New financial year has begun and with this certain new income tax rules have come into effect. Let us discuss the changes applicable to individual tax payers. First year for Option to choose from Two tax regimes
The budget for 2020-21 has introduced a new tax regime, which an individual tax payer can opt, of lower tax rates coupled with a very few deductions available and fewer exempt allowances available instead of the regular tax regime where you have to pay tax at higher rates but have right to claim various exemptions and deductions. This is the first year when you have to exercise the option whether to remain in the old tax regime or migrate to new tax regime.
The salaried people have right to choose between old tax regime or new tax regime every year but the person with business income cannot go back to the old regime once he opts for new regime unless you discontinue your business. So, one with business income has to make this choice between these two alternative tax regimes taking into account long term implications.
Removal of exemption for Voluntary contribution of Employee Provident Fund: Hitherto the Interest received on your provident fund account in respect of your own contribution was fully exempt even for the contributions made beyond the mandatory 12% of your basic salary. In the budget of 2021-22, the Finance minister has proposed that this exemption on interest credited in your EPF account will no longer be available for annual contribution made beyond 2.50 lakhs every year for contributions made after 1st April 2021. However, in case the employer does not contribute to your provident fund account, the budget has proposed a higher threshold limit for contribution of Rs. 5 lakhs beyond which the interest on such contribution will attract tax year after year.
Reduced period for filing the belated ITR or for revising your filed ITR: Earlier, if you failed to file your ITR by the due date of 31st July, you could still file it by 31st March with late fee. Likewise, after having filed your ITR, if you noticed any omission or mistake, you could revise the same by 31st March of the same year. But not any longer. The finance bill for 2021-2022 has a proposal to reduce this time limit by three months and therefore you will have time to file your belated ITR or revise your ITR till 31st December of the same financial year. It effectively reduces the time available with you to file the belated ITR or revised ITR by three months. So file your ITR as soon as possible so that you have sufficient time to revise it in case any mistake is noticed.
Changes effective on investments made in ULIP after 1st February, 2021: The maturity proceeds received from any life insurance product including a ULIP (Unit Linked Investment Plan) is exempt if the premium paid on such policy does not exceed 10% of the sum assured. The budget for 2021-2022 proposed to be withdraw this exemption in case the aggregate annual premium for all the ULIP policies taken together by an individual exceeds Rs. 2.50. This will impact only for those ULIP policies which are bought after 1st February, 2021. So be careful while buying a new ULIP policy. Moreover, the profits if any realized on such ULIP at the time of maturity will be treated like equity products on which flat tax at 10% without indexation is allowed.
Inclusion of dividend income in ITR for the year ended 31st March 2021: Till 31st March 2020, the dividend received from Indian Companies as well as mutual fund schemes were tax free in your hands as the tax was on the dividend or income distributed was paid by the Company or the mutual fund. However, the budget of 2020 had removed the exemption on dividend income and has made the same taxable in your hands. In case the amount of dividend paid to you exceeded Rs. 5,000/- the Company or the mutual fund houses would have deducted tax while crediting the dividend to bank your account. Please verify the amount of tax deducted on dividend paid to you from Form no 26AS. In case any TDS is reflecting in your form No. 26AS, you need to gross up your dividend income by adding the amount of tax deducted to the amount of dividend credited in your account for proper and correct disclosure of your taxable dividend income. This exercise has to be done well in advance for ensuring timely filing of the ITR.