Comparative Analysis of Direct Tax Amendments: Finance Bill, 2021 visavis Finance Act, 2021

Analysis of Direct Tax Amendments: Finance
Bill, 2021 vis-a-vis Finance Act, 2021
CA Divakar Vijayasarathy

📌 Presentation Schema
FAST-TRACKING FOREIGN
INVESTMENT AND EASING OF
NON-RESIDENT TAXATION
EXPLICATION OF PROVISIONS
RELATING TO INDIVIDUALS,
TRUSTS AND FIRMS
BOOST TO GIFT CITY
RATIONALISATION AND
CLARIFICATION OF PROVISIONS

FAST-TRACKING FOREIGN INVESTMENT AND EASING OF
NON-RESIDENT TAXATION

Meaning of “Liable to Tax”
•Meaning of “liable to tax” Sec 2(29A)- “Liable to tax”, in relation to a person, means that there
is a liability of tax on such person under any law for the time being in force in any country,
and shall include a case where subsequent to imposition of tax liability, an exemption has
been provided;
•The term has not been defined though it is used in Sec 6, 10(23FE), DTAAs u/s 90 and 90A
Amendment by
Finance Bill 2021
•The words “liability of tax under any law” has been substituted with the “income-tax liability”
Amendment made by
Lok Sabha
•The words “liability of tax under any law” has been substituted with the “income-tax liability”
Effect of Amendment

Exemption of Income of SWF/PF from AIF
•SWFs and Pension Funds would be provided exemption for long term capital gains if the investment
is in Category-I and Category-II AIF which has made 100% investment in infrastructure entities.
Where investment is less than 100% the exemption would be proportionately calculated.
Amendment by
Finance Bill 2021
•The exemption has been further extended if the Category-I and Category-II AIF has invested in
domestic companies owning 75% or more in infrastructure entities or in NBFCs registered as
International Finance Company or in Infrastructure Debt Funds having minimum 90% exposure to
infrastructure entities.
•Further, exemption shall be calculated proportionately even in the above cases where investment or
exposure is less than 100%
Amendment made
by Lok Sabha
•The amendment is in line with the infrastructure development goals of the country.
Effect of
Amendment

Equalization levy not applicable on goods received
by Permanent Establishment in India
•For the purpose of equalization levy, consideration for goods shall be taken irrespective of whether
the e-commerce operator owns the goods
Amendment by
Finance Bill 2021
•It is amended to not include consideration for goods which are owned by a person resident in India or
by a permanent establishment in India of a person who is a non-resident in India, if such sale of goods
is effectively connected with such permanent establishment.
Amendment made
by Lok Sabha

EXPLICATION OF PROVISIONS RELATING TO
INDIVIDUALS, TRUSTS AND FIRMS

Interest on EPF contribution not to be exempt
•Where employee’s contribution to any PF or RPF exceeds Rs. 2,50,000 in any
previous year on or after 1st April 2021, the interest income on such excess
contribution shall be taxable
Amendment by Finance Bill,
2021
•Where the employee is a sole contributor to the fund, without employer’s
contribution, then the interest on his contribution only in excess of Rs. 5,00,000
shall be taxable.
Amendment introduced in Lok-
Sabha
•The amendment provides relief to retired persons who contribute more and to
instances where there are no employer’s contribution
Effect of Lok-Sabha Amendment

Goodwill not to form part of Block of Assets
•It was clarified that goodwill of a business or profession will not be considered as a
depreciable asset.
2021
•Consequential amendment has been made for the purpose of computing WDV
whereby the cost of goodwill forming part of a block of assets shall be reduced
from the written down value of the block after reducing the depreciation actually
allowed and the depreciation that would have been allowed, till 31.03.2021.
Sabha
•The amendment is consequential in removing goodwill from the asset pool
available for depreciation.

Taxation of transfer of assets at the time of
reconstitution or dissolution of Firm/AOP/BOI
•Profits or gains arising out of receipt of any capital asset (representing capital account balance) or money
or any other assets (in excess of capital account balance) by a partner of a firm/ member of an AOP or BOI
at the time of dissolution or reconstitution, shall be chargeable as capital gains in the hands of the entity
viz. firm, AOP or BOI. Capital account balance to be considered without effect of revaluation or increase
due to self generated goodwill or self generated asset
Amendment by
Finance Bill, 2021
•“any other assets” has been removed from the ambit of capital gains taxation.
•Reference to “in excess of capital account balance” has been removed
•Capital gains shall be taxable as follows:- Value of money received + Fair market value (FMV) of asset –
amount of balance in capital account represented in any manner
•New Section 9B has been introduced to tax “stock in trade” received at the time of reconstitution as
“Profits & Gains from Business or Profession” (FMV of stock shall be full value of consideration)
•Further, consequential amendment has been made in Section 48 to provide that amount included as
capital gains income on account of Section 45(4) supra, shall be apportioned to the assets of the firm, in a
manner which is yet to be prescribed. The consequential amendment was required to ensure no double
taxation in the hands of firm when they subsequently sell assets in the future.
Amendment
introduced in Lok-
Sabha

•The erstwhile Section 45(4) (introduced by Finance Bill, 2021) included the event of “dissolution”;
however, the same has been removed now
•What if the payment to partners is made in tranches in multiple years after reconstitution and not in the
year of reconstitution, the section do not provide clarity in such scenarios
•The section says that the revaluation of assets has to be ignored while calculating the balance in capital
account; however, it is silent on revaluing the liabilities
•It is not clear whether the capital account balance envisaged Section 45(4) will include current account
balance or loan given by partners to the firm as the words used are “represented in any manner”
Anamolies in the
revised position
Contd…

Meaning of “Specified Fund” extended
•Previously, the meaning of “specified fund” included only Category III-AIFs
registered with SEBI.
•The definition was amended to include investment division of offshore banking
unit which is a Category III AIF or OBUs which has commenced its operations on or
before 31.03.2024
2021
•The definition has been amended to even include Category-III AIFs registered with
IFSCA Act, 2019.
•The said clause has been amended to provide exemption only to those OBUs
having Category I- FPI license provided by SEBI and which have commenced its
operations on or before 31.03.2024
Sabha
•With the establishment of IFSC Authority, financial services in IFSC are regulated by
IFSCA. The intention of the Act is to provide exemption to Cat-III funds set up in
IFSC.
•Moreover as per FPI regulations, only a Cat-I FPI can issue offshore derivative
instruments. The amendment therefore allows OBU units to issue offshore
derivative investments to overseas investors.

Income of non-resident from leasing of aircraft
to be exempt
•Income of a non-resident by way of royalty on account of leasing of aircraft to a
unit in IFSC shall be exempt only if unit is eligible for deduction u/s 80LA for that
pervious year and has commenced its operations on or before 31.03.2024
2021
•The clause is amended to exempt income of non-residents by way of interest as
well. Further, the requirement of eligibility of deduction in that particular year is
done away with.
•Further, aircraft has also been defined to mean helicopter or an engine of an
aircraft of helicopter, or any part thereof.
Sabha
•The exemption section has widened its ambit to include interest income as well.
Further, removing the requirement of eligibility in that particular year is a welcome
move.

Tax Holiday on income from transfer of leased
aircraft
•80LA benefit is available to income arising from transfer of leased aircraft by an
IFSC unit if it was leased to a domestic airlines company.
2021
•The benefit is now made available even if the aircraft is leased to any person other
than a domestic airlines company.
Sabha
•This is with an intent to build a wide base of aircraft leasing companies set up by
non-resident lessors in IFSC as 80% of the India’s aircrafts are leased

Relocation of Foreign Fund to IFSC
•Transfer of a capital asset in a relocation by original fund to a resulting fund is exempt
•Capital gains arising on any transfer by a stakeholder in a relocation of a capital asset being share or unit or
interest in original fund in consideration for share or unit or interest in the resultant fund is exempt
•Resultant fund shall mean a fund which has Category I/II/III AIF license as granted by SEBI
•Relocation meant transfer of assets of the original fund to a resultant fund on or before the 31st day of March,
2023, where consideration for such transfer is discharged in the form of share or unit or interest in the resulting
fund to the shareholder or unit holder or interest holder of the original fund in the same proportion in which the
share or unit or interest was held by such shareholder or unit holder or interest holder in such original fund
Amendment by
Finance Bill, 2021
•Resultant fund shall now additionally include Category I/II/III AIF license as granted under IFSC Authority Act,
2019
•“Relocation” means transfer of assets of the original fund, or of its wholly owned special purpose vehicle, to a
resultant fund on or before the 31st day of March, 2023, where consideration for such transfer is discharged in
the form of share or unit or interest in the resulting fund to, -
•Shareholder or unit holder or interest holder of the original fund, in the same proportion in which the share or
unit or interest was held by such shareholder or unit holder or interest holder in such original fund, in lieu of
their shares or units or interest in the original fund; or
•The original fund, in the same proportion as referred above, in respect of which the share or unit or interest is
not issued by resultant fund to its shareholder or unit holder or interest holder”.
Amendment
introduced in
Lok-Sabha

Contd…
•Exemption for capital gains arising in the hands of non-residents (investors in a foreign fund located in a treaty
country), arising on transfer of shares of a company resident in India, by a SEBI registered AIF located in IFSC
(hereinafter “resultant fund”) and such shares were initially transferred from the foreign fund (hereinafter
“original fund”) to the resultant fund on relocation, had they not been chargeable to tax in the absence of such
relocation
Amendment by
Finance Bill, 2021
•Exemption for capital gains arising in the hands of non-resident or a specified fund, on account of transfer of
shares of a company resident in India by a SEBI registered AIF located in IFSC (“resultant fund”) or a specified
fund to the extent attributable to units held by non-resident (not being a permanent establishment of a non-
resident in India) computed in the prescribed manner and such shares were initially transferred from the original
fund, or from its wholly owned special purpose vehicle, to the resultant fund on account of relocation, had they
not been chargeable to tax in the absence of such relocation
Amendment
introduced in
Lok-Sabha

•It shall be noted Section 10(23FF) provides exemption of capital gain income on transfer of shares of a
company resident in India to non resident or specified fund when “such shares were transferred from the
original fund, or from its wholly owned special purpose vehicle, to the resultant fund in relocation…..”.
•However, the exempted transfer which stipulates “any transfer, in relocation, of a capital asset by the
original fund to the resulting fund” does not explicitly provide exemption to transfer of capital assets in
“wholly owned special purpose vehicle of the original fund” to the resultant fund.
•However, it is pertinent to note that relocation definition includes transfer of assets of the original fund or
of its wholly owned special purpose vehicle, to a resultant fund. Hence, an ambiguity arises as to
whether going by the definition of “relocation”, transfer of capital asset by wholly owned special purpose
vehicle of the original fund to the resultant fund can be interpreted to be an exempted transfer or it shall
be subject to capital gains tax.
Effect of Lok-Sabha
Amendment
Contd…

Taxation of GDRs issued by an IFSC Offshore
Banking Unit
•Existing Provision: Section 115ACA – Taxation of GDR
•Global Depository Receipts" means any instrument in the form of a depository receipt or certificate (by
whatever name called) created by the Overseas Depository Bank outside India and issued to investors
against the issue of,—(i) ordinary shares of issuing company, being a company listed on a recognised stock
exchange in India; or (ii) foreign currency convertible bonds of issuing company;
Amendment by
Finance Bill, 2021
•Along with Overseas Depository Bank outside India, IFSC is additionally included within the ambit of Section
115ACA. Further, the scope of issue has been widened to include ordinary shares of issuing company, being
a company incorporated outside India, if such depository receipt or certificate is listed and traded on any
IFSC.
•Thus, income of an employee of an Indian company engaged in specified knowledge based industry or service
from GDRs issued under an ESOP by Overseas Depository Banks setup in IFSC shall also be calculated in the
same manner as in the case of GDRs issued by ODBs setup abroad.
Amendment
introduced in Lok-
Sabha
•The amendment streamlines the taxability of dividend and capital gains arising from GDRs issued by ODBs in
IFSC with those issued ODBs outside India.
Effect of Lok-Sabha
Amendment

RATIONALISATION AND CLARIFICATION OF PROVISIONS

S.
No
Amendment by Finance Bill, 2021 Amendment introduced in Lok-Sabha Ramification
1 Turnover limit for tax audit of accounts increased
from Rs. 5 crores to Rs. 10 crores provided all
cash receipts and payments during the PY do not
exceed 5%.
It is clarified that payment or receipt by a
cheque drawn on a bank or by a bank draft,
which is not account payee shall be
deemed to be a cash receipt or cash
payment
The amendment makes payment or receipt
through bearer cheques unviable.
2 Presumptive scheme for professionals u/s 44ADA
shall apply only to a resident individual, resident
HUF, resident partnership firm and shall not be
applicable to an LLP
The section has been further amended to
make it non-applicable to HUFs.
Only resident individuals and resident
partnership firms (excluding LLPs) are
eligible for presumptive scheme for
taxation.
3 No existing amendment Exemption has been provided to income of
an institution set up by CG for the purpose
of financing infrastructure and
development for a period of 10 consecutive
years from the year of set-up and income of
developmental financing institution
licensed by RBI for a period of 5
consecutive years from the year of set-up.
Note: CG can extend the exemption to 5
more years
The amendment welcomes the recent
approval by the Union Cabinet for setting
up Development Finance Institution (DFI)
in India to generate funds for investment
in the infrastructure sector.

S.
No
4 The due date of filing original return of income
for the partner of firm, which has undertaken
international transaction, extends to November
30
The said due date has been extended to
spouse of such partner if provisions of Sec
5A (Portuguese Civil Code) applies to such
spouse
The amendment is streamlined with Sec
5A which governs apportionment of
income between spouses governed by
Portuguese Civil Code
5 The due date for filing belated or revised return
of income is proposed to be earlier of the
following:
- ‘Within’ 3 months prior to the end of the
relevant AY or
- Before the completion of assessment
The words “within 3 months” have been
substituted with “before 3 months”
The substitution of the word ‘before’
instead of ‘within’ clarifies the intention of
the lawmakers to confirm the due date as
December 31st of the relevant AY.
6 Sec 147 has been substituted with a new section,
in line with the revamping of assessment
procedures.
In amended Sec 147, the word
“reassessment” has been substituted with
“reassessment or re-computation”
The amendment brings consistency across
various provisions in the Act.
7 New amendment The power to revise orders passed by AO
under any proceedings under this Act
which are prejudicial to the interest of the
Revenue have now been bestowed to
Principal Chief Commissioner and Chief
Commissioner in addition to Principal
Commissioner and Commissioner.
The amendment is made since any
reopening of case beyond a period of ten
years from the end of relevant AY now
requires prior approval from Principal
Chief Commissioner and Chief
Commissioner as per Section 151.

S.
No
8 Section 148 has been amended to include certain
events which would deem for AO to have
information that the income chargeable to tax
has escaped assessment
Searches done by income tax authorities for
the purpose of verifying TDS compliance or
in suspicion of higher income levels of the
assessee, indicated by certain events/
ceremonies conducted by the assessee, will
not mean that the AO has information on
income escaping assessment.
This would allay unnecessary difficulties
posed by the department to the assessee
9 As evident in the previous slide, events have been
mentioned which would deem for AO to have
information that income escaped assessment.
One such event was requisition of books of
accounts, documents, money, bullion or jewellery
in case of any other person, which belongs to
assessee
It is clarified that said requisition should be
mandatorily under Sec 132 (Search and
Seizure) or under Sec 132A (Power to
Requisition of books of accounts)
Requisition under search and seizure has
been given additional weightage for the
purpose of income escaping assessment
10 Substitution of new section for Sec 149 for issuing
notice for income escaping assessment – even
asset, represented in the form of income, are
included for the purpose of assessment for cases
falling under 3 to 10 years
It is clarified that asset shall include
immovable property, being land or building
or both, shares and securities, loans and
advances, deposits in bank account
The definition of asset provides more
clarification for reopening assessments
after 3 years have lapsed from the end of
the relevant AY but before 10 years.

S.
No
11 It is proposed to discontinue Income-tax
Settlement Commission (ITSC) and to constitute
Interim Board of settlement for pending cases.
ITSC shall cease to operate on or after 1st
February, 2021.
In respect of applications pending with the
Income Tax Settlement Commission and
withdrawn before 01.02.2021, the period of
limitation for assessment or re-assessment
or re-computation by AO shall not be less
than 1 year and if less than 1 year, it shall
be deemed to be extended to 1 year
The same time limit shall apply to time limit
for notice for income escaping assessment
and rectification of mistake.
The above two proposals shall also apply in
case of time limit for completion of
assessment in case of search or requisition.
The amendments align the existing
provisions with the Ministry’s proposal to
discontinue ITSC.
12 Authority of Advance Ruling (“AAR”) shall cease to
operate from a notified date and CG shall
constitute one or more Board for Advance Ruling
Consequential amendments have been
made in sections relating to time limit to
complete the assessments including that of
search or requisition, to include the words
“Board for Advance Ruling” along with the
the word “AAR”
Consequential amendment

S.
No
2021
Amendment introduced in Lok-Sabha Ramification
13 - Transfer of capital asset by India Infrastructure Finance
Company Limited (IIFCL) to an institution established for
financing the infrastructure and development, set up under an
Act of Parliament and notified by the Central Government for
the purposes of this clause, shall be exempt from capital gains
taxation. Further, consequential amendment has been made in
Section 49 so as to provide that cost of acquisition of any capital
asset, shall include cost of acquisition and improvement for
previous owner. Further, provisions of gift taxation shall not be
applicable for the aforesaid transfer.
The amendment is in line with the
infrastructure development goals of the
country.
14 - Transfer of a capital asset, under a plan approved by the Central
Government, by a public sector company to another public
sector company notified by the Central Government for the
purpose of this clause or to the Central Government or to a
State Government shall be exempt from capital gains taxation.
Further, consequential amendment has been made in Section
49 so as to provide that cost of acquisition of any capital asset,
shall include cost of acquisition and improvement for previous
owner. Further, provisions of gift taxation shall not be
applicable for the aforesaid transfer.
The amendment makes way to efficient
merger of PSUs in the future.

S.
No
15 Transfer of undertakings shall mean not
only by way of sale (i.e. that which
involves monetary consideration) but
shall also include any mode of transfer
defined under Section 2(47) such as
exchange, relinquishment, etc.
Fair market value of the capital asset, being the
undertaking or division, on the date of transfer,
calculated in the prescribed manner (yet to be notified)
shall be deemed to be the full value of consideration
received or accruing as a result of such transfer
(Amendment vide Finance Act, 2021). Though rules for
computation of fair value are yet to be notified,
reference could be made to Rule 11UA or Rule 11UAA.
Value of asset being goodwill of a business or profession
which has not been acquired by the assessee by
purchase from a previous owner shall be considered as
nil.
The amendments provide required
clarifications on computing capital
gains on slump sale.
16 Sec 115JB is proposed to be amended to
provide for the AO (on an application
made in this behalf) to recompute the
book profit of the past year and tax
payable during the PY, where past year
income is included in PY books of
account on account of APA or Secondary
adjustment.
Amendment shall be applicable only if the assesse has
not utilized the credit of tax paid under 115JB in any
subsequent assessment year under Section 115JAA
(availment of tax credit).
Further, the amendment shall be applicable only for A Ys
beginning on or before 01.04.2020 and no interest shall
be payable on refund arising out of the said re-
computation.

S.
No
Amendment by Finance Bill, 2021 Amendment introduced in Lok-Sabha Effect of Lok-Sabha Amendment
17 Existing Provision: Late filing fees for return
of income
- Rs. 5,000 if return is furnished on or
before 31st December of A Y and Rs.
10,000 in any other case
- Total Income not exceeding Rs. 5 lakhs,
the fees payable shall be Rs. 1,000
Late fees payable u/s 234F has been kept at flat
5,000 rupees.
The amendment allays the ambiguities
arising at the time of extension of
deadline. Under old provisions, the
assessee would have been liable to pay tax
even where the deadline is extended
beyond December 31st of the relevant AY.
18 New amendment >>> The Due date for intimating Aadhaar number u/s
139AA is 31.03.2021. Consequentially, any
person who intimates the aadhaar number after
due date shall pay a fee of Rs.1000 on doing so.
The fee is to urge Indian nationals to link
their Aadhaar number with PAN within the
stated deadline
19 ULIPs, for which the exemption under
Section 10(10D) is not available on account
of single premium or aggregate premium
exceeding Rs. 2,50,000 for any previous year,
shall be regarded as an equity oriented fund
While defining the equity oriented fund, the
condition of minimum investment requirement
of 90% in case fund invests in units of another
fund which is traded on a recognised stock
exchange) and 65% in any other case, while
classifying the capital asset as an equity-oriented
fund, is required to be satisfied throughout the
term of such insurance policy

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Comparative Analysis of Direct Tax Amendments: Finance Bill, 2021 visavis Finance Act, 2021

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