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March 26, 2021

More than 120 Changes in Finance Bill passed in Lok Sabha Know highlights

by CA Jessica Nagaonkar in Budget, Compliance Law, Corporate Law

More than 120 Changes in Finance Bill passed in Lok Sabha Know highlights

The Finance Bill is a part of the Union Budget, stipulating all the legal amendments required for the changes in taxation proposed by the Finance Minister. This Bill encompasses all amendments required in various laws pertaining to tax, in accordance with the tax proposals made in the Union Budget. The Finance Bill, as a Money Bill, needs to be passed by the Lok Sabha, the lower house of the Parliament. Post the Lok Sabha’s approval, the Finance Bill becomes Finance Act.

On 23rd March 2020, the Lok Sabha, the lower house of India’s bi-cameral legislature, passed the Finance Bill, 2020 (the amended Bill) with certain amendments. Further, the amended Bill was passed in Rajya Sabha, the upper house, and it received presidential assent on 27 March 2020.  The amended Bill’s measures took effect on 1 April 2020. The key amendments made during legislative deliberations on the amended Bill are as follows:

Relaxation filing return of income-tax for certain category of senior citizen

  • According to the law, a senior citizen is an individual resident between the age group of 60 to 80 years, as on the last day of the previous financial year.
  • A super senior citizen is an individual resident who is above 80 years, as on the last day of the previous financial year.
  • Now, there is a relief to Senior Citizens aged 75 year and above, who will not be required to file income tax returns in case of income only from pension or interest.
  • As per the proposed Section 194P under the Income Tax Act, such senior citizen must be a resident of India having income of the nature of pension and no other income except interest received from any account maintained by such individual in the same specified bank in which he is receiving his pension income.
  • Such senior citizen shall be required to furnish a Declaration to the Bank, which shall then, after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A, compute the total income of such specified senior citizen for the relevant assessment year and deduct income-tax on such total income on the basis of the rates in force.
  • Even before Budget, senior citizens were not required to file ITR in certain cases. Just because a senior citizen has been filing an ITR all his life does not necessarily mean that he/she is mandatorily required to file an ITR.
  • Many a times, senior citizens continue filing their ITR’s even when they are not required by law. This may happen due to misinformation, fear of income tax penalties, lack of knowledge etc.

Discontinuance of the ITSC

  • In the Finance Bill, 2021 a very important amendment has been made that the Income-Tax Settlement Commission (ITSC) shall cease to operate on or after 1st February, 2021.
  • This means that no application under section 245C of the Income Tax Act 1961 for settlement of cases shall be made on or after 1st February, 2021.
  • As regards the pending application which was not declared invalid under sub-section (2C) of section 245D of the Act and in respect of which no order under section 245D(4) of the Act was issued on or before the 31st January, 2021 shall be treated as pending applications.
  • Where in respect of an application, an order, which was required to be passed by the ITSC under section 245(2C) of the Act on or before the 31st day of January, 2021 to declare an application invalid but such order has not been passed on or before 31st January, 2021, such application shall be deemed to be valid and treated as pending application.

Faceless proceedings before Income Tax Appellate Tribunal

  • One of the key highlights of Budget 2021 is the introduction of the ‘National Faceless Income Tax Appellate Tribunal Centre’, which replaces the existing Income Tax Appellate Tribunal. 
  • Section 255 is sought be amended for establishment of a Faceless, jurisdiction-less National Income Tax Appellate Tribunal, for the purposes of disposal of appeals.
  • This, the Government said, shall impart greater efficiency, transparency and accountability by:
  • eliminating the interface between the Appellate Tribunal and parties to the appeal in the course of appellate proceedings to the extent technologically feasible
  • optimising utilisation of the resources through economies of scale and functional specialisation
  • introducing an appellate system with dynamic jurisdiction.

This means that and the all communications between the Tribunal and the Appellant shall be electronic. Where personal hearing is needed, it shall be done through video-conferencing

Constitution of Dispute Resolution Committee (DRC) for small and medium taxpayers

  • Bill proposes to insert Section 245MA to the IT Act for constitution of Dispute Resolution Committees by the Central Government, for dispute resolution in the case of such persons as may be specified by the CBDT.
  • Anyone with a taxable income up to Rs 50 lakh and disputed income up to Rs 10 lakhs shall be eligible to approach the Committee.
  • The Dispute Resolution Committee shall have the powers to reduce or waive any penalty imposable under the IT Act or grant immunity from prosecution for any offence punishable under the Act in case of a person whose dispute is resolved.
  • The Central Government may also make a scheme for the purposes of dispute resolution, so as to impart greater efficiency, transparency and accountability by:
  • eliminating the interface between the Dispute Resolution Committee and the assessee in the course of dispute resolution proceedings to the extent technologically feasible
  • optimising utilisation of the resources through economies of scale and functional specialisation
  • introducing a dispute resolution system with dynamic jurisdiction
  • The provision shall not be applicable in case of orders passed under Section 132 (Search), Section 132A (Requisition), Section 133A (Survey) or Section 90 & 90A (information received under an agreement).

Income escaping assessment & search assessments

The Bill proposes that an Assessing Officer, before issuing reassessment notice under Section 148, shall:

  • Conduct an enquiry with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessments
  • Provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause in not less than 7 days but not exceeding 30 days, as to why a notice under section 148 should not be issued to him
  • Consider the assessee’s reply
  • Decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148.
  • Further amendments to Section 148 of the Act propose that the time period for re-opening of assessment in case of non-serious tax evasion shall be reduced to 3 years from 6 years.

However, in case of serious tax fraud where there is evidence of concealment of income of 50 lakh or more in a year, assessment may be reopened in 10 years, after approval of Principal Chief Commissioner.

Exemption from Audit

  • Earlier, if the turnover of any assessee exceeded Rs. 1 crore, such assessee was liable to get their accounts audited.
  • In February 2020, this threshold limit was raised to Rs. 5 crores.
  • In the instant Bill, to further incentivise digital transactions and to reduce the compliance burden of persons who make 95% digital transactions, it is proposed to increase the monetary limit for tax audit from Rs 5 crore to Rs 10 crore under Section 44AB of the IT Act

Incentives for persons involved in business of developing rental housing project

  • Section 80-IBA of the Income-tax Act, pertains to deductions in respect of profits and gains from housing projects.
  • According to the said Section 80-IBA, where the gross total income of an assessee includes any profits and gains derived from the business of developing and building housing projects, there shall, subject to the provisions of this section, be allowed, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business.
  • In Section 80-IBA of the Income-tax Act, a new sub-section is proposed to be inserted to provide 100% deduction on profits derived from the business of developing and building rental housing projects.

Advance tax instalment for dividend income

  • Advance tax is the tax that is paid in advance for the income of a particular financial year.
  • The normal expectation is that tax has to be paid only when the income is earned but under the tax provisions the tax payer has to actually estimate the income for the entire year and based on this pay advance tax at specific time intervals.
  • As per amendment proposed to Section 234C of the IT Act, advance tax liability on dividend income shall arise only after the declaration/payment of dividend.

Agriculture Cess

Clause 116 under the Bill proposes to introduce an Agriculture Infrastructure and Development Cess of Rs 2.5 per litre applicable on petrol and Rs 4 per litre applicable on diesel.

Amendments to the LIC Act

  • The proposed amendments to the LIC Act, 1956 will enable the listing of LIC on recognised stock exchanges and making of an initial public offer, through which Government may sell its shares in LIC.
  • It is also proposed to insert new sections in the LIC Act to provide for disqualifications to be a director, disclosure of interest by director and senior management, related party transactions and adjudication of penalties for contravention or violation liable to penalty under the LIC Act, in order to bring the provisions relating to corporate governance in alignment with listing requirements.

Objections raised during Parliamentary Debate

The minister said the changes have been made largely to boost ease of doing business and easing compliance burden. She also said there will be no change in the rate of income tax. Several opposition members pointed to high prices of petrol and diesel and said the petroleum products should be brought under the GST Council

MP Vinayak Raut of Shiv Sena party expressed concern over levy of agriculture cess. He apprehended that with the increase in prices of petrol and diesel, the input cost for farmers will also rise, which will ultimately prove detrimental to their economic interests.

Dr. Amar Singh of the Congress party said that the proposed provisions for launching initial public offering (IPO) of LIC require a proper debate and such amendments to the LIC should have been brought separately, not by way of the Finance Bill.

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