The Union Budget 2021 introduced by Finance Minister Nirmala Sitharaman on Monday did not announce the change in income tax slabs for individuals, leaving them frustrated. However, she did announce unusual tweaks to the income tax rules which might interest taxpayers. These include unit-linked insurance policies (ULIP), employee grants to provident funds for individuals in the high-income bracket, and ease in the filing of income tax returns for elder citizens among others.
Here are five takeaways in income tax changes published in Budget 2021:
1. In a movement to justify tax exemption for high-income employees, the 2021 Budget proposed to reduce tax exemption for the interest income earned on the class’s contribution made to many provident funds up to the annual contribution of Rs 2.5 lakh. Accordingly, any earnings accrued on such contributions to the provident fund above Rs 2.5 lakh will now be taxable. However, this outline will hit in for contributions made on or after April 1, 2021.
2. This year’s budget has also advised not to provide tax exemption under section 10(10D) of the Income Tax Act for development proceeds of the ULIPs with an annual premium above Rs 2.5 lakh. As per the suggested rule, ULIPs has taken on or after February 1, the maturity returns of such policies with an annual premium of more than Rs 2.5 lakh shall now be chargeable, just like equity-linked mutual fund schemes.
At present, long term capital gains (LTCG) rising out of the sale of listed equity shares/units of equity-based mutual fund projects are now taxed at the rate of 10 percent, if the LTCG exceeds Rs 1 lakh in a financial year. However, short term capital gains in investment mutual funds are taxed at the rate of 15 percent, if the shares/units are exchanged before one year.
3. The 2021 Budget also proposes to ease compliance applicable to senior citizens aged 75 years or above. It is meant to exempt these senior individuals having pension income and benefit from fixed deposit in the same bank shall not be expected to file income tax returns, if the full amount of taxable income has been diminished by the paying bank for the financial year beginning April 1. However, this difference is only for these senior citizens who have only interest income different than a pension.
4. The 2021 Budget extended the additional tax reduction of Rs 1.5 lakh on interest paid on housing loan for the acquisition of affordable homes by an additional year (1 year) until March 31, 2022. This additional reduction of Rs 1.5 lakh and above Rs 2 lakh was included in the 2019 budget session, which passed first time home buyers some relief up to Rs 45 lakh. The new supplementary deduction of Rs 1.5 lakh will therefore be available for loans taken up till March 31, 2022, for the acquisition of an affordable home.
5. Budget 2021 also recommended to insert a new section 206AB in the Income Tax Act as a special preparation providing for a higher rate for tax deducted at source (TDS ) for the non-filers of income-tax revenue. Under the new advanced TDS, the rate in this section is higher of the followings rates:
Twice the rate specified in the relevant requirement of the Act or twice the rate or rates in force, or the rate of five percent.