Finance Minister Nirmala Sitharaman today did not announce big changes in income tax rules in Budget 2021. However, she announced some tweaks in income tax rules, including on ULIPs, employee’s contribution to provident fund for high income earners and easing of income tax return filing for senior citizens.
Here are five changes in income tax changes announced in Budget 2021:
1) In order to rationalise tax exemption for high income employees, Budget 2021 proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of ₹2.5 lakh. Accordingly, any interest earned on employee contribution to pf above 2.5 lakh is now taxable. This provision shall be applicable for the contribution made on or after April 1.
2) Budget 2021 has proposed not to provide tax exemption under section 10(10D) of Income Tax Act for maturity proceeds of the unit-linked insurance policies (Ulips) with annual premium above ₹2.5 lakh. According to the Budget proposals, for ULIPs taken on or after February 1, the maturity proceeds of policies with an annual premium of more than ₹2.5 lakh will be taxable at par with equity-linked mutual fund schemes.
Currently, long-term capital gains (LTCG) arising out of the sale of listed equity shares and units of equity-oriented mutual fund schemes are now taxed at the rate of 10%, if the LTCG exceed ₹1 lakh in a financial year ( gains up to January 31, 2018 being grandfathered). Short term capital gains (if the units are sold before one year) in equity mutual funds are taxed at the rate of 15%.
3) Senior citizens of 75 years and above having pension income and interest from fixed deposit in the same bank would not be required to file income tax returns for the financial year beginning April 1.
In the Budget Speech 2021-22, Finance Minister Nirmala Sitharaman said that in the 75th year of Independence of our country, the government shall reduce compliance burden on senior citizens who are 75 years of age and above. “The Union Budget announced by Finance Minister had flavours of the past budgets i.e. provide relief to senior citizens and tax HNIs.
Going forward senior citizens above the age of 75 years will not be required to to file a income tax return provided they only have pension and interest income and have fulfilled specified criteria. On the other hand, interest earned on an accrual basis for employee contribution to PF above ₹2.5 lakh will now be taxable.
Further, income received on ULIPs where annual premium is more than ₹2.5 lakh will now be taxable and treated at par with equity mutual funds,” said Nitin Baijal, director at Deloitte.
4) The government in Budget 2021 extended the additional tax deduction of ₹1.5 lakh on interest paid on housing loan for purchase of affordable homes by one more year to March 31, 2022. The additional deduction of ₹1.5 lakh over and above ₹2 lakh was introduced in the 2019 budget. This was allowed for those buying homes for the first time and of up to ₹45 lakh.
The additional deduction of ₹1.5 lakh shall therefore be available for loans taken up till March 31, 2022, for the purchase of an affordable house. “The announcement of a 1-year tax holiday for affordable housing projects and a 1-year extension for an additional deduction of interest up to ₹1.5 lakh on loan for affordable housing will boost prospects for the housing and real estate industry,” said Nish Bhatt, Founder & CEO, Millwood Kane International.
5) Budget 2021 proposed to insert a new section 206AB in the Income Tax Act as a special provision providing for higher rate for TDS for the non-filers of income-tax return.
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