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Direct Taxation: Legal Milestones Financial Year 2020-21 and a Look Ahead

14 Apr 2021

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The financial year 2020-21 witnessed key changes to the direct tax regime such as the overhaul of the dividend distribution tax and expansion in the scope of the equalisation levy provisions. Budget 2021 largely focused on simplification of legal provisions and procedures. This update summarises some of the major developments in the past year along with our expectations for the year ahead.

The direct taxation regime witnessed some significant developments in 2020 in terms of structural tax reforms and noteworthy tax rulings. The major reforms that were introduced include faceless appeals, abolition of dividend distribution tax and introduction of taxation of dividend income in the hands of shareholders and the expansion of equalisation levy provisions to include digital transactions in the e-commerce space. Additionally, to incentivise investments, tax exemption was granted to certain incomes of sovereign wealth funds and global pension funds. A new tax regime has also been introduced for Category-III Alternative Investment Funds (AIFs) located in International Financial Services Centres (IFSC).

To provide interim relief from the impact of the COVID-19 pandemic, tax authorities have introduced certain interim measures, for instance, relaxation in tax residency norms for the financial year 2019-20 for expatriates stranded in India due to lockdown restrictions and reduction in the tax withholding rates. Please click here for a more detailed analysis.

For the financial year 2020-21, the tax authorities have requested individuals facing double taxation because of being stranded in India due to the COVID-19 pandemic to file prescribed forms by 31 March 2021. After examining possible situations of double taxation based on such filings, the authorities may consider granting general or specific relief. Please click here for a more detailed analysis.

The Budget 2021 seeks to enhance transparency and administrative ease by focusing on simplification of legal provisions and procedures, thereby reducing litigation. However, a few proposals may lead to tax uncertainty and ambiguity. The Finance Act, 2021 has received presidential assent on 28 March 2021.

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