Finance Minister Nirmala Sitharam proposed the Finance Bill, 2021 which was enacted into legislation with Lok Sabha Passing it on March 23, 2021. With the object of including more taxpayers and easing a few taxing rules, there have been a few amendments to the Income-Tax Act, 1961. Following are the important introductions as the “new tax rules” that one must know.
Tax Deducted/Collected At Source
The Finance Bill, 2021 has proposed an increase in the TDS or TCS rates. The object of such a proposal is claimed to be the inclusion of people in the file of tax returns. In order to give effect to this, sections 206AB and 206CCA have been inserted into the Income Tax Act, 1961. The sections have been added as a special provision for TDS and TCS for non-filers of an income tax return.
The following points are must to know:
The new TDS/TCS rule applies to those non-filers who have paid their TDS/TCS of INR 50,000 or more in the last two years but have not filed their income tax return.
The rule applies to various nature of payments, for example, interest, rent, contract, professional service, etc. but does not apply to transactions where the requirement is maximum amount deduction like salaries, investments in securities, TDS levied on Rs 1 Crore and above cash withdrawal, etc.
The Rule does not apply to non-residents not having a permanent establishment in India.
- New Rates
Section 206AB deal with TDS and the specified person who is “a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing return of income under sub-section (1) of section 139 has expired”. The tax rate is i) double the rate specified in the Act; ii) double the rate(s) in force; iii) 5 percent; whichever is higher.
Further, section 206CCA deals with TCS i.e., tax payable by the seller who collects the tax, in turn, from the buyers at the time of sale of goods. The specified person is the same as u/s 206AB. The rate of TCS is i) double the rate specified in the Act; ii) 5 percent whichever is higher.
Exemption to senior citizens
If a person is above 75 years of age, they are exempted from filing income tax returns. However, with age, the source of income must only be pensions and interest. Further, the exemption is applicable to individual taxpayers only.
Tax on Employee benefits
The new rules add provisos to clauses 11 and 12 of section 10 thereby making an exception to the exemption clause. With this, the tax would be charged on “the income by way of interest accrued during the previous year in the account of a person to the extent it relates to the amount or the aggregate of amounts of the contribution made by that person exceeding two lakh and fifty thousand rupees in any previous year in that fund, on or after the 1st day of April 2021 and computed in such manner as may be provided by rules.”
To ease the taxpayers’ return filing process, pre-filled forms have been introduced wherein details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. will also be pre-filled.
Leave Travel Concession
Section 10 prescribes incomes that are not included in total income and hence are exempt from taxation. The objective of section 10 is to lessen the burden of taxpayers specifically the salaried class, when the rent allowance, gratuity, education of family, travel expenses, etc. are concerned.
The Budget 2021-22 had a proposal to include tax exemption to cash allowance in lieu of Leave Travel Concession (LTC). LTC was a scheme announced by the Central Government in October 2020, which has been not legitimized by adding a second proviso to Clause 5 of section 10, Income Tax Act, 1961.
The amendment is in force from April 1, 2021, and employees can now avail the benefit of the scheme which exempts the entire leave travel concession of all the non-government and government employees up to a maximum of Rs 36,000 per person. However, to avail of this benefit the employee must fulfil the following conditions:
- The employee must not have already availed the tax benefit u/s 10 (5) during the block of January 2018- December 21.
- The employee must spend three times the amount of deemed LTC fare on the purchase of goods and/or services attracting GST of 12% or more;
- Such abovementioned purchase must be made during the period between October 12, 2020, and March 31, 2021.
- Payment for the purchases must be made through a digital mode including cheque, UPI, etc.
- Invoices must be furnished to an employer containing details of the vendor, GST number, and GST amount paid. Invoices in the name of family members can also be submitted.
Please Note: The claim is available only under the Old Tax regime; hence if one opts for the new tax regime they are not eligible.
An Option to choose the Tax regime
With all these changes, an option to choose the regime has been furnished. The new regime applies to income earned during the financial year 2020-21 or assessment year 2021-22.