India: Tax measures in Union Budget 2021-22

India: Tax measures in Union Budget 2021-22

The Finance Minister on 1 February 2021 presented the Union Budget 2021-22 before Parliament.

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Among the tax measures proposed in the budget are the following (these are only samples of the proposals):

  • Equalisation levy—to clarify that the taxation of royalties and “fees for technical services” and the “equalisation levy” are mutually exclusive, and that the equalisation levy is not to apply if the consideration paid is taxable as a royalty or as fees for technical services.
  • Non-resident taxation—to address the withholding tax on income realized by foreign investment institutions from securities, to provide if there is an applicable income tax treaty and the nonresident has furnished a tax residency certificate, the tax would be withheld at 20% or at the rate under the income tax treaty, whichever is lower.
  • Depreciation (amortization) of goodwill—the goodwill of a business or profession would not be considered as a depreciable asset and no depreciation would be allowed even in respect of purchased goodwill.
  • Litigation and dispute management—the Authority for Advance Rulings (AAR) would be discontinued and in its place there would be one or more Board for Advance Rulings that would be composed of two members, each being an officer not below the rank of Chief Commissioner. The rulings of the Board for Advance Rulings would not be binding on the tax department or on the taxpayer, and the rulings would be appealable before the High Court.
  • Assessment procedures—a new regime would be introduced regarding the re-assessment of certain cases in an effort to reduce litigation.
  • Capital gains—the definition of a “slump sale” would be expanded to include all types of “transfers” including exchanges.
  • Start-ups—a tax deduction would be extended to eligible start-ups that reincorporated before 1 April 2022, and the time limit for making an investment of net consideration from a transfer of “house property” in start-ups would be extended to 31 March 2022 (from 31 March 2021).
  • Business expenditure and compliance—no deduction would be allowed to an employer for its employees’ contributions to any provident fund, superannuation fund or any other relevant fund, if the employer does not credit the amounts contributed to such funds before the appropriate due date.
  • Other proposals—an exemption from withholding tax would be available for dividend payments made by certain special purpose vehicles to business trusts (REITs and InvITs).
  • Goods and services tax—the scope of term “supply” would be expanded to include transactions involving the supply of goods or services by any person (other than individual) to its members or constituents, and vice-versa, for cash or other valuable consideration. Further, the person and its members would be deemed to be separate entities, and transactions between them would be deemed to take place from one person to another. Another measure provides that every registered person would need to file an annual return that may include a self-certified reconciliation statement (that is, reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement for every financial year).

 Read a February 2021 report [PDF 1.1 MB] prepared by the KPMG member firm in India

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