The economic growth of any country thrives on how robust its income tax system is. The finance ministry reviews the existing rules and puts them forth for discussion in the Parliament.
The Union Budget present by the Finance Minister also contains changes in the income tax provisions, if any propose by the income tax department.
Union Budget 2021 Made Changes in Income Tax Rules
Taxability of interest from Provident Fund
If you look at all the provisions that got change this year, one of the most evident changes was bringing PF’s excess contribution under the taxability net.
PF has stay as a favourite investment option for low and middle-income earners and high-income earners.
High-income earners use it as a shield for earning tax-exempt income.
Our finance minister had states that they observe almost crores of deposits against one PAN in just one month, due to which they introduce a cap limit of Rs.2.5 lakh.
Any interest earn from the PF on investment above Rs.2.5 lakh will be taxed according to the individual’s income tax slab.
This provision applies to all deposits made on or after 1st April 2021.
Relief to Senior Citizens aged above 75
The Budget 2021 also introduce a new provision to offer compliance relief to senior citizens age 75 or more, who only have a pension and interest income.
These senior citizens are exempt from filing their income tax returns (ITR).
It is to be note that the relief is only from return filing.
The authorise banks that get these senior citizens’ pension and interest income will deduct TDS and submit it to the government provide certain conditions are fulfill.
This relief is applicable from the financial year 2021-22.
Choice of New Tax Regime
The government has introduce a new tax regime in the previous Budget 2020.
A taxpayer could choose between the new tax regime or the existing/old tax regime starting from the 1st of April 2020.
A taxpayer opting for the new tax regime had to forgo all major exemptions and deductions allow in the existing regime.
For instance, house rent allowance, leave travel allowance, all deductions allowed under Section 80C like LIC premium, ELSS, Provident Fund investment, medical insurance premium under Section 80D, etc., are not allow in the new tax regime.
All deductions under Chapter VI-A are not allow under the new tax regime. (except a few, like employer contributions towards NPS under section 80CCD(2) can be claimed).
The new regime was brought to bring ease of return filing, especially for the low-income earners.
Higher TDS for Non-filers
Finance Bill 2021 also introduce new provisions for deduction and collection of tax at source at higher rates if the receiver has not filed ITR.
As per, Section 206AB is introduce, which mandates the deductor to deduct TDS at a higher rate if the person receiving the payment (deductee) Has not file ITR for the previous two years.
Has a TDS of more than Rs.50,000 in the previous two years.
A similar provision (Section 206CCA) is introduce for higher tax collection.
The Finance Ministry of India has introduce these sections to increase ITR compliance and curb tax evasion.
Tax on Unit Linked Insurance Policies (ULIPs)
The Union Budget 2021 also place ULIPs with higher premiums into the tax bracket.
As per, the redemption of ULIP policies will be exempt only if the cumulative premium paid for such policies do not exceed Rs.2.5 lakh starting from 1st February 2021.
Hence if an investor has a ULIP policy bought before 1st February 2021, then the maturity proceeds are tax-free irrespective of the premium paid.
For policies issue after 1st February 2021 and having an annual premium of more than Rs.2.5 lakh (for all the policies in aggregate), these policies would be subject to capital gains tax.
Due date of belated return extended
The Finance Atc 2021 permanently modify the due date of filing a belated return, reducing it by three months.
The due date for late filing has been change to 31st December of the assessment year from this year onwards.
For the current financial year 2020-21, this date has been extend to 31st March 2022 due to new portal issues and covid-19.
Launch of Annual Information Statement (AIS)
The income tax department recently launch an Annual Information Statement (AIS) on this new portal, gradually replacing the existing Form 26AS.
Presently, Form 26AS, also a tax credit statement, offers details relating to the tax collect, tax deducted, self-assessment or advance taxes paid, etc., related to the taxpayers.
In comparison, AIS is like an expand version of Form 26AS.
Additional information like interest earn, dividend income, mutual fund transactions, foreign remittances, salary breakup, off-market transactions, etc., will now be available in the AIS.
AIS has a feature to submit online feedback for inaccurate or details not pertaining to the taxpayer.
The feedback feature will enable taxpayers to identify incorrect information reflect in the AIS and provide feedback for corrective action.
This will help fix genuine errors quickly and reduce the notices from the income tax department.
Change in a Penalty for Delayed Filing of Returns
The original due date of filing returns for FY 2020-21 has been extend to 31st December 2021 for individuals not cover under audit.
Till the previous year, if the taxpayer miss the deadline of 31st December of the assessment year, the maximum penalty was Rs 10,000.
So, the penalty amount for delay filing has been reduce to Rs 5,000.
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