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Amendment related to Senior Citizens vide Finance Bill 2021

By gkkedia Dt. February 19th, 2021

The following amendments introduced vide Finance act 2021.

Relaxation in filling ITR of senior citizen having age exceeding 75 years.
In order to provide Relief to senior citizens who are of the age of 75 years or above government is proposed to insert a new section to provide relaxation from filing the return of Income u/s 139(1), if the following conditions are satisfied.

  • Senior citizen is resident in India and of the age of 75 years or more during the Previous year
  • He is earning only Pension Income.
    (Note: He may also have Interest Income in same bank in which he is receiving his Pension income.)
  • The bank should be a specified bank.
    (Note: specified bank means banks which will be notified by the central Government.)
  • He shall be required to furnish a declaration to the specified bank. Declaration shall be containing such particulars, in such form and verified as may be prescribed.

Once the declaration is furnished, the specified bank would be required to compute the income of such senior citizen after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A of the Act, for the relevant assessment year and deduct income tax on the basis of rates in force.

Interest on provident Fund schemes:
As per section (10) & (11) Interest earned on statutory & Recognized Provident fund are wholly exempted under Income tax act 1961, regardless of how large the contribution is.

But going forward interest earned on PF Balance is taxable under Income tax act 1961 if the annual contribution to PF exceeds Rs 2.5 lakhs.
Example: Employee contribution to PF is Rs 3lakhs and suppose interest is provided at the rate of 8%. Interest provided on Rs 2.5 lakhs i.e. Rs 20000 is exempt from tax. Interest on excess contribution of Rs 50,000 shall be taxable in the hands of employee. i.e. interest of Rs 4,000 (50000*8%) shall be included in the income of employee.

Extension of Benefits u/s 80EEA for first time Home Buyers:
A deduction for interest payments up to Rs 1, 50,000 is available under sec 80EEA on satisfaction of certain conditions. This deduction is in addition to interest on Loan u/s 24(b) against House property. Deduction u/s 80EEA is extended up to 31.03.2022 under this proposed Budget.

Time limit for filing Belated and Revised Income Tax Return reduced by 3 Months:
Earlier Return filed u/s 139(4) Belated Return can be filed up to end of the relevant Assessment Year. For Example: suppose Income tax Return of FY-2019-20 is not filed within the due date i.e. 10.01.2021 then return filed after due date is Belated Return. Earlier Belated return can be filed up to the end of relevant assessment year i.e. AY-20-21. Now the time period of filing of belated return will be reduced by 3Months. It means belated return can be filed up to 9 Months from the end of relevant financial year. Implies Belated Return for F.Y.2020-21 will be filed up to 31st Dec 2021.

Section 43B: Deduction allowed only on cash payment basis:
Earlier Deduction of Employee Contribution under PF is allowed if the payment of contribution is made within the due date of filing of return. But if the return is filed after the due date given u/s 139(1) then deduction of such can be claimed by the employer in the year in which payment of contribution to PF/ESIC is made.

But now deduction for contribution under PF/ESIC is not allowed even if the payment of such is made after the due date of Return of Income. In this case employee contribution is taxable in the hands of employer.

Special provision for deduction of TDS/TCS for non-filers of ITR (Section 206AB and 206CCA)
Person who has not filed the returns of income for the two preceding assessment year within the time limit u/s 139(1). [As per sec 139(1) return of income is filed by the assessee if the Income of the assessee exceeds the prescribed limit.] and aggregate of TDS/TCS is Rs 50000 or more in both of those 2years. Then rate of TDS / TCS should be higher of the following:

  • 2x of the rate specified in relevant TDS section.
  • 2x of the rates in force i.e. applicable Slab Rate
  • 5%

For example:
Mr. A supposed to deduct TDS of Mr. B on payment made between 01.04.2021-31.07.2021 u/s 194J @ 10%, now suppose Mr. B has filed his ITR belated for FY 2019-20 and not filed ITR for FY 2020-21 as due date i.e. 31.07.2021 is not expired then Mr. A should remember that he has to deduct TDS @ 10% only, but if that payment is supposed to happen after expiry of due date and Mr. B still not filed the ITR then he has to deduct TDS @ 20% (10% x2).

Section 194Q – TDS on payment of certain sum for purchase of goods:
Under Section 206C(1H) wherein person becomes liable for TCS collection @ 0.1% of sales consideration exceeding Rs. 50 Lakhs whose total sales, gross receipts or turnover from the business carried on by him exceed 10 crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out.

Now they have introduced provision for deducting TDS on purchase of goods over specified limit also. New section 194Q provides that if the goods purchased by the buyer exceeds Rs 50 lakhs and turnover of the buyer in the financial year immediately preceding the year in which goods are purchased exceeds Rs 10 crores then TDS at the rate of 0.1% will be deducted on the amount exceeds Rs 50lakhs.

Time of deducting TDS u/s 194Q
TDS u/s 194Q is deducted at the time of credit or payment whichever is earlier.

Both buyer & seller turnover or gross receipts in the preceding financial year exceeds Rs 10 crores:
If the buyer purchase goods of an amount exceeds Rs 50 lakhs and both buyer and seller turnover or gross receipts exceed Rs 10crores in the preceding financial year then TDS u/s sec 194 Q is deducted at the rate of 0.1%. No TCS is deducted in this case.

For example:
If Mr.ABC buys goods from XYZ Co Ltd for Rs.80 lakhs and makes payment, XYZ Co Ltd would collect Rs.3,000 (Rs.80 lakhs minus Rs.50 lakhs) under section 206C(1H). Similarly, Mr.ABC before making payment would deduct identical amount and remit Rs.3, 000 as TDS as per section 194Q.

Raising of exemption limit u/s 10(23C) for Hospital and Educational Institutes:
Above section provides exemption to such hospital and educational institutes whose annual receipt does not exceed Rs.1 Crore. Finance Bill 2021 now extended such limit to Rs.5 Crore.

Goodwill is no longer a depreciable Asset:
As per section 32 Depreciation is calculated on the Block of assets. Block of assets includes Tangible and Intangible assets. Intangible assets include goodwill also.

Now the goodwill is excluded from the intangible assets i.e. goodwill is a Non-Depreciable assets vide Finance bill 2021.For Example: if a person acquire goodwill of some other person business then he is not allowed to claim depreciation on such asset.

Increase in Tax Audit Limit:
Under the Finance act 2020 limit of tax audit was Rs 5 crores if aggregate of all receipts and payments individually realizes 95% in mode other than cash.

As per Finance act 2021 Finance minister increases the tax limit to Rs 10 crores provided the 95% Receipts & payments are made through mode other than cash.
(Note: Such above relaxation is not available to professionals.)

Increase in safe harbor threshold under Section 43CA from 10% to 20%:
Section 43CA of the Act, provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall for the purpose of computing profits and gains from transfer of such assets, be deemed to be the full value of consideration.

The said section also provide that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed one hundred and ten percent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration.

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.

Unit linked Insurance policy:
The Budget 2021 has proposed a significant amendment by bringing Unit Linked Insurance plans (ULIPs) under tax bracket. Presently, the redemption of ULIPs is tax exempt provided the total premium payable for the policy does not exceed 10% of the assured sum.

However, the budget 2021 has proposed to tax the redemption value of ULIPs issued on or after 1 February 2021 wherein the annual premium payable by the individual exceeds INR 2.5 lakh. Such ULIPs are proposed to be treated as ‘capital assets’ liable for capital gain taxation at par with equity oriented mutual funds.

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