Unlike every year’s budget, this edition had very few announcements on the aspects of individual taxation, as far as the investments are concerned. Let's take a look at the areas where it has an impact.
No Change in Income Tax Slab Rates: Yes, there is no change in Income Tax Slab Rates from what they were last year. In terms of tax saving options, also, there is no change in the limits of 80C or other sections.
Time limit for reopening of I-T assessment halved: Finance Minister Nirmala Sitharaman on Monday reduced the time limit for reopening of income tax assessment cases to three years from six years, while for serious tax fraud cases where concealment of income is Rs 50 lakh or more it would be 10 years.
No tax returns for Senior Citizens aged 75 years or more: Filing of Income Tax is now not necessary for those whose age is 75 years or more. However, do remember that this facility is available for those who have only Pension and Interest income. Being exempt from ITR filing does not mean not paying tax. The pension provider or banks will deduct the TDS. Hence, senior citizens are not required to file their ITRs. Hence, it is just avoiding the process but not a tax benefit for senior citizens.
However, to qualify for this, there are certain conditions, listed in the Budget memorandum. The person:
(i) who is of the age of seventy-five years or more at any time during the previous year;
(ii) who is having income of the nature of pension and no other income except the income of nature of interest received or receivable from any account maintained by such individual in the same specified bank in which he is receiving his pension income; and
(iii) has furnished a declaration to the specified bank containing such particulars, in such form and verified in such manner, as may be prescribed.
Income Tax returns will have pre-filled data: Earlier in the pre-filled income tax forms, they used to contain salary, one house property, other source and agricultural income up to Rs. 5,000. However, effective from 1st April, 2021, the details of Capital Gains (Long term & Short Term), Dividend Income and Interest income will be pre-filled in the Income Tax Return Forms. Sitharaman said the tax department will notify rules to remove hardships of double taxation faced by Non-resident Indians (NRIs).
Interest earned on PF contributions above Rs 2.5 lakh to become taxable: Effective from 1st April 2021, the interest on any contribution above Rs. 2.5 lakh by an employee to a recognised provident fund is taxable as per the provisions of the Finance bill 2021. This includes employee’s EPF and VPF contribution also.
In the 2020 Budget, the FM had capped the tax exemption on employers contribution to PF, NPS and Superannuation fund exceeding an aggregate of 7.5 lakh per annum. While last year’s change on taxation of Employer contributions would impact higher salaried employees, the change proposed in today’s Budget with respect to interest earned on employee’s contribution will have a much wider impact.
Deposit insurance amount to be available immediately: The finance minister, Nirmala Sitharaman, has announced that in case a bank fails or withdrawals from the bank are stopped due to financial pressure on the bank, the depositors will be able to get immediate access to their deposits up to the deposit insurance amount of Rs 5 lakh, i.e., the amount to which deposits are insured under the 'The Deposit Insurance and Credit Guarantee Corporation Act, 1961' (DICGC Act). This will greatly help depositors in meeting immediate financial needs.
ULIPs now taxable like mutual funds! Finance Bill 2021-22 has proposed to tax gains from ULIP with a premium of more than Rs. 2.5 lakh per year to remove the disparity relative to mutual funds. This means from Feb 1st 2021 if you buy a new ULIP with a premium of more than Rs. 2.5 lakhs the maturity proceeds will be taxed identically to mutual funds. Death benefits continue to remain tax-free regardless less of the premium amount. This will reduce mis-selling of ULIPs.Affordable housing benefit extended by one more year:
During the union budget
2019, Government has introduced a new section 80EEA to extend the tax benefits of the interest deduction up to Rs 1,50,000 for housing loan taken for affordable housing during the period April 1, 2019 to March 31, 2020. This is further now extended up to March 31, 2022. The individual taxpayer should be a first-home buyer and should not be entitled to deduction under section 80EE.