Know Your Customer (KYC) is the process of verifying identity of customers within the ambit of the prevention of money laundering laws. The objective of KYC is to protect businesses from being used for criminal activities. KYC processes are employed by companies, banks, insurers, export creditors, telecom and other financial institutions to ascertain the true identity of customers. Initially, this requirement was more applicable to financial industry dealing with money but now the requirement is expanded to include almost all the industries and sectors. E-KYC is verifying identity of customers electronically.
Key Highlights of the Union Budget and Finance Bill 2021:
I. Direct Tax Benefits/Implications for all Sectors:
1) Tax Audit: For entities carrying out 95% transactions digitally, the limit for tax audit will be increased from 5 crore to 10 crores.
2) Advance tax liability on Dividend Income: Tax on dividend income will accrue only after the declaration or payment of dividend is made. Dividend paid to Real Estate Infrastructure Trusts or Infrastructure Investment Trusts (REIT/InvIT) will also be exempt from TDS. Deduction of tax on dividend income at lower treaty rate for Foreign Portfolio Investors.
3) Time Limit for Re-opening Cases: The time limit for re-opening assessments will be reduced to 3 years from the earlier limit of 6 years. Cases of serious tax evasion, with evidence of concealment of income of Rs.50 lakh or more in a year, will be re-opened till 10 years, with approval of the Principal Chief Commissioner.
4) Tax benefit for Start-ups: The Central Government has proposed to extend the period for start- ups to claim tax holiday till 31st March, 2022. Further, claims for capital gains exemption for investments made in start-ups can also be made till 31st Match, 2022.
5) Issuance of Zero-Coupon Bonds: The Central Government has proposed to extend tax benefits to zero coupon bonds issued by Infrastructure Debt Fund in order to boost funding of infrastructure projects.
6) Late Deposit of Employee’s Contribution by the Employer: As proposed under the budget, contributions made by the employer to the employee’s welfare fund beyond the stipulated period will not be allowed as deduction to the employer under the Income Tax Act, 1961. Hence employers have to ensure that such deposits are made within the timelines provided under the law.
II. Benefits/ Implications:
1) Benefits/Implications for all Sectors:
An Agriculture Infrastructure and Development Cess will be imposed on specified goods. (Gold, silver, cotton, alcoholic beverages, coal)
New customs duty exemptions will be valid up to the 31st March following two years from its issue date.
2) Information Technology, Electronics and Renewable Energy Industry:
Some exemptions on parts of chargers and sub-parts of mobiles withdrawn.
Duty on some parts of mobiles revised to 2.5% from ‘nil’ rate. (e.g., Printed Circuit Board Assembly (PCBA), Camera module, Connectors, inputs or raw material for manufacture of specified parts like back cover, side keys etc. of cellular mobile phone).
Duty on Inputs or parts of printed circuit board assembly of charger or adapter of cellular mobile phones, Inputs or parts of moulded plastic of charger or adapter of cellular mobile phones, Inputs and parts of LED lights or fixtures including LED Lamps, LED drivers, increased to 10%.
Duty on Solar lanterns or solar lamp and Parts of Electronic Toys for manufacture of electronic toys increased to 15%.
3) Textiles Industry:
Mega Investment Textiles Parks (MITRA) will be launched.
Basic Customs Duty (BCD) on nylon chips and nylon fibre & yarn reduced to 5%.
BCD on Raw Silk, Silk yarn, yarn spun from silk waste, Raw Cotton, Cotton waste (including yarn waste or garneted stock) increased.
4) Fuels, Chemicals and Plastics Industry:
Customs duty on Carbon Black, Bis-phenol A, Epichlorohydrin, Other plates, sheets, films, etc. of other plastics, Polycarbonates increased and that on Caprolactam and Naphtha reduced.
5) Iron Steel, Capital Goods and Related Industry:
Customs duty reduced uniformly to 7.5% on semis, flat, and long products of non-alloy, alloy, and stainless steels.
Duty on steel scrap exempted up to 31st March, 2022.
Anti-Dumping Duty (ADD) and Counter-Veiling Duty (CVD) revoked on certain steel products (Straight Length Bars and Rods of alloy-steel, High Speed Steel of Non-Cobalt Grade and Flat rolled product of steel, plated or coated with alloy of Aluminium or Zinc originating from China from 2.2.2021 till 30.09.2021)
Duty on copper scrap reduced from 5% to 2.5%.
Nil duty on: Iron and steel scrap including stainless steel scrap till 31st March, 2022, Raw materials for use in manufacture of CRGO steel till 31st March, 2023.
Custom duty on Primary/Semi-finished products of non-alloy steel, Copper Scrap reduced.
Custom duty on Screw, bolts, nuts, etc. of iron and steel increased to 15%.
Tunnel boring machine to now attract a customs duty of 7.5%; and its parts a duty of 2.5%.
Duty on certain auto parts increased to general rate of 15%.
6) Automobile Industry:
A voluntary vehicle scrapping policy, to phase out old and unfit vehicles, will be announced. Vehicles would undergo fitness tests in automated fitness centres after 20 years in case of personal vehicles, and after 15 years in case of commercial vehicles.
Duty on automobile parts (Parts of Electrical lighting and signalling equipment, windscreen wipers, defrosters and demisters, of a kind used for cycles or motor vehicles, Ignition wiring sets and other wiring sets of a kind used in vehicles, aircraft or ships) increased to 15%.
7) Insurance Industry:
Foreign direct investment in insurance sector will be increased from 49% to 74% with foreign ownership and control with safeguards. Majority of Directors on the Board and key management persons would be resident Indians, with at least 50% of Directors being Independent Directors.
8) Real Estate Industry:
Increase in Safe Harbour Limit for Primary Sale of Residential Units: To enable the real-estate developers to liquidate their unsold inventory at a lower rate to home buyers, the safe harbour threshold limits will be increased from existing 10% to 20% subject to fulfilment of all the conditions.
Tax Holiday for Affordable Housing and Affordable Rental Housing Projects: The Central Government has proposed to extend the eligibility period for claiming tax holiday for affordable housing project till 31st March, 2022 and also allow tax exemption for the notified “Affordable Rental Housing Projects” in order to incentivize purchase of affordable houses and promote the supply of Affordable Rental Housing for migrant workers. Construction companies undertaking such projects can claim tax benefit till 31st March, 2022.
9) Redefining Small Companies:
The definition of Small Companies has been revised by enhancing the paid-up capital base from the existing limit of Rs.50 lakh to Rs.2 crore, and the turnover threshold is also proposed to be enhanced from Rs.2 crore to Rs.20 crore.
10) Banking Financial and Capital Industry:
Introduction of single Securities Markets Code consolidating provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007.
An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds.
NBFCs with minimum asset size of `100 crores, will be eligible to recovery debt worth 20 lakhs and above.
Urban Cooperative Bank (UCB) converted into a Small Finance Bank shall not be required to pay capital gains for the assets transferred.
Impact of the Budget:
The union budget 2021 aims to boost domestic manufacturing, generate employment and competitiveness by providing incentives, tax benefits, ease compliance burdens on small businesses and foster growth of start-ups and small businesses. Increase of duty on imports will boost domestic manufacturing, incentives will make businesses more competitive.
All the benefits extended under the Budget will be implemented by issuing notifications/circulars and amending the Income Tax Act, 1961, Customs Act, 1962, Customs Tariff Act, 1975, Insurance Act, 1938 and Securities Laws as proposed under the Finance Bill, 2021.