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Budget 2021: Here’s how retail investors and taxpayers will be affected

If those above 75 have income from rent and capital gains, they are not eligible for the exemption from filing tax returns

February 02, 2021 / 10:37 AM IST

Finance Minister Nirmala Sitharaman has lived up to her promise, by delivering a budget that is truly growth-oriented. Little wonder that the Sensex shot up by 2314 points after the budget was tabled in Parliament. Here are some of the measures that will have an impact on the retail investors and common taxpayers.

Tax leak plugged

The budget has plugged a major tax leak by placing a cap on the Provident Fund contribution that will earn tax-free income. A lot of people contribute huge sums to the Provident Fund every month to gain tax-free interest. Now that has been capped at Rs 2.5 lakh a year. Interest earned on Provident Fund contributions above Rs 2.5 lakh a year will be taxable. This will apply only to the employee’s contribution and not that of the employer.

ULIPs to get taxed as well

ULIPs with very high premiums will also move into the tax net. Insurance policies are often hawked as tax-free investment havens. But now, policies with an annualised premium of Rs 2.5 lakh or more will be treated as mutual funds for tax purposes. This new change will apply to all new policies.

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Increase in deposit insurance

Many banks went under in the past two years, putting a lot of stress on depositors and investors. Last year’s budget had increased the deposit insurance from Rs 1 lakh to Rs 5 lakh. This will provide comfort to investors and do away with the inconvenient practice of splitting deposits across different banks to keep them safe.

Boost to affordable housing

The budget has extended the eligibility window for the additional deduction of Rs 1.5 lakh for home loans taken for affordable housing under Sec 80EEA by another year. The earlier deduction given last year is expiring on March 31 this year. This benefit is only for first-time homebuyers with loans of up to Rs 35 lakh for houses worth up to Rs 45 lakh. There are also restrictions on the house size (60 sq m in metros and 90 sq m in other towns and cities).

Easier compliance for the elderly

The budget has also made tax compliance easier for those above 75. They don’t need to file returns if they have income only from pension and interest. It is important to note that this exemption is only for filing tax returns, not for paying tax. Also, if they have income from rent and capital gains, they are not eligible for the exemption from filing tax returns.

Reopening of ITRs

In a significant step to improve the taxpayer sentiment, the budget has changed the time frame within which the tax department can re-open old ITRs. The time window has been reduced from six years to three years now. This will ensure that taxpayers are not harassed by the tax department for returns filed several years earlier.

Easier filing of capital gains tax and dividend

The budget has also made it easy to file capital gains tax. The capital gains and dividend income will now come pre filled in the ITR forms. This will certainly help in improving tax compliance among taxpayers who used to ignore capital gains and interest because of the problems associated in calculating them.

All in all, the budget is taking the nation in the right direction – investments in infrastructure, health, agriculture are excellent long-term bets.
Raj Khosla is MD,MyMoneyMantra.com
first published: Feb 2, 2021 10:37 am

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