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Tax Proposals Falling Short of Rationalisation of Direct Tax Structure But Sufficient to Give Relief to Taxpayer

Representative image.

Representative image.

In the backdrop of an extremely challenging landscape, the Budget 2021 has successfully managed to meet the requirements from several quarters.

Finance minister Nirmala Sitharaman has presented the Budget 2021 amidst a lot of expectations from industry and kickstarting the revival of the economy. This was a very special and historic Budget as it was aimed at pulling out the economy from the losses due to the Covid-19 pandemic.

The morning started with the minister making her way to Parliament with a made-in-India tablet wrapped up in a red velvet cloth. In her first year as FM, Sitharaman broke away from the Budget 'briefcase' tradition with a 'bahikhata' to honour age-old practices. Two years on, she geared up to deliver the country's first 'digital', paperless Budget.

There was a lot of speculation amongst taxpayers and tax experts on whether a new tax or Covid cess would be brought to speed up economic recovery. However, the FM, realising the current market position, did not impose any additional tax which was welcomed by all segments of industry and the common man.

The finance minister announced several proposals for the benefit of depositors, investors and taxpayers. Sitharaman said that the tax system should put a minimum burden on the taxpayers. Although there were expectations that the Budget would provide relief in terms of reduction in tax rates or increase in deductions, Sitharaman surprised taxpayers by not announcing any change in the income tax slabs, but definitely proposed ease in compliance.

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The focus of the finance minister has been on making the tax processes efficient and transparent.

This was achieved by introduction of faceless assessment, appeal and penalty processes earlier. In line with these principles, the FM has proposed faceless proceedings at the Income Tax Appellate Tribunal (ITAT) so as to bring more transparency in disposal of appeals at the ITAT and also achieve equitable distribution of work amongst different benches of ITAT. The efficacy of the same would need to be seen in the times to come.

In continuation of what the FM said to reduce the burden on taxpayers, she proposed to reduce the time limit for income tax proceedings. Now assessment cases are to be reopened within 3 years instead of earlier 6 years.

The dispute resolution scheme announced by the FM for small taxpayers should reduce the burden of compliance and adjudication on them, especially since it is expected to be technology-driven. Waiver of penalty and immunity from prosecution will incentivise taxpayers to adopt the scheme, the modalities of which are yet to be announced.

Tax Filing Made Easy

Relief has been provided to senior citizens, 75 years and above, wherein they have been exempted from filing of tax return if they have only pension income and interest income in specified bank accounts subject to requisite taxes being deducted by the paying bank.

ITR filing has been made easy over time. Going a step ahead in this with the motive of putting the minimum burden on taxpayers, and to further ease filing of returns, the FM said that in ITR, details of capital gains, income from list securities, dividend income, income from interest on bank deposits are to come pre-filled.

Giving a fillip to the buyers of affordable houses, the finance minister has extended the time period of taking loans to buy such houses by one year – i.e. from March 31, 2021 to March 31, 2022 – to avail additional tax benefits of Rs 1.5 lakh u/s 80EEA of the Income Tax Act. Section 80EEA provides tax benefits up to Rs 1.5 lakh on the interest paid on loans taken for residential house property for affordable housing. The benefit is over and above the tax benefit of Rs 2 lakh available u/s 24(B) of the Income Tax Act on interest on housing loan on both self-occupied and rented properties. So, by buying an affordable house, a taxpayer may avail tax benefits up to Rs 3.5 lakh on interest paid on home loan taken to buy such a house.

Relief To Business

In this historic Budget, the FM didn’t leave any sector untouched. Even startups were provided relief by extension of the eligibility for claiming tax holiday and capital gains exemption for investment in startups till March 31, 2022. "In order to incentivise startups in the country, I propose to extend the eligibility for claiming tax holiday for startups by one more year to March 31, 2022," Sitharaman said.

The FM abolished the Dividend Distribution Tax in the last Budget. Now to further ease the compliance burden, she proposed making dividend payment to REIT/ InvIT exempt from TDS. Further, as the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax, therefore it is proposed to provide that advance tax liability on dividend income shall arise only after the declaration/payment of dividend. Also, for foreign portfolio investors, it is proposed to enable deduction of tax on dividend income at lower treaty rate.

To further reduce the compliance burden, the FM proposed to increase the limit of tax audit from the existing Rs 5 crore to Rs 10 crore to incentivise digital transactions. It is for those who carry out 95% or more of their transactions digitally.

In an attempt to provide relief to NRIs from double taxation, new rules are to be notified for aligning of taxation of income arising on foreign retirement benefit accounts. This would help to remove genuine hardships faced by the NRIs in respect of their income accrued on foreign retirement benefit account.

However, to dismay of common man Interest earned on Provident Fund contribution above Rs 2.5 lakh in a year to become taxable.

In the backdrop of an extremely challenging landscape, the Budget 2021 has successfully managed to meet the requirements from several quarters. The tax proposals, though falling short of any rationalisation of the direct tax structure, are sufficient to provide relief to the taxpayer.

Measures like exempting senior citizens (75 years and above) who only have pension and interest income from filing income tax returns, increase in limit for tax audit for persons who carry out 95% of their transactions digitally, and an additional deduction of Rs 1,50,000 for loans taken up till March 2022 for purchase of affordable housing are all steps in the right direction.

Additionally, the proposal to extend the eligibility for claiming tax holiday for startups by one more year and incentivising the incorporation of a one-person company to enable them to grow will give a further fillip to the burgeoning startup culture in the country.

Disclaimer:The Author is a Chartered Accountant and Partner at SGNA & Company. Views Expressed are Personal.
first published:February 02, 2021, 12:15 IST