Reflections on the Union Budget 2021

Anil Harish looks at the nitty-gritty of this year’s Budget

Article 112(1) of the Constitution of India says, “The President shall in respect of every financial year, cause to be laid before both the Houses of Parliament, a Statement of the estimated receipts and expenditure of the Government of India for that year”.

The Budget is, accordingly, to be primarily an estimate of revenue and allocation of funds for expenditure.

Along with the Budget, amendments to the tax law are proposed, because tax is one of the important sources of revenue.

So, these forward-looking statements are mandated by the Constitution.

But I wish that the pattern could change. Instead of just a Statement of Estimates of Income and of how money will be allocated, we should have an Annual General Meeting for the country to inform us of what was planned to be done and what has actually been done.

This should be in terms of the activities and programmes as well as finances. We should be informed for example, of how many hospitals have been opened, how many more patients have been attended to, what is the position of schools and colleges, is the enrolment increasing, what is the quality of education being imparted, Social Welfare programmes etc.

Each Minister should show us his or her report card for the year and how the Ministry has fared in terms of quality and quantity of work and also the plans for the future.

We need to know, also, for instance, how the Nirbhaya Fund which was set up several years ago was used or misused, and also why 89% of the funds have not been used.

The Finance Minster should then give an overall picture of the finances, based on the working of the Ministries.

The need, therefore, is for accountability.

This year’s speech

We now come to this year’s Finance Speech. There is a big plan for disinvestment in this year. This is necessary, for, as Harold Wilson, former Prime Minster of the UK said, “The Treasury could not, with any marked success, run a fish and chips shop”!

Relief from filing income tax returns has been provided for senior citizens, but it is limited in scope and will benefit only a few

The Government wants to raise Rs 1,75,000 crore this year. One of the enterprises to be sold is Air India. We must note, however, that the plan to disinvest Air India has been discussed earlier, in the Budget Speech of 2019, in the Budget Speech of 2018 and even as far back as in the Budget Speech of 2001! It was then stated that Air India would be sold in that year. Unfortunately 20 years have passed and this has not happened and the tax payers are the ones who have to bear the brunt of the losses of the PSUs which the Government has not been able to manage well.

Another part of the Budget is the tax proposals. Finance Secretary Ajay Bhushan Pandey stated, “There is a need to get out of the mindset of tinkering with tax rates in every budget and tax stability will be achieved by keeping rates unchanged.” This is a good sentiment but should it not apply to the provisions of law as well? Even if the tax rates remain constant, if the provisions of law change, the desired stability is not achieved.

We have had an enormous number of amendments to the Income tax Act in the past two years and one day from February 1, 2019 upto February 1, 2021.

The number of amendments proposed or enacted is as under:-

2019 Finance Bill – 86

2019 Finance Bill No.2 – 67

2019 Taxation Laws Amendment Act – 8

2020 Finance Bills – 103

2020 Taxation and other laws (Relaxation and Amendment of certain provisions) Act, 2020 – approx. 40.

2021 Finance Bill – 78

This comes to a total of about 382 amendments proposed or enacted in just the last 2 years!


Key amendments

Let us consider some of the amendments proposed in this year’s Finance Bill.

Senior Citizens The proposal is that a person of more than 75 years of age, at any time during the financial year, who has income only from:

(a) Pension; and

(b) Interest from a specified bank, being the same bank in which the pension is deposited,

may file a Declaration with the bank and will then not have to file an Income-tax Return.

Please note however, the various conditions. This will not apply to every Scheduled Bank or every Nationalised Bank, but only to banks which have been specifically approved for this purpose.

Also, if a senior citizen has accounts in two or more banks, he or she will not be entitled to avoid filing returns. If the Senior Citizen has any income from shares or Mutual Funds, then also this exemption will not be available.

In any case, a Declaration will have to be given to the bank concerned and it will deduct the appropriate amount of tax and then the assessee will not have to file tax Returns.

The plan to dis-invest Air India has been discussed earlier, in the Budget speeches of 2019, 2018 and even as far back as 2001

This provision will, therefore, be very limited in scope and will affect just very few people.

Extension of period for Interest on Housing loans and Construction etc Under section 80EEA of the Act, if a person wished to take a loan to buy a first residential house, and the Stamp Duty valuation was upto Rs. 45 lakh, then a deduction of Rs. 1,50,000/- would be available on account of the interest, provided the loan was sanctioned before 31st March 2021. This date has now been extended to 31.3.2022. So, if the loan is sanctioned by 31.3.2022, the deduction on actual payment of interest will be allowed.

Builders get a tax free benefit in respect of profits from affordable housing projects subject to the conditions in sec.80-1BA. This section provides that the Plans had to be approved before 31.3.2021 and that the construction should be completed within 5 years thereafter. Now this date is being extended, so the Plans may be approved by 31.3.2022 and the construction has to be completed within 5 years thereafter.

This extension is now available for projects for residential rental housing projects also.

An extension such as this is good, because the Housing Sector, especially now on account of the Pandemic and Lockdown, needs support. However, the Housing shortage is not going to get over in just another year and such provisions should be extended indefinitely until such time as the situation changes and there is a substantial amount of housing available in the country. At present it appears that about half of Mumbai’s population lives in slums. So there is a great need for housing and affordable housing.

Safe Harbour for Real Estate There are certain provisions in the Income-tax Act which are very important and which ought to be understood, not only with reference to this year’s Budget, but even otherwise.

Sec.56 of the Income tax Act relates to income from “Other Sources”. This is the Residuary head for taxation, the other heads being “Salaries”, “Income from House Property”, “Profits from business or profession” and “Capital Gain”.

One of the components of sec.56 is that if a person receives a gift from a person other than a close relative, then that gift may be taxed in the hands of the recipient. This is subject to some exceptions.

One other component of this section is that if a person buys certain kinds of assets, such as Immovable Property and Shares at below the market value, then the amount of the “discount” can be taxed in the hands of the recipient.

We need a report card, for example of how many hospitals have been opened and how many more patients have been attended to

The amount of the discount will also be taxed in the hands of the Seller u/s. 43CA, sec.50C and sec.50CA, for example.

There is, however, a margin given and this is called a “safe harbour”.

Now, in certain circumstances, this safe harbour is to be increased.

So, the amendments proposed are to sec. 43CA and sec.56.

Sec.43CA provides that if a Developer of Real Estate sells a flat at below the Stamp Duty valuation, then such shortfall in consideration will be taxed in his hands, as if he had received the full amount of the Stamp Duty valuation. However, a margin of 10% has already been provided for. Now this safe harbour has increased to 20% but only in respect of-

(a) a property sold for a consideration of upto Rs. 2 crore;

(b) By the Developer;

(c) As a first time sale of that property;

(d) only June 30, 2021.

In such case, the safe harbour will be 20%, i.e. if the flat is sold for Rs. 2 crore and the Stamp Duty valuation is upto Rs. 2.4 crore then there will be no tax on the notional income.

If, however, the stamp duty valuation is more than 120% of the transaction value, then the entire difference will be taxed in the hands of the developer.

There will be a corresponding addition in the hands of the Purchaser u/s. 56.

TDS There are some important changes in relation to TDS.

Sec.206AB is now being introduced to say that if a person making payment has to deduct tax at source, and the Payee has not filed a tax return for the last 2 years, then the rate for deduction of tax will not be the normal rate but will be double the normal rate, or will be 5% whichever is higher.

So, if a person is paying interest to a lender or fees to a professional then it will be the duty of the payer to find out whether the other person has filed tax returns and if not, then the TDS will have to be at double the regular rate.

In certain circumstances, the safe harbour for real estate is to be increased

This can be an onerous task, because one will have to check from every payee whether the return has been filed or not.

TDS on purchases. Upto now TDS has been primarily on contracts, on services, on rent, interest etc. and not for purchase of goods. Now, if a business has sales turnover of more than Rs. 10 crore in a year and buys goods of more than Rs. 50 lakh from a particular supplier, then the excess over Rs. 50 lakh will be subject to TDS at 0.1%, under sec. 194Q.

Partnership Firm Sec.45(4) of the Income-tax Act already provides for taxation in the hands of a firm when there is a dissolution or reconstitution of a firm and if a Capital Asset has been given to the partner.

Now some changes are proposed in sec.45(4) and a new sub-sec.4A is being introduced to provide that not only a Capital Asset but even if money or other assets are handed over to a partner on dissolution or reconstitution, this can be taxable in the hands of the firm. One must therefore be careful and take proper advice before effecting a dissolution or reconstitution of a partnership firm.

Advance Tax There is a benefit proposed here. Under sec. 234C of the Act, interest is payable on shortfall in payment of Advance-tax. The instalments of Advance-tax are to be paid by June 15, September 15, December 15 and March 15 of every financial year and one would have to predict one’s income in order to be able to pay Advance-tax properly.

Dividend from other companies is not predictable and therefore if a person were to receive dividend at the end of the year and had not paid Advance-tax on that dividend in the earlier instalments, one would be liable for Interest under Sec. 234C.

Now the law is to be amended to say that dividend will be subject to Advance-tax only after it is received and need not be taken into account in the earlier instalments.

If, therefore, a company declares a dividend on say October 20, then the advance-tax with reference to that amount of dividend will have to be paid only in instalments by December 15 and March 15, and the dividend will not be taken into account or treated as shortfall for the instalments of June 15 and September 15.

This is a provision which is helpful to assessees.

Reopening Certain changes are proposed in the matter of reopening of assessments. Now there will be 3 periods within which reopening can be carried out, in various circumstances.

(a) In some cases, reopening can be done only within 3 years of the end of the Asst. Year;

(b) If the income or asset which has escaped assessment is more than Rs. 50 lakh, then reopening can be done within 6 years from the end of the Asst. Year;

(c) If any income from foreign sources is deemed to have been concealed the reopening can be within 16 years from the end of the Asst. Year.

An important change being made is that an assessment can be reopened only if there is evidence and not merely on the basis of suspicion.

Time limit for Completing assessments. Assessments now will have to be completed within 9 months from the end of the Asst. Year. So, for F.Y.2020-2021 relating to Asst. Year 2021-21, the assessment will have to be completed by 31st Deemb4er 2022.

This shorter period is good because matters get completed and do not remain pending for long.

Faceless Appeals before the Tribunal The concept of faceless assessments has already been introduced a couple of years ago. An assessee would file a return but the notice for enquiry could come from any Officer in the country and not necessarily an Officer from the same city. Accordingly the queries have to be communicated well by the Officers and a proper reply is to be given by the assessee.

There are certain circumstances in which a hearing could be useful but on the whole this is an effective process.

The first appeal before the CIT(A) is also now being taken up on a faceless basis, to some extent.

It is now proposed to do this even for appeals to the Tribunal. Rules will be formulated in the next 2 years, i.e. by 31.3.2023. The merits of this system will have to be considered. In fact the right to a hearing is considered as one of the cardinal principles of law and is termed as a rule of “Natural Justice”. Therefore, if hearings are not provided for and there is only the submission of documents, it may happen that the nuances of the issues are missed out and this can lead to wrong judgments.

So this matter should be carefully considered and while the concept of Faceless Appeals may be implemented on a trial basis it should be optional for an assessee to have an oral hearing or just to submit documents.

There was a need for relief to the tourism sector, as hotels and restaurants have taken a big hit due to Covid, but this
did not happen

Overseas Retirement Funds This amendment may be useful for some persons who have come back from overseas and have retirement funds outside India. For example, in the USA, a person may have a Retirement fund. This is known as a 401(K) Fund. When an assessee is earning substantial amounts, he can deposit money into the 401(K) Fund. This remains exempt until he reaches a certain age, say 66 years or so, from the US point of view. If he were to withdraw the funds before that date he would be taxable in the US, but if he does not withdraw till the specified age then the income in his hands is exempt from US tax.

However, if a person had opened a 401(K) Account while he was in the USA and then has come back to India and continues to retain his funds in the US, and the fund earns income by way of Dividend or Capital Gain, while it is exempt in the US it would be taxable in India, even if the assessee has not actually drawn out any money from the fund.

A new provision is proposed to be introduced to say that the money will not be taxable in India and India will follow the Overseas Rules for taxation in the case of a retirement fund.


In this year of the lockdown it was expected that the Government may want to levy a Covid tax or may reintroduce Wealth tax and Estate Duty.

Luckily this has not happened.

There was need, however, for some relief to other sectors such as, tourism, because hotels and restaurants have suffered tremendously. This could have been in the form of a reduction in GST.

We do have to be grateful for the fact that taxes have not been increased, but on the other hand taxes have not been reduced either. So we have to approach this philosophically and take it as it comes!


The material contained here is brief and contains generalisations, and is only illustrative. Legal opinion and tax advice must be taken.


Anil Harish specialises in corporate law, property and taxation, and is also involved in other institutions in the legal field such as the Society of Indian Law Firms, the Committee on Dispute Resolution of the Confederation of Indian Industry, the magazine Property Scape and the Accommodation Times Institute of Real Estate Management.

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