Union Budget 2021 has proposed significant policy measures and budgetary allocations to the healthcare and infrastructure sectors. Coupled with the sharp increase in capital expenditure, these measures would give the much-needed boost to the Indian economy.
With a fiscal deficit of 9.5% of GDP, there was limited scope for any significant tax concessions. Some key amendments have been summarised below.
The proposal to introduce faceless appeal proceedings at the Income Tax Appellate Tribunal as well as the Dispute Resolution Committee for small taxpayers is in line with principles of transparency and efficiency.
Further, the proposal to reduce the time in which reassessment proceedings can be initiated, as well as the more stringent conditions for opening reassessment proceedings in case of serious tax evasion cases, would lead to more certainty and reduce litigation.
The bill also proposes to constitute a board for Advance Ruling to replace the Authority for Advance Ruling (AAR), to increase efficiency of the advance ruling scheme. The Income Tax Settlement Commission is proposed to be discontinued.
The bill proposes to introduce a new provision requiring Tax Deduction of Source (TDS) @ 0.1% on payments made to residents for purchase of goods if the buyer's gross turnover from business is greater than Rs 10 crore in the preceding year and where the aggregate value of purchase of goods from the seller exceeds Rs 50 Lakh in the relevant year. This would increase compliance requirements.
The Equalisation Levy (EQL) of 2% imposed last year on revenues earned by e-commerce operators has continuously been under controversy due to lack of clarity of certain aspects.
The bill proposes to clarify that EQL would not be applicable on amounts taxable in India as royalty or as fee for technical services. Further, it clarifies the scope of activities covered under the scope of 'online sale or goods' and 'online provision of services'. The ambit of activities so proposed to be covered is fairly broad and may lead to many taxpayers potentially getting covered by the EQL.
The tax deductibility of depreciation on goodwill has been a contentious issue involving ongoing litigation for various reasons. In order to put the issue to rest, it has been proposed that goodwill of a business or profession will not be considered as a depreciable asset and no depreciation will be allowed on the same going forward.
The extension of tax holiday benefits by one year for housing projects and start-ups would provide some relief to these sectors.
The Finance Bill has proposed a reduction by three months to the time limit available for completion of assessment proceedings, which seems to be aimed at speedier revenue collection.
Directionally, the Budget shows stability in the tax regime and it is good that no new taxes were introduced.
(The author is Partner with Deloitte India.)