Key Changes in the Provisions of Income Tax Act, 1961 effective from 1st April 2021 and onwards

[Manish Gupta]

The Finance Bill, 2021 received the assent of honourable President of India on 28^th March, 2021 upon which it came to be known as the ‘Finance Act, 2021’. Like every year, this year also numerous amendments have come up in the provisions of the Income Tax Act, 1961 with the enactment of Finance Act, 2021.

Since, we have already entered into a new financial year, i.e. FY 2021-22, let’s walk through some crucial changes that have taken place in Income-tax provisions that we have extracted from the whole set of amendments that are applicable for the current year.

Here are some of the major Income-tax related changes applicable for FY 2021-22 -

1. TDS/TCS to be deducted/collected at original (higher) rate on Non-Salary Payments

The taxpayer needs to deduct TDS/collect TCS at original rates (i.e. without considering concession of 25% rate).

2. High TDS/TCS rates for the Non-filers of Income-tax Return

[Applicable from 1^st July 2021]

In view of the newly inserted section 206AB of the Income-tax Act, 1961 ('the Act'), TDS at the rate of higher of following rates would require to be deducted on any sum or income or the amount paid, or payable or credited, by a taxpayer to a specified person -

• Twice of the rate specified under provisions of the Act, or
• Twice of rate or rates in force, or
• 5%

3. TDS on purchase of goods

[Applicable from 1^st July 2021]

Specified buyers of goods, responsible for paying any sum to any resident, need to deduct tax @0.1% of purchase amount exceeding ₹ 50 Lakh in view of newly inserted section 194Q of the Act.

TDS needs to be deducted at the time of credit of sum to the seller's account or at the time of payment thereof by any mode, whichever is earlier.

4. Tax on Interest on Provident Fund

Interest accruing on employee's contribution to specified provident funds during the year, on contributions in excess of ₹ 5,00,000 per annum will now be taxable in case there is no contribution to such fund by the employer. In case the employer also contributes to such fund, then the interest income accrued on it during the previous year to the extent it relates to the contribution made by the employees over ₹ 2,50,000 per annum will be taxable.

5. Ensure timely deposition of employee's contribution to PF, ESI or any other employee welfare funds to avoid disallowance

Now Employer has to deposit employees' contribution to these funds on time as per the due date under the relevant Act in order to claim the deduction in the respective A.Y. Else the deduction shall not be allowable at all.

6. No Depreciation on Goodwill

Goodwill is no more an asset for the purpose of claiming depreciation under the Act. Consequently:

a) Where goodwill is purchased by the taxpayer, the purchase price of the goodwill will be considered the cost of acquisition to compute capital gains under section 48 of the Act.

b) Where depreciation was claimed by the taxpayer in relation to such goodwill prior to the AY 2021-22, then the depreciation so claimed shall be reduced from the amount of the purchase price of the goodwill for the purpose of computation of cost of acquisition.

7. Reduction in time limit for filing ITR

Now, original/revised ITR for a Financial Year u/s 139 can only be filed maximum up to 31^st December of the relevant AY with late fees, if applicable.

However, due to Covid 19 pandemic, for AY 2021-22, the last date for filing the revised/belated return has been extended from 31^st December, 2021 to 31^st January, 2022.

8. No ITR filing for Senior Citizen aged 75 years or more

Resident senior‐citizen aged 75 years or more, earning only pension income (may have interest income from the bank in which pension is received) would be exempt from filing ITR. The exemption shall be subject to furnishing of declaration to the bank by senior citizen.

9. Filing of Form 10-IE for opting new tax regime

For opting new tax regime for Individuals and HUFs as per section 115BAC of the Act, the taxpayer would require to file Form 10-IE on or before the due date of filing of ITR u/s 139(1) of the Act.

10. Tax Audit u/s 44AB of the Act not required, if turnover/gross receipts don't exceed ₹ 10 Crore

Now, tax Audit u/s 44AB of the Act would not be required, if turnover/gross receipts don't exceed ₹ 10 Crore subject to the condition that the cash receipts and payments should not exceed 5% of total receipts and payments respectively.

11. Hindu undivided family (HUF) not eligible taxpayer for presumptive taxation scheme for professionals

Finance Act, 2021 has removed limited liability partnerships (LLPs) and Hindu undivided family (HUF) from the scope of presumptive taxation regime available for the professionals.

12. Unit-Linked Insurance Plan with high premium

Unit-Linked Insurance Plan (ULIP) issued after 1^st Feb 2021 with high premium (i.e. premium for the year exceeding ₹ 2,50,000), will be eligible for concessional tax rate of 10% on long term capital gains u/s 112A of the Act only if minimum equity component (90% or 65%) is maintained throughout the term of such insurance policy.

13. Notice u/s 143(2) of the Act

Now notice u/s 143(2) of the Act for selection of ITR for scrutiny assessment will be issued within three months from the end of the financial year in which the return is furnished.

14. Equalisation levy

Now, non-resident e-commerce operator is not required to charge 2% equalisation levy on the value of sale of goods owned by or services provided by residents or non-residents having permanent establishment in India.

Further, equalisation levy will not be charged on income in the nature of royalty or fee for technical services where such income is taxable under the Act read with DTAA.

15. Time limit for completion of assessment under section 143(3)/144 of the Act

Assessment u/s 143(3) or 144 of the Act for AY 2021-22 and subsequent years will now be completed within 9 months from the end of the AY in which income is first assessable.

 

Authored by CA Manish Gupta and assisted by Kriti Agrawal

For any queries, kindly contact at [email protected]

 

Discussions to this article

[KASTURI SETHI]

Sh.Manish Gupta Ji,

Your article is very very useful. Thanks for taking care of visitors of TMI Website.