12 Major Income Tax Amendments for FY 20-21

(AY 2021-22)

1. Section 115BAC

Effective from financial year 2020 -21 Individuals and Hindu Undivided Families are subject to a new and optional income tax regime (HUFs). The income tax bracket rates have been drastically cut under this new regime, which is an important aspect. Although the new regime has substantially lower slab rates, it also eliminates a large number of tax deductions and exemptions that were available under the previous regime.

2. Employer’s Contribution to NPS/PF/SAF in excess of Rs. 7.5 Lacs to be taxed in the hands of employees

• Employees' Provident Fund (EPF), Superannuation Fund (SAF), National Pension System (NPS), and other plans provided retirement benefits to salaried persons
• Contributions to such schemes not only help in building a retirement corpus, but were also tax-free till FY 2020-21.
• In the Union Budget 2020, a cap of Rs 7.5 lakhs in a financial year was put on the combined contributions made to the three schemes (EPS, NPS and Superannuation Fund) by employer(s).
• So, now highly paid employees having EPS and/or NPS as retirement benefit scheme(s) would suffer, as any contributions made by employer(s) over Rs 7.5 lakh in a financial year would now become taxable.
• Moreover, any annual accretion by way of interest, dividend or any other amount of similar nature during the financial year will also be part of the Rs 7.5 lakh limit.

3. Deductions of TDS by Individuals or HUF

Only those assessees whose accounts were subject to Tax Audit u/s 44AB were required to deduct TDS until 31 March 2020. The linking of TDS with the audit has been discontinued as of 01/04/2020 (FY 2020-21), and the following assessees are required to deduct TDS
• In case of business – If the sales/turnover exceed Rs. 1 Crore in the preceding FY (i.e. 2019-20)
• In case of Profession – if the gross receipts exceed Rs. 50 Lacs in the preceding FY (i.e. 2019-20)

4. Amendment in the Scope of Section 194N (TDS on Cash withdrawal)

• Cash withdrawn exceeds Rs 20 lakh in a FY from his/her bank account (current or savings) and has not filed ITR during the last 3 FY’s – 2% TDS on the amount of cash withdrawn.
• Cash withdrawn exceeds Rs 1 crore in a FY in case of the individual who has not filed ITR during the last 3 FY’s – 5% TDS on the amount of cash withdrawn.
• Cash withdrawal is applicable if the amount withdrawn from a bank account exceeds Rs 1 crore in a financial year even if individual has filed ITR - TDS of 2%

5. Amendment to Section 194J (TDS on Professional Services)

• Section 194J provides that any person, not being an individual or a HUF, who is responsible for paying to a resident any sum by way of fees for professional services, or fees for technical services, or any remuneration or fees or commission or royalty or any sum referred to in section 28(va), shall, at the time of payment or credit of such sum to the account of the payee, deduct an amount equal to 10% as income-tax.
• Prior to the FY 2020-21 there was only one rate of TDS of 10%. Finance Bill, 2020 introduced one more rate of 2% for fees for technical services.
• One more payment has been brought under two per cent of TDS under section 194J and it is on royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films.

6. New categories for Tax Collection at Source (TCS)

Following 3 new categories of transactions have been introduced with effect from 01/10/2020 for TCS:

Remittance out of India under Liberalized Remittance Scheme (LRS) of RBI.

• Tax is to be collected by bank/ foreign exchange dealer if he receives sum in excess of Rs 7,00,000 or more in aggregates from buyers being a person remitting such amount out of India, at the rate of 5%
• In non-PAN/Aadhaar cases the rate shall be 10%

TCS on selling of overseas tour package

• A seller of an overseas tour program package who receives any amount from any buyer, being a person who purchases such package, shall be liable to collect TCS at the rate of 5%.
• In non-PAN/ Aadhaar cases the rate shall be 10%.
• There is no monetary limit for this transaction, irrespective of any amount TCS must be collected by seller of that package

Sale of goods
Seller of the Goods whose turnover during the preceding FY exceeded Rs. 10 Crore and receives Rs. 50 Lakhs or more from a Domestic buyer of the goods has to collect TCS @ 0.1% ( in case of non-PAN/Aadhar @ 1%) of the amount received (including GST)

7. Widening the scope of form 26AS:

• Form 26AS is an important piece of document for a taxpayer to file his income-tax return (ITR) and to get essential tax information.
• It contains: - Information related to taxpayers, inter-alia, details of tax deducted/collected against his PAN, details of refund paid, etc.
• With effect from 01/06/2020, the scope of Form 26AS has been enlarged by the Finance Act, 2020 to include all information related to assessee such as sale/purchase of shares, immovable property, donations made etc.
• Nature of information to be included in 26AS:-
(a) Information relating to tax deducted or collected at source (TDS or TCS)
(b) Information relating to specified financial transaction (SFT) i.e. related to purchased of property, use of credit card, purchase of shares, cash deposit /withdrawals exceeding specified limits etc.
(c) Information relating to payment of taxes
(d) Information relating to demand and refund
(e) Information relating to pending proceedings
(f) Information relating to completed proceedings
(g) s Any other information in relation to sub-rule (2) of rule 114-I

8. Changes in the provisions related to NRIs:

Till FY 2019-20, an NRI who visited India would be considered a resident if they spent 182 days or more in the previous year in the country, in addition to an aggregate stay of 365 days or more in the preceding four years. Budget 2020 proposed to lower the threshold period of stay in the previous year to 120 days from 182 days.

9. Tax to be charged on Dividends received

• Effective April 1, 2020, as per the Income Tax Act, 1961, the dividend income is taxable in the hands of shareholders.
• Accordingly, if any resident individual shareholder is in receipt of dividend exceeding Rs. 5,000 in a fiscal year, entire dividend will be subject to TDS @ 7.5%.
• The rate of 7.5% is applicable provided the shareholder has updated his/her Permanent Account Number (PAN) with the depository/ Registrar and Transfer Agent (RTA). Otherwise the TDS rate will be 20%.

10. Fair Market Value as on 01/04/2001 of immovable properties for Capital Gains

• In the case of Land and Buildings acquired before 01/04/2001, the assessee was given option to substitute Fair Market Value (FMV) prevailing as on 01/04/2001 instead of actual cost.
• From AY 2021-22 (FY 2020-21) onwards, if the capital asset transferred is land or building or both and if assessee choose to opt for FMV as on 01-Apr-2001, such value shouldn’t exceed stamp duty value, if available, on that.

11. Tolerable Limit increased for difference in Stamp Value and Actual Value of the Property:

• If the consideration received from transfer of an asset (not a capital asset) being land or building or both is less than stamp duty value then, stamp duty value shall be considered as consideration received/accrued for the purpose of computation of profits and gains from business
• However, if the stamp duty value does not exceed 105% of consideration received/accrued then, actual consideration received/accrued shall be considered as consideration received/accrued for the purpose of computation of profits and gains from business
• However from AY 2021-22 (FY 2020-21), stamp duty value/differential amount to be considered for tax purpose if the difference between actual consideration and the stamp duty value has been increased to 10%.

12. Threshold Limit for Tax Audit increased

For the audit, the turnover limit was Rs. 1 crore for businesses and Rs. 50 lakhs for professions.
Finance Act, 2020 has amended the Tax Audit Limit in case of the business. The limit is raised to Rs. 5 Crore in the case of business if the assessee satisfies following conditions:
• Cash receipts during the year should not exceed 5% of total receipts during the year and
• Cash payments should not exceed 5% of total payments during the year