrastructure to accelerate  growth. Moreover, increased FDI limit from 49% to 74% for insurance sector, introduction of IPO for  LIC and privatization of a few national banks would help address credit crunch in the post-pandemic  landscape.  Direct Tax Measures  On the direct tax front, the Finance Minister began by offering her pranaam to the senior citizens  and acknowledged their contribution in nation building. To ease compliance for resident senior  citizens of age 75 years or above, the Finance Minister proposed to provide relaxation from filing of  return of income, if such assessees derive income in the nature of pension or interest (from the  same bank in which they receive their pension income). Based on a declaration furnished by such  taxpayers, the paying bank will deduct tax at source on income computed after giving effect to  applicable deductions and rebate.  However, such relaxation is subject to a stipulated rider that relaxation shall only be available to the  persons having pension income or interest income on deposits from the same bank in which he/she  receives his/her pension income.  The government’s efforts so far have been a strong catalyst for India’s rapid digitization. As  technological advancements ramp up and connectivity becomes omnipresent, India’s economy is  essentially poised to transform. With the intent to enable greater ease of doing business, a slew of  measures were introduced to transform India into a digital India. For instance, the government has  offered incentive in the form of relaxation of threshold for applicability of tax audit. It has been  proposed to increase the threshold limit for a person carrying on business from INR 5 crores to INR  10 crores, where 95% of business transactions are done in digital mode.   Changing way of Dispute Resolution  Indian Tax Administration is also changing its ways. Driven by the principle of ‘minimum government  and maximum governance’, the tax department went for a ‘faceless e-volution’ only last year.  Resultantly, the entire chain of events- right from the filing of tax return to the dispute resolution has  gone digital. The Budget 2021 extended the faceless procedures for disposal of appeals before the  ITAT as well, on the same lines as the faceless appeals scheme. While the nitty-gritties in respect of  the new scheme are yet to be notified, it is felt that the government ought to have waited for the  successful implementation of faceless assessment and faceless appeal before hastily introducing  faceless ITAT. Notably, ITAT is the final fact finding authority, for the taxpayer to argue and counter  argue their tax position in light of differentiating facts. Digitising will change the litigation process.  Additionally, to provide early tax certainty for preventing new disputes and settling issues at initial  stage for small and medium taxpayers, constitution of DRC has been proposed. Established with the  power to reduce or waive any penalty or grant immunity from prosecution for any offence under the    Income Tax Act, the DRC shall only handle disputes where returned income is up to INR 50 lakhs  (where return has been filed) and aggregate amount of variation is up to INR 10 lakh. Further, orders  on account of cases of search, requisition, survey or information received under DTAAs, case of  detention, prosecution or conviction under various laws shall not be eligible to be taken up by the  DRC.   Even the Authority of Advance Rulings has been proposed to be restructured. Under the existing  provisions of the Act, the AAR consists of a Bench, including a Chairman who should be a retired  judge of Supreme Court or Chief Justice of a High Court. The Bench cannot function in the absence  of Chairman or Vice Chairman, which causes significant delays. To expedite the disposal of  applications, it is proposed to constitute a Board of Advance Ruling, which shall substitute the  existing structure. The Board would now consist of two members, not below the rank of Chief  Commissioner. The rulings given by the Board will not be binding on either applicant or department  and can be appealed before the High Court. Foreign investors might be reluctant to apply to a board  for advance rulings that is manned by commissioners, because they would fear that the decision is  going to be against them from the very beginning. Further, that fact that the ruling would not be  binding may act as a deterrent for foreign investors, considering the looming uncertainty of tax cost  of doing business in India.   Incentivising start-ups  Start-ups contribute to economic dynamism by inciting innovation and injecting competition.  Recently, start-ups have borne a huge burnt of economic devastation cause by the pandemic;  therefore, the Finance Minister extended the benefit of tax holiday and capital gain exemption upon  investment in a start-up. Entire profits and gains derived from an eligible business by an eligible start  up is allowed as deduction under section 80-IAC of the Income Tax Act, for three consecutive years  out of ten years at the option of Assessee. The deduction is subject to the condition that the eligible  start up is incorporated on or after April 1, 2016 but before April 1, 2021. It has now been proposed  to extend the outer date of incorporation by one year, to March 31, 2022. Additionally, to incentivise  investment in start-ups, it has been proposed to extend the benefit under section 54GB of the Act by …

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