Union Finance Minister Nirmala Sitharaman will be presenting her third budget on February 1, 2021.
The countdown for the Union Budget 2021 has started with all eyes on the Union Finance Minister Nirmala Sitharaman's third budget, which she will be presenting on February 1, 2021.
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Here are the key expectations related to the income tax from Budget 2021 (Compiled by Naveen Wadhwa, DGM, Taxmann):
Capital gain provisions should not contain the reference of any particular year in respect of sovereign gold bonds (SGBs) scheme
There are several benefits of investing in SGBs. According to section 47 of the Income-tax Act any transfer of SGB by the RBI under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an assessee being an individual shall not be treated as a transfer for the purpose of capital gain.
This refers to only SGB issued under the Sovereign Gold Bond Scheme, 2015. However, the government issues a new SGB scheme every year. Thus, section 47 should be suitably amended to remove reference of any particular year from the Sovereign Gold Bond Scheme.
Tax deducted in the foreign country to be treated as income of assessee
Section 198 of the Income-tax Act, 1961 provides that the tax deducted at source should be included in the gross total income of the assessee. However, the computation of income is often disputed if taxes have been withheld outside India and the corresponding income is offered to tax in India. In absence of an explicit provision in this regard, the assessee includes the net income to his/her gross total income. Whereas the assessing officer assesses the gross amount.
This conflict arises due to the absence of a reference in Section 198 of taxes withheld outside India.
As the taxes paid outside India are eligible for the foreign tax credit under Section 90/90A read with Rule 128, it is recommended that the necessary amendments should be made to Section 198 to bring the income earned outside India at par with the income earned in India.
Consequential amendment needed after the abolition of Dividend Distribution Tax (DDT)
Section 234C provides for levy of interest in case an assessee has the liability to pay the advance tax but he/she fails to pay the same or the amount paid in each instalment is less than the amount he/she should have paid in such instalments. However, it is provided under the said section that if the shortfall in payment of tax happens on account of underestimating or failure to estimate the accrual of income referred under Section 115BBDA(1), then such shortfall shall be ignored while determining the chargeability of interest.
Up to the assessment year 2020-21, a shareholder receiving a dividend from a domestic company was exempt from paying tax on such dividend as the tax was recovered from the company in form of dividend distribution tax (DDT). However, where the amount of dividend received by a specified resident shareholder exceeds Rs 10 lakh then the excess amount was chargeable to tax at a special rate of 10 percent under Section 115BBDA.
With effect from the assessment year 2021-22, the Finance Act, 2020 has moved to the traditional system of taxation of dividend whereby the domestic company would no longer be required to pay DDT on the dividend declared, distributed or paid to the shareholder on or after April 1 and, consequently, the shareholders shall be liable to pay tax on such dividend.
Thus, Section 115BBDA would be of no relevance as the entire amount of dividend shall now be taxable in the hands of the shareholder as per the normal provisions of the Act.
Thus, it is recommended that Section 234C should be amended to provide relaxation from the levy of interest if the shortfall in payment of advance tax is attributable to wrong estimation or under-estimation of the dividend income.
(Edited by : Ajay Vaishnav)
First Published: IST