From Budget To Finance Act 2021, With 127 Amendments: All The Key Changes
Officials carry a sack of budget papers into Parliament House in New Delhi, on Feb. 1, 2020. (Photographer: T. Narayan/Bloomberg)

From Budget To Finance Act 2021, With 127 Amendments: All The Key Changes


Most years, the legislative process that follows the presentation of the Union Budget by the Finance Minister is a non-event. By and large, the Finance Bill as introduced would get enacted, except in a few cases where the government intends to roll back certain provisions or provide some relief, or for rectification of inadvertent errors that would have crept in.

One can no longer work on this premise. Budget 2020 and now Budget 2021 have had substantial amendments as compared to the Bill that was originally proposed. The final version of Finance Bill 2021 has around 127 (yes, you read it right) to the original Finance Bill 2021.

There are some substantive and significant changes pertaining to business restructuring (slump sale, dissolution or reconstitution of a firm, depreciation on goodwill, etc.) which can potentially have wide ramifications for future as well as ongoing transactions. Those are analysed in this article.

Relaxation In The Equalisation Levy... But Wait

The Equalisation Levy was introduced on non-resident e-commerce operators on consideration received from e-commerce supply or services, by Finance Act 2020, from April 1, 2020. E-commerce supply or service was very widely defined to include “online sale of goods” and “online provision of services”. Finance Bill 2021 sought to provide an explanation to include any of the following activities for the transaction to be considered as the online sale of goods or online provision of services – acceptance of offer for sale, placing of a purchase order, acceptance of purchase order, payment of consideration, supply of goods or provision of services. Another amendment was also proposed to include consideration received or receivable from e-commerce supply or services irrespective of whether the e-commerce operator owns the goods.

The amendment is now being made to clarify that the equalisation levy would not be applicable on consideration of the sale of goods or services which are owned by persons resident in India or by a permanent establishment of a non-resident in India [both for goods and services].

While this clarification is welcome, however, there are several aspects on which there is still no clarity – this includes applicability of levy on transactions where only one aspect of the transaction is carried out online (say inter-company transactions done on an internal platform or transactions done in physical form but payment is made online).

The changes made in Finance Bill 2021 have widened the ambit of the equalisation levy significantly, bringing into the net a lot of transactions that are, strictly speaking, outside e-commerce trade.

Also read: Has Budget 2021 Expanded The Scope Of Digital Tax?

Computation Of Capital Gain In Case Of Slump Sale

In the case of slump sale transactions, under the existing provisions (section 50B), the actual consideration of the slump sale transaction is respected and considered as the full value of consideration for computing capital gains. In other words, there was no need for arriving at Fair Market Value or requirement of a valuation exercise.

An amendment has now been made to provide that FMV of the undertaking/division on the date of transfer (to be determined based on the rules, which may be prescribed later) as a full value of consideration. Accordingly, FMV will have to be considered irrespective of the transaction value actually received by the seller.

It would be important to note that this amendment would be applicable from AY 2021-22 and hence, any slump sale transaction done during FY 2020-21 (from April 1, 2020) would be affected.

The seller would have to recompute capital gains based on FMV and would be liable to pay the taxes along with interest, as requisite advance tax would not have been paid by the taxpayer. While the government sticks to its promise of no retrospective changes, this clearly is a retroactive amendment which in essence does affect transactions that have taken place till March 23, 2021.

This is a substantive amendment changing the very basis of taxation and would have a significant impact on M&A transactions and internal restructuring exercises by corporates as slump sale was the preferred method for the same.

Written Down Value To Eliminate Goodwill-Forming Part Of Assets

Finance Bill 2021 proposed to amend the definition of “intangible asset” to exclude goodwill of business or profession thereby making the goodwill ineligible for depreciation from FY21 onwards – both for existing goodwill as of March 31, 2020, as well as new goodwill acquired on or after April 1, 2020. It also proposed to amend capital gains provisions to provide that cost of acquisition of self-generated goodwill acquired in tax neutral transfer will be nil.

The amendment now has provisions to adjust the closing written down value of intangible assets as of March 31, 2020, by reducing the standalone tax WDV of goodwill computed as the difference between the actual cost of goodwill and depreciation allowable on such goodwill till March 31, 2020. The reduction shall, however, not exceed the closing WDV of intangible assets as of March 31, 2020. This provides much-needed clarity on how one needs to compute the written down value in case of goodwill.

Also read: Budget 2021: No Goodwill Depreciation – Impact On M&A

Taxation On Reconstitution Of Firm

The provisions relating to taxability of receipt of capital assets or stock in trade at the time of reconstitution or dissolution of partnership firms which was proposed in the original Bill stand revamped. The entire clauses have now been rewritten with an introduction of additional Section 9B. The new section has been inserted to provide that receipt of a capital asset or stock–in trade by a partner/member (in case of Association of Persons / Body of Individuals) on dissolution or reconstitution of firm/AOP/BOI shall be deemed to be transferred in the hands of such firm/AOP/BOI and profits/gains arising on such transfer based on FMV of such asset shall be taxable as business income or capital gains.

At the same time, Section 45(4) has been redrafted to provide for the computation of capital gain in the hands of the partner/member at the time of reconstitution of the firm. The amount of capital gain shall be FMV of the capital asset and money received exceeding the capital amount balance of the partner.

Prima facie, it seems that the purpose of insertion of Section 9B is to ensure that on dissolution or reconstitution income is considered as deemed to accrue or arise to firm and it becomes liable to taxes on the same.

Restriction On Exemption For Interest Earned On PF Contribution

The Finance Bill 2021 proposed that no exemption shall be available for the interest income accrued during the previous year in the recognised and statutory provident fund to the extent it relates to the contribution made by the employees over Rs 2.5 lakh in the previous year. Now, this condition is further relaxed to provide that in a case where there is no contribution by the employer to such fund, the threshold will be Rs 5 lakh instead of Rs 2.5 lakh.

I am still trying to figure which are the provident funds where the employer doesn’t make any contribution – perhaps in the case of government employees, in which case the relief is restricted to them only.


There are a few changes about other aspects relating to the definition of the term ‘liable to tax’; threshold limits for a tax audit; tax incentives to International Financial Services Centres; concessional withholding tax on interest to Foreign Portfolio Investors, etc.


On an overall basis, while some changes carried out in the supplementary amendments are to meant clarify the ambiguity and difficulties of the taxpayers, several are substantive too. This creates uncertainty amongst the taxpayer on any transaction undertaken. With the amendments about slump sale, equalisation levy, the taxpayer would be liable to pay taxes in respect of transactions undertaken before these being enacted. This needs serious reconsideration, and we hope that this doesn’t become a habit.

Maulik Doshi is Partner - Direct Tax and Transfer Pricing Services, at Nexdigm.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.

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