Direct Tax: 

The Union Budget 2021-22 by way of the Finance Act 2021 (“FA21”) has introduced an array of changes to the provisions of the Income-tax Act 1961 (“IT Act”) and allied rules. Few relevant changes are discussed below. 


The provisions of the IT Act allow 100% deduction to an assessee who derives profit from the business of developing and building an affordable housing project. One of the conditions required to be satisfied for claiming the deduction is that such an affordable housing project should be approved by a competent authority before 31st March 2021. The government has now extended this time limit to 31st March 2022. Moreover, the deduction is now also extended to rental housing projects to be notified by the Central Government for helping migrant laborers and to promote affordable rentals.

Issuance of zero coupon bond (ZCD) by infrastructure debt fund

Presently, the provisions of the IT Act defines ZCD to mean a bond issued by an infrastructural capital company, or infrastructural capital fund, or a public sector company, or a scheduled bank and on which no payment/ benefit is received or receivable before maturity or redemption. These are required to be notified by the Central Government in the official gazette. The government has now proposed to enable infrastructure debt fund (to be notified) to issue ZCDs. This amendment will take effect from 1st April 2022 and will accordingly apply to the assessment year 2022-23 and subsequent assessment years.  

Extension of date of sanction of loan for affordable residential house property

The provisions of the IT Act provides deduction in respect of the interest on loan taken for a residential house property from any financial institution up to INR 1,50,000/- subject to the condition that the loan has been sanctioned between 1st April 2019 and 31st March 2021. This provision allows deduction to the first time homebuyers. The government has now proposed to extend the outer date for sanction of loan from 31st March 2021 to 31st March 2022. 

Extension of date of incorporation for eligible start up for exemption and for investment in eligible start-up 

The existing provisions of the IT Act provides for a deduction of an amount equivalent to 100% of the profits and gains derived from an eligible start-up for three consecutive assessment years out of ten years at the option of the assessee. However, the deduction is subject to the condition that the total turnover of its business should not exceed 100 Crore Rupees. An eligible startup is required to be incorporated on or after 1st April 2016 but before 1st April 2021. In order to assist the start-ups, the government has extend the outer date of incorporation from 1st April 2016 to 1st  April 2022.

Likewise, the provisions of the IT Act also provide an exemption from capital gains which arises from the transfer of a long-term capital asset being a residential property, owned by the eligible assessee. An eligible assessee is required to utilise the net consideration from such transfer for subscription of the equity shares of an eligible start-up. The eligible start-up is required to utilise this amount for purchase of new asset within one year from the date of subscription in equity shares by the assessee. Further, it has been provided that benefit is available only when the residential property is transferred on or before 31st March 2021.  In order to help the start-ups to get investments, the government has proposed to extend the outer date of transfer of residential property from 31st March 2021 to 31st March 2022.

Increase in safe harbour limit of 10% for home buyers and real estate developers selling such residential units  

The provisions of the IT Act provides that where the consideration received on a transfer of land or building or both is less than the stamp duty value, such stamp duty value shall be adopted as a full value of consideration for computing the profits and gains from such transfer in the hands of the seller. However, the deeming provision will only apply in case where the difference between the consideration received and stamp duty value is not more than 10%. Similarly, the difference in consideration is also taxable in the hands of the buyer as income from other sources, if the said difference is more than INR 50,000/-. In order to boost the ailing real-estate sector, the government has now proposed to increase the safe harbour limit from 10% to 20% in case where the following conditions are satisfied:   

  • The transfer of residential unit takes place during the period from 12th November 2020 to 30th June 2021;
  • The transfer is by way of first time allotment of the residential unit to any person; and
  • The consideration received or accruing as a result of such transfer does not exceed two crore rupee.
Relaxation for certain category of senior citizen from filing return of income-tax

The provisions of the IT Act requires an individual to file a return of income if his total income exceeds the maximum amount which is not chargeable to tax ie 2.5 lacs (if aged below 60)/ 3 lacs (if aged between 60-

80 years)/ 5 lacs (if age is more than 80 years) respectively. In order to provide relief to senior citizens who are of the age of 75 year or above and to reduce compliance for them, the government has proposed to provide a relaxation from filing the return of income, if the following conditions are satisfied:- 

  1. The senior citizen is resident in India and of the age of 75 or more during the previous year;
  2. He has pension income and no other            However,         in addition to such pension income he may have also have interest income from the same bank in which he is receiving his pension income; 
  • This bank is a specified bank. The Government will be notifying a few banks, which are banking company, to be the specified bank; and
  1. He shall be required to furnish a declaration to the specified bank.

The declaration shall be containing such particulars, in such form and verified in such manner, 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 and rebate allowable and deduct income tax on the basis of rates in force. Once these conditions are fulfilled, there will not be any requirement of furnishing return of income by such senior citizen for this assessment year. This amendment will take effect from 1st April 2021. 

Exemption of deduction of tax at source on payment of Dividend to business trust in whose hand dividend is exempt 

The provisions of the IT Act provides for tax deduction at source (TDS) liability on payment of dividend to a resident assessee. However, the provision exempts any dividend paid to an insurance company or an insurer from this obligation.  The government has now proposed to exempt dividend income paid to the following assessee from TDS obligation: 

  • a business trust by a special purpose vehicle; or
  • any other person as may be notified.

This amendment will take effect retrospectively from 1st April, 2020.

Rationalisation of the provision concerning withholding on payment made to Foreign Institutional Investors (FIIs) 

The provisions of the IT Act provides for a TDS liability in case where an income is paid to an FII from certain securities (except interest income) at the rate of 20%. Since the provision provides for a specific rate of tax, the deduction is to be made at that rate and the benefit of DTAA cannot be given at the time of tax deduction. This principle has also found support from the decision of the Hon‘ble Supreme Court in the case of PILCOM vs. CIT West Bengal (Civil Appeal No. 5749 of 2012). Due to representations received, the government has now proposed to amend the provision to providing the TDS to be deductible at either 20% or the rate specified in the DTAA, whichever is lower. 

Rationalisation of provisions relating to tax audit in certain cases 

According to the provisions of the IT Act, every person carrying on business is required to get his accounts audited, if his total sales, turnover or gross receipts, in business exceed or exceeds one crore rupees in any previous year. In case of a person carrying on profession he is required to get his accounts audited, if his gross receipt in profession exceeds, fifty lakh rupees in any previous year. In order to reduce compliance burden on small and medium enterprises, through Finance Act 2020, the threshold limit for a person carrying on business was increased from one crore rupees to five crore rupees in cases where:- 

  • aggregate of all receipts in cash during the previous year does not exceed five per cent of such receipt; and
  • aggregate of all payments in cash during the previous year does not exceed five per cent of such payment.

In order to incentivise non-cash transactions to promote digital economy and to further reduce compliance burden of small and medium enterprises, the government has now proposed to increase the threshold from five crore rupees to ten crore rupees in the above cases. 

Constitution of Dispute Resolution Committee for small and medium


In order to provide early tax certainty to small and medium taxpayers, the government has  proposed to constitute a Dispute Resolution Committee (DRC) for preventing new disputes and settling the issue at the initial stage. This committee shall resolve disputes of such persons or class of person which shall be specified by the Board. The assessee would have an option to opt for or not opt for the dispute resolution through the DRC.  Only those disputes where the returned income is fifty lakh rupee or less (if there is a return) and the aggregate amount of addition/ variation proposed in specified order is ten lakh rupees or less shall be eligible to be considered by the DRC. 

Provision for Faceless Proceedings before the Income-tax Appellate Tribunal (ITAT) in a jurisdiction less manner 

The government has proposed to launch a faceless scheme for ITAT proceedings on the same line as faceless appeal scheme. This will not only reduce cost of compliance for taxpayers, increase transparency in disposal of appeals but will also help in achieving even work distribution in different benches resulting in best utilisation of resources. 

Discontinuance of Income-tax Settlement Commission 

The government has proposed to discontinue Income-tax Settlement Commission (ITSC) from 1st February 2021. The government has also proposed to constitute Interim Board of settlement for pending cases. 

Depreciation on Goodwill 

The government has proposed that a goodwill of a business or a profession shall not be considered as a depreciable asset and there would not be any depreciation on goodwill of a business or profession in any situation whatsoever. The proposal has come in light of the heavy litigation on the said issue. 

Definition of the term ―Liable to tax 

Earlier, the IT Act did not define the term ‘liable to tax’ anywhere even after using it at various occasions. The government has now clarified that the term liable to tax shall mean that there is a liability of tax on that person under the law of any country and will include a case where subsequent to the imposition of

such tax liability, an exemption has been provided. 

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