Parliament has passed the “Finance Bill 2021”

10-year income-tax exemption to National Bank to Finance Infrastructure & Development

• Both the houses of Parliament has passed the “Finance Bill 2021” on March 23, 2021
• The Bill seeks to bring financial proposals of central government in effect for the financial year 2021-22
• The bill provides 10-year income-tax exemption to National Bank in order to Finance the Infrastructure and Development

Highlights of the passage of the Finance Bill 2021

• The bill was first passed by the Lok Sabha then it was presented in the Rajya Sabha, which returned the bill without consideration
• This effective means the bill was cleared by the Parliament. The bill’s passage in the Parliament marks the completion of the budgetary process
• The bill was cleared by the lower house of the Parliament with several amendments
• Finance Minister Nirmala Sitharaman said that the bill has some changes in the proposals made in the union budget, which were made to boost ease of doing business and easing compliance burden
• The Finance Minister mentioned that there will be no change in the rate of income tax
• Several opposition members had pointed out to the high prices of petrol and diesel during the debate on the bill and said petroleum products should be brought under the Goods and Services Tax (GST) Council

Key highlights of the Finance Bill – 2021

• The bill provides 10-year income-tax exemption to National Bank in order to Finance the Infrastructure and Development
• It also provides for 5-year tax exemption to the private sector development finance institutions
• The exemption is extendable to another five years. Bill amends the Finance Act, Income Tax Act, 1961; Securities Contracts (Regulation) Act, 1956; Central Sales Tax Act, 1956; Life Insurance Corporation Act, 1956 and SEBI Act, 1992
• This time the Finance Minister has not proposed any hike in the tax rates and maintained status quo for all types of Assessee’s, basis the last year; despite the additional expenditure incurred in the fight against the COVID pandemi
• According to the bill, senior citizens who gets pension and interest income have exempted from filing tax returns. However, no changes have been made in the income tax rate
• This provision will discourage the practice of not filing returns by ‘specified person’ whose case has been deducted or collected
• Further, person in whose case TDS/TCS of Rs. 50,000 has been made for past two years and who has defaulted in filing return of income then the rate TDS/TCS will be deducted at higher rates
• It is also proposed to take up decriminalization of Limited Liability Partnership (LLP) Act, 2008 on the lines of decriminalization of procedural and technical compoundable offences under Companies Act, 2013
• It is proposed to revise definition of small companies under Companies Act, 2013 for the small Companies by increasing their thresholds of Paid-up capital
• Threshold has been increased from “not exceeding Rs 50 lakh” to “not exceeding Rs 2 crore

Other Significant highlights

• With a view to compensate employees and give boost to consumption expenditure during lockdown, the Finance Minister has permitted payment of cash allowance up to maximum of Rs. 36,000/- per person as Deemed LTC for Financial Year 2020-21
• In order to boost demand in the real-estate sector and to enable the real-estate developers liquidate their unsold inventory of residential houses to buyers, the Finance Minister has proposed to increase the tolerable difference in valuation of property under Section 43CA as per Stamp Valuation Authority and transaction value from earlier 10% to 20% of the transaction value
• To address the issue of timing mismatch in taxation of retirement benefits earned by non-residents who have decided to settle in India post retirement, and remove genuine hardship faced by Assessee’s, the Finance Minister has proposed to insert a new section 89A to provide that the income of a specified person from specified account shall be taxed in the manner and in the year as prescribed
• In order to cap the benefit of exempted interest on Provident Fund being claimed without any limit; the Finance Minister has now proposed that interest earned on Employees contribution beyond Rs.2,50,000 per annum would be taxable
• Accordingly, if employee’s current annual salary is Rs.2,083,333 (Rs.2,50,000/12%) or lower and there is no voluntary contribution apart from mandatory contribution, then interest received from EPF will be exempt
• In order to reduce compliance burden on small and medium businesses and to promote business through banking channels, the Finance Minister has proposed to increase the threshold limit from Rs.5 Crores to Rs.10 Crores; above which a person for a person carrying on business is required to get his books of account audited
• The Finance Minister has proposed to substitute existing Section 45(4) by providing new framework for taxation in case of dissolution or reconstitution of partnership firm
• In order to overrule the recent decision of Supreme Court in case of Smiff Securities Limited (348 ITR 302) which held in assessee’s favor; the Finance Minister has clarified intent of government that Goodwill is to be treated as a non-depreciable asset. Accordingly, amendments are proposed in Section 32, 2(11), 55, 49
• To give relief to senior citizens having only pension and interest income, the Finance Minister has proposed to exempt Senior Citizen from requirement of filing ITR
• To ensure filing of income-tax return by persons who have suffered TDS or TCS, the Finance Minister has proposed to insert a new section 206AB and section 206CCA requiring higher rate of TDS and TCS to be done by Deductor or Collectee from, payments made to specified person

Policy and Economy