Income Tax

Key Income Tax Changes effective from FY 2021

Like every year, this year also, there have been significant amendments that have come up in provisions of Income Tax Act, especially with the enactment of the Finance Act 2021. As we have already entered into the financial year 2021-22, let’s have a brief overview of crucial changes that took place in the income tax provisions that are applicable for the current year.

Income tax changes applicable from FY-21

Here are some of the fundamental income tax changes that will be applicable from FY 2021 onwards:

• TDS/TCS to be deducted/collected at original rate on non-salary payments

The taxpayer is required to deduct TDS/collect TCS, at original rates that means without consideration of the concession rate of 25%.

• High rate of TDS/TCS for non-filers of ITR (To be applicable from 1^st of July)

With the newly inserted section-206AB of the Income Tax Act, 1961^[1], TDS at the rate of higher of the following rates will be deducted on any sum or an income or amount paid, or payable or credited, by a taxpayer to a specified person:

1. Twice of the rate mentioned under the provisions of the IT Act 1961, or
2. Twice of the rate/rates in force, or;
3. 5%.

• TDS on purchase of goods (To be applicable from 1^st of July)

Specified buyers of goods, responsible for paying a sum to any resident, should deduct tax at the rate of 0.1% of purchase amount exceeding 50 lakh rupees due to the newly inserted section 194Q of the IT Act 1961.

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

• Tax on interest on PF

Interest accruing on employee’s contribution to the specified PF during the year, on contribution more than 5 lakh rupees per annum shall now be taxable in case of no contribution to such fund by the employer. If the employer also contributes to such fund, then the interest income accrued on it during the previous year to an extent it relates to the contribution made by employees more than 250000 rupees per annum shall be taxable.

• No depreciation on goodwill

Goodwill is not an asset to claim depreciation.

Consequently:

1. If the goodwill is purchased by the taxpayer, the price of the goodwill shall be considered the cost of acquisition to calculate capital gains under section 48;
2. If depreciation was claimed by the taxpayer in relation to such goodwill before AY- 2021-22, the depreciation claimed would be reduced from the amount of the purchase price of the goodwill for calculation of cost of acquisition.

• Reduction in the time limit for filing ITR

Original/revised ITR for a financial year under section 139 can only be filed maximum up to December 31^st of the relevant AY with late fee, if applicable. However, owing to the Covid-19, the last date for filing revised/belated return has been extended from December 31^st 2021, to January 31^st, 2022.

• No filing of ITR for Senior citizens aged 75 years or more

Those senior citizens aged 75 years or more, earning only pension income, shall be exempt from filing Income Tax Return. The exemption shall be granted on furnishing of declaration to the bank by the senior citizen. This is one of the income tax changes announced in the budget.

• Filing of Form 10-IE

For opting the new tax regime for individuals and HUFs according to section 115BAC of the Income Tax Act, the taxpayer will have to file form 10-IE on or prior to the due date of filing of ITR under section 139(1) of the said Act.

• Non-requirement of Tax audit under section 44AB

Now tax audit under section 44AB of the IT Act 1961 will no more be required if turnover/gross receipts don’t go beyond 10 crore rupees provided that the cash receipts and payments don’t exceed 5% of the total receipts and payments, respectively.

• HUF not eligible taxpayer for the presumptive taxation scheme for professionals

The finance act 2021 has removed LLPs and HUF from the scope of presumptive taxation regime available for professionals.

• Issuance of notice under section 143(2) of IT Act 1961

Notice under section 143(2) for selection of the ITR for scrutiny assessment shall be issued within 3 months from the end of financial year wherein the return is furnished.

• Unit Linked Insurance Plan With High Premium

ULIP issued after Feb 1, 2021, with high premium will be eligible for concessional tax rate of 10% on long term capital gains under section 112A only if the minimum equity component is maintained throughout the term of the insurance policy.

• Equalization Levy (EL)

Non-resident e-commerce operator will not be required to charge 2% EL on the value of sale of goods owned by or services provided by residents or non-residents with permanent establishment in India.

• Time limit for assessment completion under section 143(3)/144

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

Conclusion

All businesses should take heed to the income tax changes that take effect from Financial Year 2021. The Finance Minister had notified about a slew of changes in the Union Budget 2021. Therefore keep track of the latest income tax updates to avoid non-compliance.

Read our article: Income Tax Rules Changes from April 1 2021: Here’s all you need to know