Introduction

CBDT has notified the ITR forms applicable for the A.Y 2021-22 vide Notification No. 21/2021, dated 31/03/2021. Considering the Covid-19 pandemic, there are no significant changes in the ITR forms as compared to the previous year forms and most of the changes are to give effect to the amendments made in the Finance Acts and to bring out more transparency in the returns.

Scope – The writeup covers the amendment relating to computation and filing of income tax returns and does not cover amendment relating to TDS/TCS/Equalization levy.

Crucial Amendments applicable from the A.Y 2021-22

• Abolishing the Dividend Distribution Tax (DDT) and shifting tax liability of dividends in the hands of shareholders

Hitherto, companies distributing dividends to shareholders carried the burden of paying a dividend distribution tax of 15% on those dividends (after taking into account the surcharge and cess, the effective rate was in fact 20.56%). Such dividend income was exempt in the hands of the respective shareholders. The DDT has been abolished and thus from the A.Y 2021-22 dividend income is taxable in the hands of the shareholders at the respective applicable tax rates depending on the status and income of the shareholder.

As dividend income is taxable in hands of recipient shareholders, various provisions of IT Act have been amended and accordingly even the ITR forms have been updated to incorporate the changes. Earlier Schedule OS (in Income from Other Sources) required disclosure of dividend income only which is taxable in the hands of taxpayer i.e., Dividend income taxable u/s 115BBDA. With abolishment of DDT, section 115BBDA shall not be applicable for dividend declared on or after 31/03/2020. Now, in the ITR forms of the A.Y 2021-22, Schedule OS has been updated to include disclosure of dividend income u/s 2(22)(e) and other dividend income. Further, quarterly break up of dividend income is also required in order to calculate interest u/s 234C.

Section 10(34) of the IT Act has been amended to provide a much needed clarification where dividend is declared and DDT is paid by the domestic company on or before 31/03/2020 but received by the shareholder on or after April 1, 2020 and hence there should no incidence od double taxation.

Further, Section 57 of the IT Act has been amended to allow a taxpayer to claim a deduction of interest expenses incurred in connection with earning dividend income subject to a maximum limit of 20% of the gross dividend income. New proviso to section 57 is also added which states that no deduction of any expenditure other than interest (subject to limit) shall be allowed from dividend income or income from Mutual Fund specified u/s 10(23D) or income from units from a specified company defined in explanation to section 10(35). Further, disclosure of interest expense claimed against dividend income is to be reported separately in the ITR forms.

• No depreciation on goodwill of business or profession and change in WDV of 25% block of asset

Goodwill of a business or profession was not specifically provided as an asset either in the definition of block of asset under section 2(11) or under section 32 of the IT Act relating to depreciation. The question whether goodwill of a business is an asset within the meaning of section 32 of the IT Act and whether depreciation on goodwill is allowable is an issue which came up before Hon’ble Supreme Court in case of Smiff Securities Ltd 348 ITR 302, where Hon’ble Supreme Court held that goodwill of a business or profession is a depreciable asset under section 32 of the IT Act.

Thus, till the A.Y 2020-21, Goodwill of a business or profession was considered to be a depreciable asset in various judicial pronouncements including that of Smiff Securities Ltd 348 ITR 302 (Supreme Court). However, Finance Act, 2021 with immediate effect from A.Y 2021-22, has amended various provisions of the IT Act to provide that goodwill of a business or profession would not be considered as a depreciable asset and accordingly no depreciation will be allowed on goodwill from A.Y 2021-22 and onwards.

Finance Act, 2021 has made necessary amendments in section 43(6)(c) of the IT Act to provide that the Written Down Value of block of assets shall be reduced by the actual cost of goodwill falling within such block of asset. However, the actual cost of goodwill shall first be reduced by the:

1. Amount of depreciation actually allowed to the assessee for such goodwill before the Assessment Year 1988-89, and

2. Amount of depreciation that would have been allowable to the assessee from the Assessment Year 1988-89 as if the goodwill was the only asset in the relevant block of assets.

It should be noted that while computing the WDV for the assessment year 2021-22, if the depreciation was claimed on the goodwill forming part of the block of assets in the immediately preceding previous year, the amount of reduction calculated above shall not exceed the WDV of the block of assets.

Although the amendment is made applicable from the F.Y 2020-21, the same was announced on 01/02/2021 and by that time many taxpayers would have already paid their advance tax liability for first three quarters by considering the claim of depreciation on goodwill based on numerous favourable pronouncements wherein it is held that depreciation on goodwill is allowed. Now given the fact that the amendment was announced on 01/02/2021 i.e., almost after the year gone by, in such circumstances a question may arise whether the assessee is liable to pay interest under section 234C of the IT Act for the default in payment of advance taxes. In case of CIT v. National Dairy Development Board [2017] 83 taxmann.com 109, Gujurat High Court has held that interest u/s 234C should not be levied on increase in advance tax liability on account of retrospective amendment. Hence, clarification from CBDT in this regards would be appreciated by the taxpayers or in absence, a detailed examination of liability of interest u/s 234C under the circumstances would be required.

The Minimum Alternate Tax (MAT) provisions are not amended and hence if depreciation is debited to the profit and loss account of the taxpayer in accordance with the accounting policies and standards then there is no requirement of adding back the depreciation while computing book profits under section 115JB of the IT Act.

Special provision for computation of capital gains in case of transfer of Goodwill where depreciation was claimed by taxpayer

Under the special provisions for computation of capital gains in case of depreciable assets, a new proviso has been inserted to section 50(2) that the CBDT may prescribed a manner to determine the WDV of the block of asset and short term capital gain if goodwill is forming part of block of asset and depreciation has been claimed on it.

Section 55 of the IT Act which provides for cost of acquisition for computation of capital gains, has been amended to provide that in relation to a capital asset being a goodwill of a business or profession, in respect of which depreciation is claimed by the taxpayer in the years prior to A.Y 2021-22, then the total depreciation claimed as a deduction should be reduced from the amount of cost of acquisition.

• Change in definition of Slump Sale and manner of calculation of Gains thereon

The term slump sale has been defined to mean the transfer of one or more undertakings as a result of sale for lump sum consideration without value being assigned to individual assets and liabilities in such cases. Section 50B of the IT Act provides for computation of capital gains in case of slump sale as Actual monetary consideration receivable – Net worth of the undertaking.

Now from A.Y 2021-22, the definition of slump sale has been amended to mean the transfer of one or more undertaking by any means for a lump sum consideration without value being assigned to individual assets and liabilities in such transfer. Thus now slump sale may include all types of transfer such as sale, exchange, relinquishment and extinguishment of rights.

Section 50B of the IT Act has also been amended with immediate effect from A.Y 2021-22, to provide that the fair market value 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. Pursuant to this amendment, Rule 11UAE has been inserted in the IT Rules, 1962 vide Notification dated 24/05/2021.

The issue therefore arises from which assessment year the amended provisions will be applicable? One can surely argue that the amended provisions cannot apply to A.Y 2021-22 for the reason that there was no prescribed manner in the relevant previous year till 31/01/2021. Moreover sale of undertaking which has taken place in the FY 20-21, especially prior to 01/02/21 should not be subject to amended provisions as no such provisions were in force at the relevant time. Therefore taxpayer may claim that the profit on sale of undertaking has to be determined as per earlier provisions. In this regards, reference may be drawn to the Supreme Court decision in case of Essar Teleholdings Limited [401 ITR 445], wherein it was held that the applicability of the provisions of section would come into force in the year in which such rules or method are prescribed. Furthermore, the prescribed rules determine fair market value on the basis of individual assets is contrary to the scope of provisions of section 50B of the IT Act as slump sale refers to transfer of undertaking without values being assigned to the individual assets and liabilities.

• Employees contribution to a fund not covered u/s 43B

Based on various judicial decisions, deduction of employee’s contribution to provident fund or superannuation fund or any other employee welfare fund was claimed as allowable if such payment was made by employer on or before the due date for filing its return of income.

Decisions in favour of Assessee

• In case of PCIT v. Rajasthan State Beverages Corporation Ltd (2017) 84 taxmann.com 185(SC), the Hon’ble Supreme Court has dismissed the SLP filed by the Income Tax Department holding that amount claimed on payment of Provident fund having been deposited on or before the due date of filing of returns could not be disallowed u/s 43B r.w.s 36(1)(va).

• In case of CIT v. Ghatge Patil Transports Ltd (2015) 53 taxmann.com 141, Hon’ble Bombay High Court has held that both employees and employer contribution to employee welfare funds are covered u/s 43B and hence same is allowable if deposited on or before the due date of filing of return of income.

• Similar verdicts have also been given by Delhi High Court and Jammu & Kashmir High Court in case of CIT v. Aimil Ltd [2010] 188 taxman 265 and Kashmir Tubes v. ITO [2017] taxmann.com 299 respectively. Even Mumbai Tribunal and Kolkata Tribunal has followed the above mentioned pronouncements.

Decision in favour of Revenue

• In case of PCIT v. Suzlon Energy Ltd [2020] 115 taxmann.com 340 Hon’ble Gujarat High Court disallowed employees contribution towards PF as the same was not deposited within the due date as prescribed under the PF Act.

In light of the above, there was uncertainty with regards to applicability of section under which the claim of deduction with respect to the employee’s contribution to various welfare Fund is allowed to the employers. The Finance Act, 2021 with immediate effect from A.Y 2021-22 has amended provisions of section 43B and section 36(1)(va) of the IT Act to provide that the said deduction shall be allowed to the employer only and only if the employer makes the payment of such employee contribution in the respective funds on or before the due prescribed under the relevant Act / Rule / Notification. Hence even if there is a delay in making payment of the employee’s contribution by one day, the deduction could be lost forever.

• Change in Residential status for person of Indian origin

Residential status of an individual is of utmost importance since it determines the scope of taxable income under the IT Act. Types of status–

1. Residential and Ordinarily Resident in India [ROR]

2. Resident but not ordinarily Resident in India [RNOR] and

3. Non Resident in India [NR]

The residential status is determined primarily by number of days’ stay of an individual in India along with other prescribed conditions.

Earlier Indian citizens or persons of Indian Origin (person who himself or any of his parents or any of his grandparents was born in Undivided India before 15th August, 1947) coming to India for a visit were considered residents only if their stay in a financial year was 182 days or more.

Now with effect from A.Y 2021-22 such individuals may become a resident of India if any one of the following condition is satisfied:

• Stay in India > 182 days in Financial Year

• Stay in India > 120 days in Financial Year and > 365 days in prior 4 Financial years and Indian income* is above ₹ 15 Lakhs in a Financial Year

However, individuals who become resident since their stay is 120 days or more but less than 182 days as per above condition have been accorded status of RNOR.

Deemed Indian Resident

With the existing tax laws, it is possible for an individual to arrange his business affairs in such a fashion that he is not liable to tax in any country or jurisdiction during a year.

Keeping this in mind, the Finance Act 2020 with effect from A.Y 2021-22 has made an amendment to provide that ‘’Any Indian citizen having Indian income* above ₹ 15 lakhs in any financial year would be deemed to be a resident in India if he is not liable to tax in any other country by way of residence or domicile or any other criteria.’’ However, such deemed Indian residents shall be treated as RNOR.

*Indian income shall also include foreign income derived from business controlled in or profession set up in India.

• Tax on receipt of money or capital asset by partner in connection with reconstitution of firm/AOP/BOI

The Finance Act, 2021 has amended provisions of section 45(4) of the IT Act to provide that where a partner/member receives during the previous year any capital asset or money or both from a firm/AOP/BOI in connection with the reconstitution of the firm/AOP/BOI then any profits and gains arising from such receipt of money by the partner/member shall be deemed to be the income of the firm/AOP/BOI under the head Capital Gains of the previous year in which such capital asset or money or both were received by the partner/member. The profits and gains shall be computed in accordance with the following formula;

A = B + C – D

A = Income chargeable to income-tax under this provision as income of the firm/AOP/BOI under the head capital gains;

B = Value of money received by partner/member on the date of such receipt;

C = Fair market value of the capital asset received by the partner/member on the date of such receipt; and

D = Balance in the capital account of the partner/member in the books of accounts of the firm at the time of reconstitution.

Where the value of A is negative, it shall be deemed to be nil.

While computing the balance in the capital account of partner in the books of accounts of firm, increase in capital account due to the following shall not be taken into account:

1. Revaluation of any asset;

2. Self-generated goodwill (goodwill acquired without incurring any cost for purchase or which has been generated during the course of business or profession);

3. Other self-generated assets.

Reconstitution of the firm/AOP/BOI means:

1. One or more of its partners or members ceases to be partner or members;

2. One or more new partners or members are admitted. However, at least one existing partner or member should continue to be partner or member of the specified entity after admission of the new partner(s) or member(s); or

3. All the partners or members continue with change in their respective share or in share of some of them.

• Income on receipt of capital asset or stock in trade by a partner/member from a firm /AOP/BOI

Section 9B of the IT Act has been inserted which provides that where a partner receives during the previous year any capital asset or stock in trade or both from a specified entity in connection with the dissolution or reconstitution of such entity, then the entity shall be deemed to have transferred such capital asset or stock in trade or both, as the case may be, to the partner/member in the year in which such capital asset or stock in trade or both is received by the partner/member.

Further, it provides that any profits and gains arising from such deemed transfer of capital asset or stock in trade or both, as the case may be, by the specified entity shall be deemed to be the income of the specified entity of the previous year in which stock or capital asset were received by the partner and chargeable to income tax under the head Business or Profession or Capital gains in accordance with the provisions of IT Act.

Moreover, the fair market value of the capital asset or stock in trade on the date of its receipt by the partner shall be deemed to be the full value of consideration while computing profits and gains arising from deemed transfer.

The term specified entity and specified person are defined as under;

1. “Specified entity” means a firm or other Association of Persons (AOP) or Body of Individuals (BOI), not being a company or a co-operative society.

2. “Specified person” means a person who is a partner of a firm or member of other AOP or BOI (not being a company or a co-operative society) in any previous year.

Calculation of capital gain under section 9B could be as follows:

Particulars	Amount
Full value of consideration received or accrued (FMV of Capital Asset)	XXX
Less: a) Expenditure incurred wholly in connection with transfer b) Cost of acquisition / Indexed cost of acquisition c) Cost of improvement / Indexed cost of improvement d) Amount chargeable to tax as income of firm u/s 45(4) which is attributable to capital asset being transferred by the entity e) Exemption u/s 54 to 54GB (if available)	(XXX)
Income taxable under the head Capital Gains	XXX

• Alternate Tax regime for Individuals/HUFs under section 115BAC

From the A.Y 2021-22, Individuals and HUFs have an option of opting for the alternate tax regime under section 115BAC of the IT Act. The said option has to be exercised before the due date of filing the return of income u/s 139(1).

Following table shows the new slab rates under section 115BAC:

Total Income	Tax Rate
Up to ₹ 2.5 lakh	Exempt
Above ₹ 2.5 lakh to ₹ 5 lakh	5%
Above ₹ 5 lakh to ₹ 7.5 lakh	10%
Above ₹ 7.5 lakh to ₹ 10 lakh	15%
Above ₹ 10 lakh to ₹ 12.5 lakh	20%
Above ₹ 12.5 lakh to ₹ 15 lakh	25%
Above ₹ 15 lakh	30%

Note 1:

• The option u/s 115BAC can be opted every year in case of Individual/HUF not having business/professional income. In other case, once such option is exercised it can be withdrawn only once in subsequent year unless such Individual/HUF ceases to have business/professional Income.

• Alternate Minimum Tax (AMT) provisions will not be applicable if one opts for Section 115BAC.

• In order to opt for new regime, individual/ HUF shall have to opt for the same and file the return of income within the due date prescribed u/s 139(1).

• The individual/HUF will not be able to set off any loss from house property against any other head of income. However the said loss can be carried forward to the subsequent years as per the extant provisions.

• In case one opts to pay tax under the new tax regime, certain exemptions and deductions cannot be claimed (Refer Note 2).

• The individual/HUF will not be able to set-off any loss brought forward or depreciation attributable to exemptions/deductions mentioned in Note 2 below. Though set-off of loss of earlier years on account of unabsorbed depreciation is not allowed, corresponding adjustment in WDV of such block of assets shall be allowed.

• Form 10-IE has to be furnished electronically by the assessee before filing the return of income u/s 139(1).

Note 2:

• In case one opts to pay tax under the new tax regime, the following exemptions and deductions cannot be claimed:

  1. Leave travel concession u/s 10(5)- applicable for persons in employment

  2. House rent allowance u/s 10(13A) – applicable for persons in employment

  3. Allowances u/s 10(14) – applicable for persons in employment other than:

     1. Transport allowance to divyang employee commuting between residence and office

     2. Conveyance allowance to meet expenses during conveyance on duty

     3. Any allowance to meet cost of travel on tour or transfer

     4. Daily allowance on account of absence from normal place of duty

  4. Standard deduction (INR 50,000), deduction for entertainment allowance and profession tax u/s 16 against salary income

  5. Allowances to MPs/MLAs u/s 10(17)

  6. Allowance for income of minor u/s 10(32)

  7. Exemption for SEZ units u/s 10AA

  8. Interest on loan taken for self-occupied or vacant property u/s 24

  9. Additional depreciation u/s 32(1)(iia)

  10. Donations or expenditure on scientific research u/s 35(1)(ii), 35(1)(iia), 35(1)(iii), 35(2AA)

  11. Deductions u/s 32AD, 33AB, 33ABA, 35AD, 35CCC applicable to business income

  12. Family pension u/s 57(iia)

  13. Any deduction under Chapter VI-A such as life insurance premium, investment in PPF, ELSS, repayment of housing loan, mediclaim premium, donations, deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc other than
      contribution to pension scheme u/s 80CCD(2), deduction in respect of new employees u/s 80JJAA and income of unit in IFSC u/s 80LA(1A).

• Alternate Tax regime for Co-operative Society under section 115BAD

From the A.Y 2021-22, Co-operative societies have an option of opting for the alternate tax regime under section 115BAD of the IT Act. The said option has to be exercised before the due date of filing the return of income u/s 139(1).

The income-tax payable by a co-operative society under this regime is 22% and Surcharge at the rate of 10% and Education Cess of 4% on the total income without any basic exemption limit.

Conditions for availing benefit under this regime:

1) The total income of the co-operative society should be computed without claiming the following deduction/exemption/incentives:

• Section 10AA – Deduction for units established in Special Economic Zones

• Section 32(1)(iia) – Additional depreciation

• Section 32AD – Deduction for investment in new plant and machinery in notified backward areas

• Section 33AB – Deduction in respect of tea, coffee or rubber business

• Section 33ABA – Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India

• Section 35(1)(ii), Section 35(1)(iia), Section 35(1)(iii) and Section 35(2AA) – Scientific research deductions

• Section 35AD – Deduction in respect of capital expenditure incurred in respect of certain specified business i.e., Cold chain facility, warehousing facility etc

• Section 35CCC – Deduction for expenditure on agriculture extension project

• Chapter VI-A deductions except deduction u/s 80JJAA

2) The co-operative societies shall not be allowed to set off brought forward losses or depreciation from any earlier assessment years if such loss is attributable to the deductions mentioned above. Though set-off of loss of earlier years on account of unabsorbed depreciation is not allowed, corresponding adjustment in WDV of such block of assets shall be allowed.

3) This option once exercised should be followed in all subsequent years.

4) Form 10-IF has to be furnished electronically by the resident co-operative society before filing the return of income u/s 139(1).

• Increase in safe harbour limit for section 43CA, Section 50C and Section 56(2)(X)

Section 43CA deals with scenarios where consideration received for transfer of land or building, other than capital asset, is less than value adopted for stamp duty valuation. Similarly, Section 50C deals when land and building is transferred as capital asset. As per provisions of both sections, in such case, value assessed by stamp duty authority is considered as a sales consideration for Income Tax Act. However, if the value assessed by stamp duty authority does not exceed 105% of sales consideration then actual consideration shall be considered as sales consideration.

In the A.Y 2020-21, if the difference between the consideration and the stamp duty value of the asset being land or building or both is not more than 5%, then the difference was supposed to be ignored. The tolerance limit of 5% has been increased to 10% with effect from the A.Y 2021-22 and onwards. Therefore from 1st April 2020 onwards, the stamp duty value(SDV) of the asset being land or building or both will be considered as full value of consideration only if the SDV exceeds 110% of the consideration.

Higher safe harbour limit of 20% for new residential properties transferred by Builders and Developers subject to conditions

The aforesaid tolerance limit of 10% is increased to 20% in case of sale of residential properties by a person engaged in the business of real estate business, if following conditions are satisfied:

• Transfer takes place between 12/11/2020 to 30/06/2021

• Consideration receivable is up to 2 Crores

• Transfer is by way of first time allotment of the independent residential property

Consequential amendment is also made under section 56(2)(x) of the IT Act to provide that if an assessee purchases new residential property from a builder and above mentioned conditions are satisfied then the tolerance limit is increased from 10% to 20%.

• Increase in threshold limit for tax audit u/s 44AB

If a person carrying on business is required to get its books of accounts audited if total sales, turnover or gross receipts from the business during the previous year exceeds ₹ 1 Crores.

In order to encourage digital transactions and reduce compliance burden for small and medium enterprises, the Finance Act, 2020 had increased the threshold limit of turnover from ₹ 1 Crore to ₹ 5 Crores (wef A.Y 2020-21) if the following conditions are satisfied:

• All receipts in cash during the previous year does not exceeds 5% of such receipts.

• All payments in cash during the previous year does not exceeds 5% of such payments.

The threshold limit of ₹ 5 Crores has been further extended to ₹ 10 Crores by Finance Act, 2021 with immediate effect from A.Y 2021-22.

• HUFs and LLPs not eligible for presumptive taxation u/s 44ADA

Section 44ADA provides for computation of profit and gains of profession on a presumptive basis. It applies to an assessee engaged in the specified profession u/s 44AA(1) and resident in India. Under the presumptive taxation scheme, the assessee computes the taxable income on a presumptive basis if gross receipts of the profession do not exceed ₹ 50 lakhs during the year. The presumptive income shall be 50% of total receipts of the year from such a profession.

Till A.Y 2020-21, there was no explicit prohibition on the companies, LLP or HUF to compute their professional income under presumptive scheme under section 44ADA.

However, Finance Act, 2021 has amended the provisions of section 44ADA with effect from A.Y 2021-22, and accordingly LLP, HUFs, Company, AOP, BOI shall not be eligible to claim the benefit under section 44ADA.

• Exemption for Leave Travel Concession Cash Scheme u/s 10(5)

Section 10(5) of the Act provides for exemption in respect of the value of travel concession or assistance received by or due to an employee from his employer for himself and his family, in connection with his proceeding on leave to any place in India. In view of the situation arising out of outbreak of Covid-19 pandemic, Finance Act, 2021 has provided tax exemption to cash allowance in lieu of travel concession.

For A.Y.2021-22, a new proviso in clause 5 of section 10 is inserted so as to provide that, for the assessment year beginning on the 1st day of April, 2021, the value in lieu of any travel concession or assistance received by, or due to, an individual shall also be exempt under this clause subject to fulfilment of the following conditions:

• Employee or a member of family of the employee during the period 12/10/2020 to 31/03/2021 actually spends the allowance received on goods and services which are liable to tax at an aggregate rate of 12% or above under GST laws and the goods are purchased or services are procured from GST registered vendors or service providers.

• The payment to GST registered dealer is made though proper banking channels and tax invoice is obtained from such dealer.

• The amount of exemption shall not exceed 36,000 per person or one-third of the total expenditure, whichever is less.

• Allowance of total interest expense payable to PE of Non Resident bank

As per section 94B of the IT Act, interest expense exceeding ₹ 1 Crore payable to an associated enterprise for a debt by an Indian Company or permanent establishment of foreign company, is allowable to the extent of 30% of Earnings before Interest, Taxes, Depreciation and Amortization.

With effect from A.Y 2021-22, the above provision is not applicable to interest paid/payable to lender which is permanent establishment of non-resident bank in India.

• Re-computation of past year’s book profit pursuant to APA and Secondary adjustment

To provide relief to the taxpayers affected due to the outcome of Advance Pricing Agreement (APA) and Secondary Adjustment, the Finance Act, 2021 has inserted a new sub-section (2D) to Section 115JB. As per this provision, the Assessing Officer, on an application made by the assessee, shall re-compute the book profit of the past years and tax payable thereon if assessee’s current year’s income has increased due to APA or secondary adjustment. The CBDT may notify the manner for re-computing the book profits of past years by the Assessing Officer.

The benefit of re-computation of book profit under section 115(2D) shall be available only if the assessee has not utilised the MAT credit in any subsequent Assessment Year.

It is also provided that the assessee can make an application for re-computation of book profit only for the past years beginning on or before Assessment Year 2020-21.

• No Chapter VI-A deductions other than 80JJAA and 80M available to companies opting for alternate tax regime u/s 115BAA/115BAB

While computing total income of a company opting for taxation under section 115BAA/115BAB for the A.Y 2020-21, Chapter VI-A deduction under the heading C.-Deductions in respect of certain incomes other than provisions of section 80JJAA was not available. From the A.Y 2021-22 and onwards, even the Part B- Deductions in respect of certain payments under Chapter VI-A (which includes section 80C to 80GGC) would not be available while computing total income of the companies opting for section 115BAA/115BAB. However, deduction under section 80JJAA and Section 80M would be available while computing total income of such companies.

Other key changes in the ITR forms

• Effect of marginal relief to be disclosed in the ITR

Marginal relief is allowed when taxable income is beyond the threshold limit after which surcharge is payable, but the net income in excess of threshold limit is less than the amount of surcharge.

Earlier no separate effect of marginal relief was required to be shown in the ITR. Now, the ITR forms for A.Y.2021-22 have been amended which requires the special disclosure of ‘surcharge computed before marginal relief’ and ‘surcharge computed after marginal relief’.

• Disclosure of deferred tax amount pursuant to deferment of tax on ESOPs allotted by eligible start-ups

The Finance Act, 2020 has allowed to defer the payment or deduction of tax on ESOPs allotted by an eligible start-up referred under Section 80-IAC. The tax is required to be paid or deducted in respect of such ESOPs within 14 days from the earliest of the following period:

1. After expiry of 48 months from the end of assessment year relevant to the financial year in which ESOPs are allotted;

2. From the date the assessee ceases to be an employee of the organization; or

3. From the date of sale of shares allotted under ESOP.

Consequently, Rule 12 has been amended to provide that an assessee in whose case payment or deduction of tax in respect of such ESOPs has been deferred shall not be eligible to furnish his return of income in ITR-1 and ITR-4.

If an employee has received ESOPs from the eligible start-up referred to in section 80-IAC in respect of which the tax has been deferred, the Part B of Schedule TTI (Computation of tax liability on total income) seeks the disclosure of the tax amount which has been deferred in this respect.

• No Need to bifurcate carried forward losses into Pass through losses and Normal losses

Losses carried forward by an assessee has same treatment under the Income-tax Act even if they are in nature of pass-through losses. Old ITR forms bifurcated the losses under the head House property and Capital gains in Schedule CFL between pass-through losses and Normal losses. However, ITR forms notified for the assessment year 2021-2022 has removed such detailed bifurcation and hence only consolidated figure of such losses is to be disclosed in the return of income.

• Adjustment of carried forward losses if assessee has opted for section 115BAC or 115BAD

Assessee opting for alternative tax regime of Section 115BAC or Section 115BAD has to forego various exemptions and deductions. Further, carried forward losses attributable to such exemptions and deduction are not allowed to be set off. These losses are deemed to have been given full effect to and no further deduction for such loss shall be allowed for any subsequent year.

ITR Forms notified for Assessment Year 2021-2022 have been amended to require the adjustment of such losses which are not allowed to be carried forward and set off.

• Section 80M for further distribution of dividend to shareholders

Section 80M was introduced by the Finance Act, 2020 to provide a deduction to a domestic company for the amount received as dividend from another domestic company, a foreign company or a business trust. The deduction is allowed when the company further distributes the dividend to the shareholders.

Deduction can be claimed for an amount received by way of dividend to the extent it is further distributed as dividend on or before one month prior to the due date of furnishing the return of income.

ITR forms for the assessment year 2021-22 have been accordingly modified to include Section 80M in Schedule VI-A so as to enable companies to claim the said deduction.

• Cash donation u/s 80GGA above ₹ 2,000/- not allowable

Section 80GGA provides deduction for specific donations made by an assessee who is not deriving income under the head ‘profits and gains of business or profession’. Earlier, no deduction was allowed for the cash donation in excess of ₹ 10,000/-. However, with effect from AY 2021-22, the maximum limit of cash donation is reduced from 10,000/- to ₹ 2,000/-

Schedule 80GGA in the form requires separate disclosure of the donation made in cash and donation made through other modes. The ITR form for the Assessment year 2021-2022 requires additional disclosures of the date on which such cash donation has been made.

• Expanded disclosure for deduction u/s 80P

Schedule 80P of the ITR requires the assessee to furnish various information relating to income and the amount of deduction. ITR form for the assessment year 2021-22 has inserted one more column in the Schedule 80P, which requires the assessee to provide the nature of business code in front of various types of income of such person.

• Deletion of Schedule DI

The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, has extended the time-limit to make investments, deposits, payments, etc. for the financial year 2019-20 for claiming deduction under Chapter VI-A, section 10AA and section 54 to 54GB till 30-06-2020. This date was further extended to 31-07-2020 in case of investments or payment eligible for deduction under Chapter VI-A and 30-09-2020 in case of investments eligible for deduction under section 54 to 54GB.

To allow taxpayers to avail the deduction for the investments/deposits made during the extended period, the ITR forms notified for the Assessment Year 2020-2021 inserted a new Schedule DI (Detail of Investments/deposit/payment for the purpose of claiming deduction). Since there is no extension of time limit to make above such investments for the A.Y 2021-22, Schedule DI has been removed. Needless to mention, investment made during such extended period, which has already been claimed as deduction or exemption during the A.Y 2020-21 should not be claimed again in the A.Y 2021-22.

Practical concerns

The department has almost incorporated all the amendments in the ITR forms. However, there are few points which require detailed examination while reporting in the ITR Form:

1) Removal of field – Dividend Income exempt u/s 10(34)

• Even though we have moved to a classical system of taxing dividend in the hands of shareholders, there could be an instance where dividend received to the shareholder in the month of April 2020 may be exempt in the hands of shareholders if Dividend Distribution Tax is paid by the Company in accordance with section 115-O of the IT Act.

• The specific field of exempt income u/s 10(34) has been removed from the ITR forms. Thus, taxpayer may need to check the correct field under which such exempt income needs to be reported.

2) Reporting of change in WDV of block of asset pursuant to goodwill being considered to be non-depreciable asset

• Apparently, despite the amendment in section 43(6)(c) which provides for re-computation of WDV as on 01/04/2020 of the block of assets (which includes goodwill), it seems that the ITR forms do not require any specific reporting for the change in WDV of such block of asset.

• Thus, the taxpayer needs to be cautious while computing the WDV of the particular block of asset.

3) Calculation of Gains from slump sale u/s 50B for the A.Y 2021-22

• The provision of section 50B were amended by the Finance Act, 2021 wef A.Y 2021-22. However, the manner of calculation of gains from slump sale (Rule 11AUE) was notified on 24/05/2021. The ITR forms does not seem to have covered the prescribed manner of computation of Gains from Slump Sale.

• Non-disclosure of prescribed manner of calculation may turn out to be favourable in cases of assessee’s claiming that amended provisions of slump sale are not applicable for the A.Y 2021-22.

4) No schedule for claiming exemption u/s 54F and 54EC against gains arising from transfer of depreciable capital asset

• If a depreciable asset is used for the purpose of business, then irrespective of period of holding, the resultant gains arising on transfer of such asset is deemed to be short term capital gain.

• Deduction or exemption under section 54F/54EC are available for long term capital assets. Gujarat High Court in case of Polestar Industries (Tax Appeal 747 of 2013) has held that provisions of section 54EC do not make any distinction between depreciable assets or non-depreciable assets, the deeming provisions are only for the purpose of computing capital gains. Thus if an asset is classified as a long term capital asset then exemption could be available to gains from transfer of such depreciable assets.

• However, schedule Depreciation in the ITR forms does not have any field for reporting of exemptions under the deemed short term capital gains.

Conclusion

The only constant in taxation is change. Nowadays professionals not only need to have the ability to adapt to the changes but also be mindful as from when is the change applicable. Further, now many types of assessee have an alternate tax regime, which could entail the professionals to analyse the new scheme of taxation in a detailed manner.

Hope, this article will remind the readers about the amendments applicable for the return of income for the A.Y. 2021-22.