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Finance Bill 2021 as passed by the Lok Sabha

The Lok Sabha has passed the Finance Bill 2021 on March 23, 2021. The Bill presented originally in the Lok Sabha on February 01, 2021, has not been passed in its original shape. More than 100 changes have been made in the Finance Bill 2021 as passed by the Lok Sabha. Some of the key amendments made in the Finance Bill 2021 have been discussed below:

Goodwill forming part of existing block of assets to be reduced from Written Down Value (‘WDV’)

The Finance Bill 2021 proposes to prohibit the depreciation on the goodwill. Further, it has been proposed that the ‘goodwill’ of a business or profession shall not be treated as an ‘intangible asset’. Though there was an ambiguity in respect of goodwill forming part of the existing block of assets. Finance Bill 2021 as passed by Lok Sabha makes the necessary amendments to provide that WDV of the block of assets shall be reduced by the actual cost of goodwill falling within such block of assets.

Fair Market Value (‘FMV’) of capital assets transferred under slump sale to be calculated in the prescribed manner

The existing provisions do not provide for the computation of the full value of consideration in relation to the transfer of the undertaking under a slump sale. The Finance Bill (Lok Sabha) provides that the FMV of the capital assets (being an undertaking or division transferred by way of slump sale) as on the date of transfer shall be calculated in the prescribed manner. Such FMV shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset.

Tax on Interest earned on Provident Fund (‘PF’) contribution exceeding INR 0.25 million or INR 0.5 million

The Finance Bill, 2021 proposed that no exemption shall be available for the interest income accrued during the previous year in the recognised and statutory provident fund to the extent it relates to the contribution made by the employees over INR 0.25 million in the previous year. This amendment is applicable from the assessment year 2022-23.

The Finance Bill (Lok Sabha) has added that if an employee is contributing to the fund but there is no contribution to such fund by the employer, then the interest income accrued during the previous year shall be taxable to the extent it relates to the contribution made by the employee to that fund in excess of INR 0.5 million in a financial year.

Tax on transfer of money or property by a firm/Association of Person (‘AOP’)/ Body of Individuals (‘BOI’) to its partners or members

Where any partner receives any amount or property on account of dissolution or reconstitution of the firm, the income-tax implications in such cases in the hands of a partner or the firm has always been a controversial matter with respect to consideration, a mechanism to compute income, re-valuation of property, etc. The Finance Bill (Lok Sabha) has addressed the aforesaid issues by inserting Section 9B, substituting Section 45(4) and inserting Section 48(iii) to the Income-tax Act, 1961.

The due date for filing of belated and revised ITR

The Finance Bill 2021 proposed amendments with effect from the assessment year 2021-22, to provide that the belated and revised return can be filed at any time within three months prior to the end of the relevant assessment year or before completion of the assessment, whichever is earlier. The Finance Bill (Lok Sabha) has redrafted the wordings of the proposed amendment although the intent remains the same. Thus, pursuant to the amendment, a belated and revised return in respect of the assessment year 2021-22 and subsequent assessment years can be filed up to December 31st of that assessment year.

Fee for default in furnishing return of income

The Finance Bill 2021 has proposed to reduce the time limit to file belated or revised returns of income, as the case may be, by 3 months (i.e. by 31st December of the relevant Assessment Year). As the last date cannot exceed December 31st, the higher late filing fees of INR 10,000 cannot be levied in any situation (applicable from January 1, to March 31 under the erstwhile provisions). The Finance Bill (Lok Sabha) has made a consequential amendment that the late-filing fee shall be INR 5,000. However, where the total income of a person does not exceed INR 0.5 million, the fee payable shall not exceed INR 1,000.

Performance of functions of Verification Unit

The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 inserted a new Section 144B, to provide the manner in which faceless assessments shall be conducted. The Finance Bill 2021 (Lok Sabha) has provided that the function of verification unit under this section may also be performed by a verification unit located in any other faceless centre set up under the provisions of this Act or under any scheme notified under the provisions of this Act. The request for verification may also be assigned by the National Faceless assessment centre to such a verification unit.

Pending Applications before Authority for Advance Rulings (‘AAR’)

The Finance Bill 2021 proposed that the AAR shall cease to operate with effect from such date, as may be notified by the Central Government in the Official Gazette. The Central Government has been empowered to constitute one or more Board for Advance Rulings for giving advance rulings on and after the notified date. The Finance Bill (Lok Sabha) changed the reference from an application filed under this Section to under this Chapter. Therefore, if an application is pending under Chapter XIX-B of the Income-tax Act in respect of which order under section 245R(2) or section 245R(4) has not been passed before the notified date shall be transferred to the Board for Advance Rulings.

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