It’s good news and not-so-good news. Budget 2021 did not change the income-tax rates. It kept the rates steady. That was a relief to all taxpayers, though many had expected rates to go down to give comfort in these Covid-19 times.
But the finance minister announced several tweaks. To ensure that the rich don’t get away from paying taxes by putting money in tax-free instruments meant for middle-class, Budget 2021 has restricted the tax exemption for the interest income earned on the employee’s contribution to various provident funds.
If the employee’s contribution to the provident fund – be it statutory or voluntary – exceeds Rs 2.5 lakh per year, then the interest earned on this excess contribution will be taxable. Only those contributions made on or after April 1, 2021 will be accounted for taxation. Hence, taxpayers will need to figure out alternatives from April 2021.
The other move to tax the rich was made by making a section of unit-linked insurance policies (ULIPs) taxable.
Those ULIPs where you pay an annual premium in excess of Rs 2.5 lakh will now attract capital gains tax. This will be applicable to ULIPs bought on or after February 1, 2021. Gains made on such policies will now attract primarily long-term capital gains tax (LTCG) at redemption or maturity, at par with other equity-oriented investments.
Here as well, existing ULIPs were spared. So, if your current (premium) contribution to ULIPs exceed Rs 2.5 lakh, then those ULIPs will not attract the capital gains tax.
However, proceeds received by the policyholder’s dependents on her death will continue to be tax-free. This brings a section of ULIPs on par with equity-oriented mutual funds.
Faceless income-tax assessment gets a boost. Pre-filled income-tax forms will come with more details that help, both, the taxpayer and the government. The timeline for reopening of assessment under income tax returns also now goes down to 3 years from present 6 years. Serious tax evasion cases too, only where there is evidence of concealment of income of Rs 50 lakh or more in a year can the reassessment be opened in 10 years. This will ease burden on the tax authorities and tax payers and pave the way for faster resolution of cases.
And last, but not least, Budget 2021 has said that bank customers will now be able to get back the Depositors Insurance Cover faster than before. Customers do not have to wait for the bank to go in liquidation to be able to get this money.
Moneycontrol personal finance’s Preeti Kulkarni and Kayezad E. Adajania decode Budget 2021 for you.Listen in for more.