Individual tax regime option: simplified slab structure introduced affecting taxpayer choices and surcharge applicability and cess treatment.
An optional individual tax regime and a separate optional cooperative society regime take effect for the assessment year 2021-22 on satisfaction of specified conditions, while Part I of the First Schedule preserves baseline rates for individuals by age categories, associations, firms, local authorities and companies (including a lower corporate rate for qualifying domestic companies). A graduated surcharge framework with marginal relief is specified across taxpayer classes, and a Health and Education Cess is levied on tax inclusive of surcharge with no marginal relief for the cess.

Tax withholding for non-salary incomes: surcharge and cess adjustments affect non-resident and company payees during fiscal year period.
Rates for deduction of income-tax at source on non-salary incomes for FY 2021-22 remain as specified in Part II of the First Schedule to the Finance Bill, 2021, unchanged from the prior year; applicable statutory sections continue to govern deduction. A graduated surcharge applies to TDS for specified non-resident recipients, companies and certain entities with caps for dividend and specially taxed income components, and a Health and Education Cess is levied on income tax including surcharge for non-residents and foreign companies.

Income-tax withholding and advance tax rules clarified for salaries, with surcharge structure and universal cess applied on computed tax.
Part III of the First Schedule prescribes rates for tax withholding from salaries, computation of advance tax and charging of tax in special assessments. It sets rate schedules for individuals (including senior categories) and other persons, specifies surcharge slabs with marginal relief, provides an optional alternative tax regime for eligible individuals and HUFs, and outlines separate rate and surcharge rules for co-operative societies, firms, local authorities and companies, with a universal health and education cess applied on tax inclusive of surcharge.

LTC cash exemption allowed for prescribed consumer expenditures subject to GST, electronic payment and receipt conditions.
A new proviso to clause (5) of section 10 will exempt cash allowances in lieu of LTC for the assessment year beginning 1 April 2021, subject to conditions: option for deemed LTC fare for the 2018-21 block; specified expenditure on goods or services taxed at an aggregate GST rate of twelve percent or more from GST-registered vendors during the specified period; payment via prescribed account-payee or electronic modes with tax invoice; an exemption cap per person limited to the lesser of a fixed ceiling or one-third of specified expenditure; and coordination with employer-provided amounts.

Affordable rental housing deduction expanded to include government notified rental projects, and time limit for approvals extended.
The deduction equal to one hundred percent of profits and gains from the qualifying housing business is extended to include rental housing projects notified by the Central Government that meet conditions in that notification, and the outer time limit for project approval determining eligibility is extended so that the same temporal cut-off applies to these affordable rental housing projects.

Tax incentives for IFSC units expand exemptions and relaxed conditions for eligible funds, offshore banking investment divisions.
Proposed amendments extend tax exemptions and relaxed conditions to units and fund managers located in an International Financial Services Centre by permitting modification of section 9A conditions, treating the investment division of an offshore banking unit as a specified fund for section 10 and section 115AD purposes (subject to Category III AIF registration and separate books), and by inserting exemptions for non-deliverable forward transfers, aircraft-lease royalties, and capital gains arising on relocation of funds where Original Fund, Relocation and Resultant Fund meet prescribed conditions; consequential amendments to sections 47, 49, 56, 79 and 80LA are provided.

Zero coupon bond issuance by infrastructure debt funds permitted, triggering tax-rule amendments and retrospective withholding changes.
Amendment to the definition of zero coupon bond extends eligible issuers to include notified infrastructure debt funds, enabling those funds to issue instruments with no payment or benefit before maturity; implementing amendments to Income-tax Rules (including Rules 2F and 8B) and an associated amendment to withholding provisions in section 194A are contemplated, with specified staged effective dates and Official Gazette notifications to operationalise the changes.

Tax neutral conversion of cooperative banks preserves deduction apportionment and treats asset and share transfers as non-transfers.
Conversion of primary co-operative (urban co-operative) banks into banking companies is brought within the business reorganisation provisions so that section 44DB's apportionment of deductions between predecessor and successor applies; transfers of capital assets and allotment of shares on conversion are not to be treated as transfers under section 47, effected by amendments to section 44DB and clauses (vica)/(vicb) of section 47, effective 1 April 2021.

Strategic disinvestment: clarifying demerger treatment and extending carry forward benefits to enable restructuring before transfer of control.
Amendments treat certain reconstructions or splits of a public sector company as demergers where assets transfer and the resultant entity remains a public sector company, and extend carry forward and set off benefits to amalgamations involving public sector and erstwhile public sector companies subject to conditions, limits on deemed losses and allowances, and notified requirements; new explanations define control, erstwhile public sector company, and strategic disinvestment.

Interest deduction for affordable home loans extended to cover loans sanctioned within the revised outer date, effective for assessment year 2022 23.
The amendment extends the outer sanction date for loans eligible for the interest deduction for affordable residential house property while retaining existing conditions: availability to first time home buyers, limitation to interest on loans from financial institutions, and a cap on the stamp duty value of the property. The extension allows loans sanctioned within the revised period to qualify and takes effect from 1 April 2022, applying to the corresponding assessment year.

Startup incorporation date extension expands eligibility for tax deduction and capital gains reinvestment benefits through amended provisions.
The proposal extends temporal eligibility for startup tax benefits by amending the startup deduction and capital gains reinvestment exemption: the outer date for incorporation of eligible start ups is extended to enlarge eligibility for the hundred percent deduction (subject to the turnover ceiling and three year within ten year rule), and the outer date for qualifying transfers of residential property is extended so more capital gains can be reinvested in eligible start ups; both amendments take effect from the start of the fiscal year.

Safe harbour threshold for residential transfers widened, so circle rate counts only where valuation gap is materially large.
The safe-harbour margin for specified first-time allotments of residential units is increased, so declared consideration will be treated as full value where the stamp duty value does not exceed the enhanced margin; correspondingly, stamp duty value will be imputed as income only when the gap between agreement value and circle rate exceeds that margin. The change applies to transfers meeting the statutory temporal, allotment and consideration conditions and takes effect from the stated assessment year onward.

Senior citizen filing exemption: qualifying pension recipients relieved from return filing when bank computes and deducts tax.
The amendment exempts resident senior citizens aged seventy five or older from filing income tax returns if their sole income is pension and optional interest from the same prescribed bank, provided they furnish a prescribed declaration. The specified bank must compute taxable income after allowable deductions and rebate and deduct tax at source; once tax is deducted for the assessment year, the senior citizen is not required to file a return for that year.

Exemption for sovereign and pension funds broadened to allow varied infrastructure investment routes with proportionate tax relief.
Amendments expand tax exemption routes for specified SWF and PF investors by permitting Category I/II AIFs with up to fifty percent non-eligible investments and investment in InvITs, allowing investment via newly formed domestic holding companies with minimum seventy-five percent infrastructure investments, and permitting investment in NBFC-IDF/IFC entities that lend at least ninety percent to infrastructure entities; exemptions will be calculated proportionately where thresholds are not met. Loans for the purpose of making investments in India remain prohibited, day-to-day operational participation is barred while monitoring roles are permitted, and pension funds taxable abroad qualify if fully exempt under their home law. Effective 1 April 2021.

Taxation of overseas retirement withdrawals: Central Government may prescribe year and manner of taxation to remove timing mismatch.
A new Section 89A is proposed to permit the Central Government to prescribe the year and manner in which income of a specified person from a specified account is taxed, addressing mismatches where an overseas retirement account is taxed on withdrawal abroad but on accrual in India; "specified person", "specified account" and "notified country" are defined, and the amendment is to apply prospectively from the tax year beginning 1 April 2022.

Minimum Alternate Tax adjustments allow recomputation of past years' book profit for APA and secondary adjustments.
Amendments to section 115JB allow a taxpayer to apply to the Assessing Officer for recomputation of past years' book profit and tax where past year income is included in current books due to an APA or secondary adjustment; section 154 applies and its four year period is reckoned from the end of the financial year in which the application is received. Similar treatment is provided for specified dividend income of foreign companies where such income is taxed below MAT under a double taxation agreement, by adjusting both the dividend income and related expense in computing book profit.

TDS exemption on dividend payments to business trusts now excludes withholding where dividends are exempt in the trust's hands.
The second proviso to section 194 is amended to exclude payment of dividends from withholding where dividends are credited or paid to a business trust by a special purpose vehicle or to other notified persons; the amendment is made retrospective to the start of the prior financial year.

Withholding on FII payments: deduction at the lower of statutory rate or applicable treaty rate where TRC is furnished.
Withholding on payments to FIIs is amended so that where a payee is entitled to benefits under a double taxation agreement and has furnished the prescribed tax residency certificate, tax shall be deducted at the lower of the statutory deduction rate and the rate provided in the agreement for such income; the amendment is prospective from 1 April, 2021.

Tax audit threshold increased for eligible businesses with limited cash transactions, easing audit compliance from assessment year 2021-22.
The Finance Bill, 2021 proposes to raise the higher audit-threshold applicable to businesses that maintain limited cash transactions-specifically where aggregate cash receipts and aggregate cash payments do not exceed the prescribed five percent limits-so as to reduce compliance burden on small and medium enterprises and incentivise non-cash transactions. The amendment is prospective and will apply from 1 April 2021 for the relevant assessment year and thereafter, with existing audit requirements remaining in force where the cash-transaction conditions are not met.

Advance tax interest exemption: dividend income (excluding deemed dividend) added to 234C exclusions when full tax paid later.
The amendment adds dividend income (excluding deemed dividend) to the list of incomes exempted from interest for shortfall in advance tax instalments, so long as the taxpayer pays the full tax in subsequent instalments; it thereby prevents interest being charged on advance tax shortfalls attributable to dividend receipts.