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Direct Taxation

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Union Budget for FY 21-22 introduced several proposals to benefit depositors, investors, and taxpayers. Finance minister Smt. Nirmala Sitharaman said that the tax system should put a minimum burden on the taxpayers. Specific Direct Tax proposals were introduced, providing relaxation to individual taxpayers and startups to some extent. The Finance minister surprised taxpayers by not announcing any change in income tax slab rates. She also did not disclose the proposal to introduce much-hyped Covid cess. In a significant move, the limit for tax audits under section 44AB has been increased from Rs 5 crore to Rs 10 crore (where 95% of payments and receipts are digitized), providing relief to many corporate houses.

Proposed amendments

  • Exemption for LTC cash scheme
    Under the existing provisions of LTA, the exemption is available for the value of travel concession received by an employee from his/her former employer, leave travel to any place in India. Due to the Covid-19 situation, it is proposed to provide tax exemption to cash allowance in the area of LTC.
  • Reduction in time for IT proceedings
    The budget proposed a depletion in the time-limit for reopening income tax proceedings to three years from the current six years to decrease the compliance burden. Except in severe tax avoidance cases, assessment proceedings in the rest of the issues shall be continued only up to three years, against the earlier time limit of six years.
  • Constitution of discourse resolution committee for small and medium taxpayers
    Vivad se Vishwas scheme was executed last year to settle the pending disputes. Hence, to provide early tax certainty to small and medium taxpayers, it is proposed to introduce a new scheme for preventing recent conflicts and settling the issues at the initial stage. Those who are evaluated with a taxable income of up to Rs.50 lakh (for small and medium taxpayers) and any disputed payment of Rs.10 lakh can approach this committee under section 245MA. It will prevent new controversies and settle the issues at the initial stage itself.
  • Faceless proceedings
    The finance minister promised on 1st February 2021 to simplify tax administration, ease compliance, and reduce litigation over the coming year. Provision is made for faceless proceedings before the Income Tax Appellate Tribunal (ITAT) in a jurisdiction-less manner.
  • Tax incentives for startups
    In her third budget speech, Finance Minister Smt. Nirmala Sitharaman rolled out tax incentives for startups concerning capital gains. The tax holiday for startups has been prolonged by one more year up to 31st March 2022 i.e. an extension has been proposed in eligibility for claiming tax holidays and capital gains exemption for investment in startups by one year to March 2022.
  • Relief from the hardship of double taxation
    When Non-Resident Indians return to India, they have issues concerning their accrued incomes in their foreign retirement accounts. It is usually due to a discrepancy in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions. There is a scheme to notify rules for removing hardship for double taxation.
  • Employers to lose the deduction
    In case the employee’s PF contribution was abstracted but not deposited by the employer, it will not be recognized as a deduction for the employer. It is expected to put pressure on employers to deposit the employee’s Provident Fund contributions on time.
  • Increase in the Tax audit limit
    The ‘Tax Audit’ limit under Section 44AB has increased from Rs.10 crores to Rs.5 crores, where 95% of business transactions are done digitally.
  • Section 44ADA Amendment
    A scheme for presumptive taxation was initiated under section 44ADA from the FY FY 2016-17. Section 44ADA provides an easy method of taxation for small professionals. Section 44A claimed to all the assessees being residents in India. Now onwards, it claims only to the resident individual, Hindu Undivided Family (HUF) or a partnership firm other than LLP.
  • Section 80EEA- Tax holiday extention
    The tax holiday for reasonable housing projects has been extended until 31st March 2022. The tax exception has been granted for affordable rental projects.

At AJSH, we assist our clients in dealing with various income tax compliances, including income tax assessments, TDS returns, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about recent updates about Direct Taxation, kindly contact us.


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