The Finance Bill, 2021 proposes to deny expense deduction to employers in relation to contribution made by them to welfare funds (e.g. provident fund) on behalf of their employees unless such contribution is made in a timely manner. The Bill also proposes to alleviate the levy of interest on non-payment of advance tax on dividend income.

Earlier, in relation to contribution to welfare funds (e.g. provident fund) by employers on behalf of their employees, the employers were allowed to make the contribution until the due date of furnishing return of income under the Income Tax Act (ITA) to claim an expense deduction for such contribution. The Finance Bill, 2021 (Bill) proposes to ensure that, if an expense deduction is to be claimed, such contributions are made by the employers within the due date specified under the respective welfare legislations. Further, pursuant to the taxability of dividend income in the hands of shareholders, there was a risk of interest liability on shareholders for non-payment of advance tax on such dividend income since it could not be determined in the beginning of the year when the advance tax liability is ascertained. The Bill proposes to remove any interest liability on non-payment of advance tax on dividend income.

We discuss some of these developments below.

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