Budget Highlights 2021

This post brings out discussion on few of the points from the budget,2021 that might be a matter of interest to us.

As a further measure which directly benefits Start-ups and Innovators, I propose to incentivize the incorporation of One Person Companies (OPCs) by allowing OPCs to grow without any restrictions on paid up capital and turnover, allowing their conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and also allow Non Resident Indians (NRIs) to incorporate OPCs in India.

This amendment encourages the NRIs to incorporate One Person Company in India. Also the amendment relaxes the period of stay in India to 120 days to determine the residential status to be eligible for an NRI to incorporate OPC.

I propose to consolidate the provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007 into a rationalized single Securities Markets Code.

This amendment is aimed at bringing single point reference to laws and provisions in case of shares and securities.

Sir, I propose to revise the definition under the Companies Act, 2013 for Small Companies by increasing their thresholds for Paid up capital from “not exceeding `50 Lakh” to “not exceeding `2 Crore” and turnover from “not exceeding `2 Crore” to “not exceeding `20 Crore”. This will benefit more than two lakh companies in easing their compliance requirements.

A small company under Companies Act,2013 enjoys certain benefits in terms of statutory compliance. Increasing the limits of turnover/paid-up capital brings a larger set of companies under the umbrella of small company and thus ensuring ease of compliance and hence saving their money and time.

What are the benefits to small companies?

• Meetings of the Board of Directors: A small company may hold only two board meetings in a year. It has to make sure that at least one Board Meeting is held in each half of the calendar year and the gap between them is not less than ninety days.
• Financial Statement: Small company need not include cash flow statement in its financial statements.
• Annual return (Remuneration): Small companies are required to provide details of the only aggregate amount of remuneration drawn by directors in its Annual Return.
• Signing of Annual Return: Annual Return of the company can be signed by the Company Secretary, or where in small company if there is no company secretary, by a single director of the company.
• Mandatory rotation of auditors as per Section 139(2) of the Companies Act, 2013: Small companies are exempted from the requirement from mandatory rotation of statutory auditor as per Section 139(2) of the Act, 2013 (read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014).
• Internal Financial Controls: A small company is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor’s report.
• Lesser penalties 

Now in the 75th year of Independence of our country, when we continue our endeavor with renewed vigor, we shall reduce compliance burden on our senior citizens who are 75 years of age and above. For senior citizens who only have pension and interest income, I propose exemption from filing their income tax returns. The paying bank will deduct the necessary tax on their income.

Since the deduction of TDS is taken care by the paying bank, senior citizens above 75 years of age need not file their income tax returns. However, it shall be noticed that this provision does not apply to those who has fixed deposits in various banks. Also the senior citizen must be receiving the pension and interest income from the same bank. 

I therefore propose to reduce this time-limit for re-opening of assessment to 3 years from the present 6 years. In serious tax evasion cases too, only where there is evidence of concealment of income of `50 lakh or more in a year, can the assessment be re-opened up to 10 years. 

With this amendment, there is a relaxation to the tax payer in re-opening of assessments to 3 years from present. 

To further reduce litigation for small taxpayers, I propose to constitute a Dispute Resolution Committee for them, which will be faceless to ensure efficiency, transparency and accountability. Anyone with a taxable income up to `50 lakh and disputed income up to `10 lakh shall be eligible to approach the Committee

It brings us hope that the pending returns and outstanding assessments can be appealed with the committee.

Currently, if your turnover exceeds `1 crore, you have to get your accounts audited. In the February 2020 Budget, I had increased the limit for tax audit to `5 crore for those who carry out 95% of their transactions digitally. To further incentivise digital transactions and reduce compliance burden, I propose to increase this limit for tax audit for such persons from`5 crore to `10 crore.

If a business carries on 95% of its transactions through digital mode, tax audit is mandatory only if the turnover exceeds rs.10 crore. However it shall be noted that tax audit U/S 44AB is mandatory where the net profit is less than 6% or 8% as the case may be irrespective of the turnover.

In the previous Budget, I had abolished the Dividend Distribution Tax (DDT) in order to incentivise investment. Dividend was made taxable in the hands of shareholders. Now, in order to provide ease of compliance, I propose to make dividend payment to REIT/ InvIT exempt from TDS. Further, as the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax, I propose to provide that advance tax liability on dividend income shall arise only after the declaration/payment of dividend. Also, for Foreign Portfolio Investors, I propose to enable deduction of tax on dividend income at lower treaty rate.

This empowers the dividend recipients to pay advance tax on dividend income only after declaration/payment of such dividends. In the case of dividend received from foreign company shares, tax shall be calculated at lesser tax rate as provided in lower tax treaties between India and the respective country.

Honorable Speaker, in order to ease compliance for the taxpayer, details of salary income, tax payments, TDS, etc. already come pre-filled in income tax returns. To further ease filing of returns, details of capital gains from listed securities, dividend income, and interest from banks, post office etc. will also be pre-filled.

This enables the income tax department to have a complete information on the various incomes earned during the year and the income is pre-filled in the income tax return to enable the assessee compute his taxes.

Tax Slabs:

The tax slabs and limits of various deductions/exemptions remain the same.

Domestic electronic manufacturing has grown rapidly. We are now exporting items like mobiles and chargers. For greater domestic value addition, we are withdrawing a few exemptions on parts of chargers and sub-parts of mobiles. Further, some parts of mobiles will move from ‘nil’ rate to a moderate 2.5%.

With the increase in Customs duty, mobiles become costlier.

In order to provide relief to employees, it is proposed to provide tax exemption to the amount given to an employee in lieu of LTC subject to incurring of specified expenditure.

CLS scheme enables the employee to claim LTA even without doing actual travel. Details of the scheme are mentioned in my post https://mounikaandajay.blogspot.com/2021/02/claiming-lta-during-fy-2020-21.html