Finance Minister Nirmala Sitharaman made changes to the income tax laws in her budget on 1 February 2021 to make it easier for taxpayers to comply with them. Individual taxpayers’ income tax slabs were not amended, however. Tax administration was simplified, enforcement was simplified, and lawsuits were avoided under the direct tax plan. She mentioned the newer and feasible policies in the union budget, which relieved expectations.
10 changes to income tax in the 2012 union budget
Among the amendments are Unit Linked Insurance Plans (ULIP), pre-filled income tax return forms (ITR), higher source tax exclusions (TDS) for non-filers, and the exclusion of dividend payments to REITs/InvITs from TDS.
The following are the 10 income tax changes announced in the Union Budget 2021.
1. Those over 75 years of age can file their taxes
In the Union Budget 2021, it was announced that seniors over 75 with only pensions and interest as their sources of income would not be required to file their income tax returns (ITRs).
Senior citizens who meet these requirements are not exempt from paying tax nor excluded from filing an ITR. The interest income received in the same bank where the pension is invested will exempt them from reporting ITR. The proposal is intended to benefit senior citizens in the country.
2. Tax payment assistance for banks and account holders
A few banks will be alerted that holders of certain accounts are eligible for tax exemptions and must submit statements to the banks. The defined bank would then have to calculate the profits of those senior citizens based on the deductions allowed under Chapter VI-A and the rebate allowed under Section 87A. In this appraisal year, senior citizens would not have to file taxes.
3. Pre-filled ITR forms are available
Dividends, interest, and capital gains details will be prefilled into the ITR form to facilitate compliance by individual taxpayers. It is also possible to pre-fill information about capital gains from traded shares, dividend profits, and interest from banks, post offices, etc. Tax payments, TDS, wage revenue, etc., may also be included in ITRs.
4. Contributions to the EPF and its interests
The employee’s share of the contribution to the Workers’ or Employee Provident Fund (EPF) on or after 1 April 2021 shall be taxable at the time of withdrawal if it reaches 2.5 lakh. As a result, High Networth Individuals (HNIs) who make higher donations will have a higher tax burden.
Along with the taxation of gross company contributions above 7.5 lakh to the EPF, the NPS, and the Superannuation Fund Fund introduced last year, the EPF would be even less attractive as a retirement plan.
5. REIT/InvIT exemption
Dividend distributions to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are now exempt from TDS. In addition, the Government proposed that dividend profits be taxed only after they have been declared or paid.
The owners cannot accurately calculate the dividend profits for the payment of advance tax. Dividend distribution taxes were abolished by the government in order to promote spending, and the dividend was made taxable in the hands of owners last year.
6. Non-filers of income tax returns will be charged more TDS
A separate section 206AB has been proposed to be added to the Income Tax Act to allow a higher TDS limit for non-filers. This section proposes a TDS rate that is double the rate defined in the applicable clause of the Act, or twice the rate in effect, or 5%.
7. Taxation of ULIPs
Unit Related Insurance Policies (ULIPs) have been taxed by the government. When the cumulative premiums charged for the insurance do not exceed 10% of the policy value, the redemption of ULIPs is tax-free. As per the latest plans, individuals who redeem ULIPs on or after 1 February 2021 will be subject to capital gains tax, at the same rate as equity mutual funds.
8. LTC scheme notified
One-third or Rs. of the specified expenditure can also be taken into account for Leave Travel Concession (LTC). For the 2018-21 block, they will be eligible for 36,000 less if they have spent up to 12% on the purchase of goods/services subject to GST, provided that payment is made non-cash and within the period of 12 October 2020 to 31 March 2021.
9. Expansion of tax holidays for affordable housing
One more year has been added to the 1.5 lakh tax exemption on interest charged on a housing loan for the purchase of affordable housing. The 2019 budget included an additional deduction of Rs 1.5 lakh over and above 2 lakh. First-time homebuyers could avail of this up to 45 lakhs.
10. ITR filing has been shortened
It will now be 31 December 2021 instead of 31 March 2022 that is the last date for filing a revised Union budget 2021 key points income tax return or a late return voluntarily.
Tax changes and their effects on taxpayers
Despite constant tax rates, taxpayers’ demands for higher investment limits and medical expenses have not been fully met. In addition, taxpayers could be discouraged from investing in ULIPs and contractor funds due to limitations on exemptions and changes to the EPF.
In addition, the Government has proposed some constructive measures, like reducing stamp duty based on taxation, simplifying travel leave concessions, and exempting some returns from filing, which might inspire the common person.
With the proposed Union Budget 2021, the declining economy of the country is expected to undergo significant changes. In the wake of the country’s Prime Minister’s speech, the tax changes appear to be a ray of hope.