The Finance Minister, Nirmala Sitharaman while delivering the Union Budget 2021 speech did not propose any change in tax rates or slabs means your income tax liability is unlikely to change in the next financial year.
However, if you are earning a high salary or using the voluntary provident fund (VPF) route to earn a higher tax-free return, then there is some bad news for you. Here are 10 budget proposals that can impact the savings of individual taxpayers.
The Budget 2021 stated that the contribution made in provident funds beyond Rs 2.5 lakh a year, will now attract tax on interest it earns for you. The interest will be calculated on the excess amount.
Additionally, Unit-Linked Insurance Plans (ULIP) will now attract long-term capital gains tax at maturity or redemption, if your annual premium exceeds Rs 2.5 lakh.
These measures have been introduced to tax the rich who have invested large amounts in these investments to escape paying tax. To be sure, interest earned on EPF has been otherwise tax-free. Similarly, ULIPs, till date, do not attract LTCG tax.
In this Budget, the FM has restricted the tax exemption on interest income earned from this scheme to employee’s contribution of Rs 2.5 lakh.
However, until now, EPF enjoyed exempt-exempt-exempt (EEE) treatment (besides Public Provident Fund).
Earlier, the only limit was that a person could contribute 12 percent of his basic income. In addition, he could contribute more to the Voluntary Provident Fund (VPF). So, the sum total of a person’s contribution to EPF and VPF could go up to 100 per cent of his basic salary.
Therefore, now if you contribute more than Rs 2.5 lakh a year, the interest earned on the excess amount will be taxable.
For example, if you invest Rs 5 lakhs in a year. The interest you earn on Rs 2.5 lakh will not be taxable. But the interest earned on the balance Rs 2.5 lakh will be taxed at your slab rate.
If you are keen on buying a house in an affordable housing project but have held off so far, you’ve got another chance to benefit from the extra tax concessions available on loans of such projects.
It is proposed to extend the Rs 1.5-lakh benefit on interest paid on affordable housing loans by one year till March 31, 2022. The upper limit is capped at Rs 45 lakh for claiming this deduction.
Budget 2021 has given a further push to faceless assessment and aims to make it more robust. A (faceless) dispute resolution committee will be set up. Anyone with a taxable income of up to Rs 50 lakh and disputed income up to Rs 10 lakh can approach this committee.
In a relief to retail investors, they will have a new instrument to invest in. In order to spur infrastructure growth, Budget 2021 announced that infrastructure debt funds would now be able to raise funds by issuing tax-efficient zero coupon bonds.
In a relief for senior citizens, the Budget proposed that resident senior citizens, aged 75 or above, earning only pension and bank interest income (from the same bank where pension is credited) are not required to file income tax return. On the basis of declaration submitted by such a taxpayer, bank has to compute taxable income and deduct tax thereon.
Social security benefits will be extended to gig and platform workers. E-commerce workers will now be brought under Employees’ State Insurance Scheme (ESI), Employees’ Provident Fund (EPF) and the minimum wage rule. Women will be allowed to work in all categories in night shifts too.
The Centre will announce rules to determine the manner and year of taxability of income from overseas retirement funds opened by a resident taxpayer while he was residing in a foreign country. This will provide relief from hardship faced on account of double taxation due to a mismatch in the timing of taxation in different countries.
The last date to file a revised income-tax return or belated return on a voluntary basis now stands at December 31 after the close of the financial year. The Times of India in a report mentioned that although this will reduce the overall tax compliance timelines, it may create practical difficulties for taxpayers with overseas income in claiming tax exemption or relief where such benefit is dependent on tax filing in the other country.
The Finance Minister said that apart from tax deduction at source, now details of capital gains and interests from banks and post offices would be pre-filled. Pre-filled forms improve tax compliance and also help tax-payers file their taxes quickly and efficiently as the data is already captured.
