Key Income Tax Changes effective from FY 2021

Every company following the financial year for its operations needs to be constantly updated with the latest income tax changes applicable for the said financial year and adhere to the new provisions. The Finance Act, 2021 was introduced on 28th March 2021 with amendments and provisions to the Income Tax Act of 1961 based on the announcements made by the Hon’ble Finance Minister.

Some important income tax changes related to the financial year 2021-2022 that will help you plan your finances and taxes smoothly are;

Tax Deducted at Source (TDS)/ Tax Collected at Source (TCS):

• An entity paying taxes should deduct TDS and collect TCS at original rates without considering concessions of 25% while processing non-salary payments.
• However, From the 1st July 2021, two new sections have been inserted to bring more people under the income tax net:

A. Section 206AB:

It would be applicable for Non-filers of Income-tax returns who would be charged a higher rate of TDS as below:

Higher of the following:

• Rate of 5%; or
• Twice the rate specified in the relevant provision of the Act; or
• Twice the rate or rates in force

B. Section 206CCA:

It would be applicable for Non-filers of Income tax returns who would be charged a higher rate of TCS as below:

Higher of the following:

• Rate of 5%; or

• Twice the rate specified in the relevant provision of the Act

Company’s Goodwill shall not be considered as an Asset to be Depreciated and the depreciated value cannot be claimed while filing returns;

1. In case goodwill has been purchased the value of goodwill shall be added in the cost of acquisition and considered as a part of capital gain;
2. If depreciation has already been claimed then the amount of goodwill depreciated will be reduced from the purchase price of goodwill to arrive at the cost of acquisition.  

Reduction in Time Limit of Revised/ Late Returns:

• Revised/ late returns must be filed within 3 months of the relevant Assessment Year (AY), i.e., 31st December of AY. However, due to the current pandemic of Covid-19 the last date has been extended from 31st December 2021 to 31st January 2022.

Tax Audit under Section 44AB of Income Tax Act:

• It will not be applicable only for companies whose gross turnover/ receipts are below Rs. 10 crores provided their cash payments and receipts do not exceed 5% of their total payments and receipts.

•  LLP’s and HUF’s have been removed from the scope of the presumptive taxation regime.

• Non-resident E-commerce operators are exempt from paying 2% Equalization Levy on the value of goods/services provided by residents or non-residents having a permanent establishment in India.

• Companies failing to deposit employee’s contributions to Provident Fund on time would not be allowed to claim the same as a deduction.

• Dividend payment to Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) would be exempt from TDS

Related post: 10 Financial Strategies and Tips for Your Business in 2021

Income Tax rates for FY-2021-2022:

1. Domestic Companies:

 Surcharge – @ 7 % for income between Rs.1 crore and 10 crore

        –  @ 12 % for income above 10 crores

And, Health and Education cess @ 4% on income tax and surcharge

Special Tax Rates for Domestic Companies:

  Surcharge on income tax for companies opting for 115BAA and 115BAB is @10%

 And, Health and Education cess @ 4% on income tax and surcharge

2. Foreign Companies:

 Surcharge – @ 7 % for income between Rs.1 crore and 10 crore

        –  @ 12 % for income above 10 crores

 Health and Education cess @ 4% on income tax and surcharge

3. MAT

It is exempt for companies who have opted for special tax under sections 115BAA and 115BAB.

All businesses are liable to pay MAT @ 15% (plus Health and Education Cess) on their book profits.

Also, MAT @ 9% (plus surcharge and Health and Education Cess) is applicable for companies that are a unit of an International Financial Services Centre and generate their income only through convertible foreign exchange.

Key GST Changes for Financial Year 2021-2022:

• For companies with a turnover of 50 crores and more:
  • E-invoicing is now mandatory for all B2B (business to business) transactions &
  • The HSN Code (Harmonized System of Nomenclature) of 6-digit has to be mentioned on all B2B (business to business) and B2C (business to customer) tax invoices.
• Input tax credit on invoices can only be availed only if all the invoice-related details have been uploaded on the GST portal by the supplier.
• Manual GST audit and submission of reconciliation statements are not compulsory for FY 2021-2022.

Tax planning and Tax evasion are the two important concepts in tax planning. While tax evasion is a punishable offense, it is tax planning where strategy and professional help are required to compute and pay the tax that profits the corporates in the most legit manner. However, Diligen provides one of the best income tax consulting and advisory services to its clients.  At Diligen, our team of highly qualified and experienced tax planners is well versed with tax laws and understands a firm’s financial position for tax computation. Also, Our tax consultants at Diligen are updated with all the latest tax laws and ensure that all our clients are tax compliant and help clients in planning their taxes to avoid any penalties or notices from the income tax department. We provide our clients with the best tax planning services so that they fulfill their social responsibility and at the same time also take care of all their stakeholders’ needs.