The finance minister announced the Budget for the financial year 2021-22 today. Here are the key highlights for individual investors and taxpayers.
01-Feb-2021 •Research Desk
No tax relief, no tax rise
While there aren't any tax reliefs for individual taxpayers in the Budget, the silver lining is that no additional burden has been passed on to the investors in the form of cess or a tax increase due to the pandemic. It was widely believed that some form of tax hike would be there, given the disruption caused by COVID.
Pre-filled income tax returns
For individuals, the major highlight of this Budget is the steps taken towards increasing the convenience of filing income tax returns (ITR). It has been proposed that the ITR form would now have pre-filled values of capital gains earned on listed securities, interest income, dividend income, etc., easing the process of tax filing for individuals. Also, the time limit for reopening of income tax assessment has been brought down from six years to three years.
Exemption from filing ITR for senior citizens above 75 years of age
Senior citizens who are 75 or above and are earning only through pension and interest income in a financial year will not need to file an ITR. The bank paying out the interest will deduct the applicable tax from their bank accounts.
Extension of tax exemption for affordable housing
In order to continue providing stimulus to aid the demand in the housing sector, the finance minister has extended the tax holiday for affordable-housing projects, announced in the last Budget, until March 31, 2022. This gives an additional deduction of interest payment up to Rs 1,50,000 to first-time buyers of affordable homes (under Section 80EEA).
Rationalisation of taxation of unit-linked insurance plans (ULIPs)
The finance minister has rationalised the taxation of gains from ULIPs, thus bringing them on a level-playing field with mutual funds to some extent. She has proposed tax exemption for maturity proceeds from the ULIPs having an annual premium of up to Rs 2.5 lakh. Those exceeding this premium amount will be subject to the same capital gains taxation regime as that of mutual funds. This tax rationalisation of ULIPs will only be applicable for the policies taken on or after February 1, 2021. However, the proceeds received in an event of the death of life assured will continue to remain exempt irrespective of the annual premium.
Easy access to deposit insurance for bank depositors
In a bid to protect investor interest, the government had last year announced an increase in the deposit insurance cover from Rs 1 lakh to Rs 5 lakh for bank customers. Now, the Finance Minister proposes to streamline the provisions. This would help the depositors get easy and time-bound access to their deposits in case a bank is temporarily unable to fulfill its obligations. Given the circumstances faced by the customers of a few stressed banks in the recent past, this provision can save small depositors from a lot of anxiety.
Late deposit of Employees' contribution to Provident Fund no longer a deduction
Certain employers were noted to be deducting the contribution of employees towards Provident funds, superannuation funds, and other social security funds but were not depositing these within the specified time. Due to this, the employees had to suffer a loss of interest income. Also, in cases where an employer became financially unviable, such non-deposits resulted in a permanent loss for the employees. Thus, to ensure timely investment of employees' contributions, the late deposit of employee's contribution by the employer would henceforth not be allowed as deduction to the employer. This should induce employers to deposit employee contributions in a timely manner, thereby safeguarding their interests.
Rationalisation of tax-free income on provident funds
It has been proposed to restrict the tax exemption on the interest income earned by high income employees contribution to various provident funds up to Rs 2.5 lakh per annum. This would come into effect for all contributions made, starting from April 01, 2021.
Dividends from a REIT/InvIT exempted from TDS
The dividend received from Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InvIT) has been exempted from TDS.
Advance tax on dividends
Since the dividend declared is at the prerogative of businesses, the amount of dividend income cannot be estimated correctly by the shareholders for the purpose of paying advance tax. Thus, with the new tax regime, any tax liability on dividend would arise only after the declaration/payment of dividend.
Dispute Resolution Committee
In the last year's Budget, the Government had come out with the "Direct Tax Vivad Se Vishwas Scheme" to provide taxpayers an opportunity to settle long-pending disputes, relieving them of strain on their time and resources. The FM informed that around 1,10,000 taxpayers had opted to settle tax disputes amounting to more than Rs 85,000 crore under this Scheme. This time around, in order to provide further relief to small taxpayers, a Dispute Resolution Committee has been proposed to be constituted which would ensure efficiency, transparency, and accountability in resolving the disputes, that too anonymously. Individuals with a taxable income of up to Rs 50 lakh having a disputed income of up to Rs 10 lakh shall be eligible to approach this committee.
Agriculture cess
Though there wasn't any additional cess on income in this year's budget, the FM has proposed a new Agriculture Infrastructure and Development Cess (AIDC) on select items. These items would include:
The revenue from this cess would be used to finance the improvement of agriculture infrastructure and other development expenditure.
However, before you rush out to refuel your vehicles, you may note that fuel price would remain unchanged despite the cess as the FM proposed to reduce customs duty.
Also, the basic custom duty on metals such as gold and silver was raised to 12.5 per cent in July 2019 from an earlier 10 per cent. The FM has now proposed to rationalise it in order to bring it closer to the previous levels.
