The Union Budget 2021-22 was presented by the Hon’ble Finance Minister

Nirmala Sitharaman on 1st February 2021 in the Parliament. The Budget speech
was given by the FM from 11 a.m. to 1 p.m.
Emphasis on health sector- Rs 35,000 crores has been set aside for coronavirus
vaccine. Overall, budget has outlay of Rs 2,23,846 crore for health and wellbeing
this financial year as compared to Rs 94,452 crore last year (Increase of 137% over
last year). Over 30,000 health and wellness centers are to be opened in rural and
urban areas.
Voluntary vehicles scrapping policy- To phase out old and polluting vehicles.
Under this personal vehicle will undergo fitness test after 20 years while
commercial vehicles will require it after completion of 15 years. This will promote
fuel efficient and environment friendly vehicles while cutting on India’s huge
import bills.
Lower limitation period for reopening tax cases- Finance Minister reduced the
time limit for reopening of income tax return assessment cases to 3 years from 6
years for serious tax fraud cases, where concealment of income is Rs 50 lac or
more it will be 10 years. Allowing prescribed authority to issue notice under
Section 142 of the IT Act (i.e., inquiry before assessment) for conduct of inquiry
before assessment.
Easier compliance for senior citizens- Senior citizens after 75 years of age
having only pension and interest income will not be required to file income tax
return, banks paying the interest will deduct the tax on their behalf.
Focus on faceless dispute resolution- The budget proposes to start faceless
National Income Tax Appellate Tribunal (ITAT) for small tax payers, which
basically means that all procedures shall now be carried out electronically and the
hearing will be done via video conferencing. “To further reduce litigation for small
taxpayers, I propose to constitute a dispute resolution committee… which will be
faceless… to ensure efficiency, transparency and accountability. Anyone with a
taxable income up to Rs 50 lakh and disputed income up to Rs 10 lakh shall be
eligible to approach the committee,” finance minister said in her Budget speech.
Under this mechanism, the assessee would have an option to opt for or not opt for
the dispute resolution. The committee will have powers to reduce or waive any
penalty or grant immunity from prosecution for any offence under this Act.
In line with faceless assessment mechanism, the time limit for completion of
assessment proceedings has been reduced to nine months from 12 months, which
means that returns can be revised until December 31 of an assessment year instead
of March 31.
The Budget also proposed to discontinue Income-Tax Settlement Commission
(ITSC) on or after February 1, 2021, and constitute Interim Board of settlement for
pending cases
To discourage non-filers, the Budget has proposed charging twice the tax
deduction at source applicable or 5 per cent tax, whichever is higher in case a
person has not filed the return for the past two years for which the timeline of
filing the original return has expired. This will apply to cases where the aggregate
of tax deducted at source and tax collected at source in his case is Rs 50,000 or
more in each of these two previous years, according to the budget memorandum
To incentivise digital transactions, the Budget increased the tax audit limit to Rs
10 crore from Rs 5 crore currently for those carrying out 95 per cent of their
businesses digitally. The Budget has also proposed that interest earned on annual
PF contribution exceeding 250,000 from April 2021 will now be taxable.
NRIs won’t be taxed twice on foreign retirement account money- Budget 2021
proposes to provide relief from double taxation for non-resident Indians (NRIs) on
money accrued in foreign retirement accounts by claiming relief on tax deducted
on such money in India. “At present, the withdrawal from such funds may be taxed
on receipt basis in such foreign countries, while on an accrual basis in India. To
address this mismatch and remove this genuine hardship, it is proposed to insert a
new Section 89A to the Act to provide that the income of a specified person from a
specified account shall be taxed in the manner and the year as prescribed by the
Central Government," said the budget document. Insertion of new Section 89A to
the IT Act in order to provide that the income of a specified person from specified
account shall be taxed in the manner and in the year as prescribed by the Central
Government in order to remove the genuine hardship faced by the NRIs in respect
of their income accrued on foreign retirement benefit account due to mismatch in
taxation. This amendment will take effect from April 1, 2022.
Tax On Interest If Pf Above Rs 2.5 L
Individuals whose annual provident fund contribution is Rs 2.5 lakh or more will
not get tax net exemption on the interest earned from the next financial year. "In
order to rationalise tax exemption for the income earned by high-income
employees, it is proposed to restrict tax exemption for the interest income earned
on the employees' contribution to various provident funds to the annual
contribution of Rs 2.5 lakh,"
One year tax holiday for affordable housing projects- Finance minister Nirmala
Sitharaman during her budget speech announced the extension of the tax holiday
on affordable housing projects for one more year. Affordable housing projects can
avail tax exemption benefit until March 31, 2021 under Section 80-IBA of the IT
Act. This amendment will take effect from April 1, 2022. Affordable rental
housing projects are part of Pradhan Manti Gareeb Awas Yojana-Urban.
The affordable housing projects are mainly government focused real estate arena
aimed to ensure housing for all. In Budget 2020, the affordable housing developers
were provided with a tax holiday for a year. The tax holiday has been further
extended this year too.
Tax holiday for startups extended by one year. Exemption on capital gains on
investment in startups extended by one year. In order to incentivise setting-up of
more start-ups in the country, it is proposed to extend the eligibility period of
claiming capital gains exemption for investment made in the start-ups by one more
year to March 31, 2022. Additionally, the Union Minister added a new tax
exemption for notified Affordable Rental Housing Projects is in the pipeline to
encourage Affordable Rental Housing for migrant workers. "In order to incentivize
purchase of affordable house, it is proposed to extend the eligibility period for
claim of additional deduction for interest of Rs 1.5 lakh paid for loan taken for
purchase of an affordable house to March 31, 2022."

Section 43CA stands amended:

The stamp duty value can be up to 120% (earlier 110%) of the consideration if the
transfer of “residential unit”, which means an independent housing unit is made
between 12th November 2020 and 30th June 2021.
Amendment to Section 44ADA:
Section 44ADA applied to all the assessees being residents in India. Now onwards,
it applies only to the resident individual, Hindu Undivided Family (HUF) or a
partnership firm, other than LLP.
Section 80EEA deduction extended:
The affordable housing additional deduction was extended till 31st March 2022.
The tax exemption has been granted for affordable rental projects.
Advance tax liability on dividends will arise only after declaration of dividend.
Exemption for LTC Cash Scheme- To provide tax exemption to cash allowance
in lieu of leave travel concession due to pandemic. Hence, for Assessment Year
beginning on April 1, 2021 the value in lieu of any travel concession or assistance
received by an individual shall also be exempt by fulfilment of conditions as may
be prescribed. This amendment is applicable to assessment year 2021-2022 only.
Raising of prescribed limit for exemption under sub-clause (iiiad) and (iiiae)
of clause (23C) of section 10 of the IT Act– Increase in exemption limit of
income received by any person on behalf of university or educational institution
under Section 10(23C)(iiiad) and hospital under Section 10(23C)(iiiae) from Rs. 1
crore to Rs. 5 crore. This amendment will take effect from April 1, 2022.

Government attempts to bring in taxation parity between mutual fund and

ULIPS
The Finance minister has proposed amendments in the Income Tax Act in an
attempt to make the taxation of money received from Unit Linked Insurance
Policies (ULIP) of life insurance companies on par with equity mutual funds
The budget has proposed to amend the Section 10(10D) to restrict the exemption in
respect of ULIPs for those ULIP policies where the annual premium payable in
respect of such policy does not exceed Rs. 2.50 lakhs during the premium paying
term. The money received at the time of death of the policy holder will continue to
enjoy full exemption under Section 10 irrespective of amount of premium or
maturity value
TDS/TCS on non-filer at higher rates- To insert a new Section 206AB in the IT
Act as a special provision providing for higher rate for TDS for the non-filers of
income-tax return. Similarly, it is proposed to insert a new Section 206CCA in the
IT Act as a special provision for providing for higher rate of TCS for non-filers of
income-tax return. Further, amended sub-section (1) of Section 206AA of the IT
Act (i.e., requirement to furnish Permanent Account Number) and insert second
proviso to further provide that where the tax is required to be deducted under
Section 194Q of the IT Act and Permanent Account Number is not provided, the
TDS shall be at the rate of 5%. These amendments will take effect from July 1,
2021.
Rationalization of provisions relating to tax audit in certain cases– Earlier
through Finance Act, 2020, the threshold limit for tax audit for a person carrying
on business is increased from Rs. 1 crore to Rs. 5 crore in cases where aggregate of
all receipts and payments in cash during the previous year does not exceed 5% of
such receipts/payments. In order to incentivize non-cash transactions to promote
digital economy and to further reduce compliance burden of small and medium
enterprises, it is proposed to increase the threshold from five crore rupees to ten
crore rupees in above cases.
Extending due date for filing return of income in some cases, reducing time to
file belated return and to revise original return and also to remove difficulty
in cases of defective returns- Due date of filing of the original return of income to
be extended to October 31 of the assessment year in case of spouse of a partner of
a firm whose accounts are required to be audited under the provisions of IT Act.
Further, due date of filing of the original return of income to be extended to
November 30 of the assessment year in case of a partner of the firm which is
required to furnish report from an accountant for entering into international
transaction or specified domestic transaction as per Section 92E of the IT Act (i.e.,
Report from an accountant to be furnished by persons entering into international
transaction. Furthermore, the belated or revised returns could now be filed three
months before the relevant assessment year or before the completion of
assessment, whichever is earlier.
Tax neutral conversion of Urban Cooperative Bank into Banking Company:
Section 44DB of the IT Act (i.e., special provision for computing deductions in the
case of business reorganization of co-operative banks) shall also be made
applicable on conversion of primary cooperative bank to the banking company. As
a result of conversion shall not be treated as transfer under Section 47 of the IT Act
(i.e., transactions not regarded as transfer).
Facilitating strategic disinvestment of public sector company – Relaxing the
provisions of Section 2(19AA) (i.e., demerger) and Section 72A of the IT Act (i.e.,
provisions relating to carry forward and set off of accumulated loss and
unabsorbed depreciation allowance in amalgamation or demerger, etc.) for the
public sector companies in order to facilitate strategic divestment by the
Government.
Tax incentives for units located in International Financial Services Centre
(“IFSC”)- Government has establishment a world class financial services centre.
Units located in IFSC enjoy some concession. Some more incentives are provided
to them in this budget. This amendment will take effect from April 1, 2022.
Infrastructure debt fund can now issue Zero Coupon Bonds. This amendment will
take effect from April 1, 2022.
Rationalisation of the provision concerning withholding on payment made to
Foreign Institutional Investors (FIIs)- TDS to be deducted on income of
Financial Institution Investors from securities under Section 196D of the IT Act
(i.e., Income of Foreign Institutional Investors from securities),
At the rate of 20% or at the rate of income tax provided in such agreement,
whichever is lower.
Rationalisation of provisions related to Sovereign Wealth Fund (SWF) and
Pension Fund (PF)- To encourage investments of Sovereign Wealth Fund and
Pension Fund into infrastructure sector of India, following amendments were
proposed:
1. Allowing Alternate Investment Fund (AIF) to invest up to 50%.
2. Investment through holding company subject to some conditions.
3. Investment in NBFC, IDF/IFC
4. No loan or borrowings are allowed to them for the purpose of making
investments in India.
5. They shall not participate in day-to-day operation of investee.
Rationalization of the provision of slump sale– Amend the scope of definition of
the Slump Sale so that all types of ‘transfer’ are included in its scope.
Increase in safe harbour limit of 10% to 20% for home buyers and real estate
developers selling such residential units.
Addressing mismatch in taxation of income from notified overseas retirement
fund– Insertion of new Section 89A to the IT Act in order to provide that the
income of a specified person from specified account shall be taxed in the manner
and in the year as prescribed by the Central Government in order to remove the
genuine hardship faced by the NRIs in respect of their income accrued on foreign
retirement benefit account due to mismatch in taxation. This amendment will take
effect from April 1, 2022.
The above amendments will be effective from April 1, 2021 except otherwise
specified.

Few of the items on which Customs Duty Rates are revised are as follows:
1. Reduced duty on copper scrap from 5% to 2.5%
2. Basic and Special additional excise duty on petrol and high-speed diesel oil
(both branded and unbranded) is reduced
3. Increased duty on solar inverters from 5% to 20%
4. Raised duty on solar lanterns from 5% to 15%
5. The basic customs duty on gold and silver reduced.
6. The department will rationalise duty on textile, chemicals and other products
7. The revised rates will be applicable from 2nd February 2021 onwards.
8. New tariff items under 2404 11 00 and 2404 19 00 have been inserted in
accordance with upcoming HS 2022 nomenclature. Further, NCCD of 25%
is prescribed on these tariff items with effect from 1st January 2022.
9. Agriculture Infrastructure And Development Cess (AIDC) has been newly
imposed on petrol and diesel at Rs2.5 and Rs.4 per litre respectively.
10.Regarding agricultural products, the customs duty is increased on cotton,
silks, alcohol, etc.
11.Exemption of Social Welfare Surcharge on the value of AIDC imposed on
gold and silver. Therefore, these items would attract surcharge at the normal
rate, only on value plus basic customs duty.
12.The exemption on import of leather will be withdrawn as they are
domestically produced.
13.A new initiative called ‘Turant Customs’ will be introduced for faceless,
paperless, and contactless customs measures.
14.CGST Act was amended for several provisions as follows:
 Section 16 amended to allow taxpayers’ claim of the input tax credit based
on GSTR-2A and GSTR-2B.
 Section 50 of the CGST Act is being amended to provide for a retrospective
charge of interest on net cash liability with effect from the 1st July 2017.
 Section 35 and 44 amended: Mandatory requirement of furnishing the GST
reconciliation report signed by the specified professional is relaxed by
allowing the filing of annual return on a self-certification basis. The
 Commissioner can exempt a class of taxpayers from the requirement of
filing the annual return.

Constitution of the Board for Advance Ruling to give rulings to taxpayers in

timely manner.
The Budget proposed abolishing the under-performing, authority of advance
ruling, to replace it with a two-member board of advance ruling. It will be chaired
by an officer not below the rank of chief commissioner. Advance rulings of such a
board shall not be binding on the applicant or the department and could be
appealed before the high court.

Commitment towards Aatmanirbhar Bharat- An expansionary fiscal budet

aimed at boasting capital expenditure, increasing spending and providing greater
employment opportunities. The major ports of the country will be made available
on public- private partnership. The share of Public transport outlay has been raised
to 18,000 crores and metrolite technologies will be deployed in tier 2 cities.
Foreign Direct Investment has been increased from 49% to 74% in insurance
companies with some safeguards. Foreign inflows in insurance companies will also
enable them to become more effective vehicles for household savings, creating
long-term assets in the economy.
“I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit
from 49% to 74% in Insurance Companies and allow foreign ownership and
control with safeguards,” said Sitharaman

Tax devolution to states at 41%, non-lapsable fund for defence to be set up

The Central Government has accepted a number of key recommendations issued
by the 15th Finance Commission, including sharing 41 per cent of the net proceeds
of the Union taxes with the states, the creation of a non-lapsable fund for defence
in the public account of India, and undertaking a detailed exercise to rationalise
and bring down the number of centrally sponsored schemes.
With regard to the sharing of Union taxes, the 15th Finance Commission had
recommended that 41 per cent of the taxes collected by the Centre be shared with
the states, compared to the present 42 per cent
Depreciation on Goodwill of a Business or Profession

Citing a Supreme Court ruling, the government has announced that no depreciation
will be provided on goodwill of a business or profession in any situation. The
government has proposed an amendment in the Income Tax Act to specify that:
Block of depreciable assets won’t include goodwill of a business or profession.
In case it was included in the block of depreciable assets, the tax department will
specify a method for calculating capital gains arising out of its transfer. The
amendment will also specify changes for certain other instances.