Important & Comprehensive list of Budget 2021-22 Proposals related to Personal Finance | W.e.f AY 2022-23

Union finance minister Smt Nirmala Sitharaman presented the Union Budget 2021 in Parliament on Monday (02-Feb-2021).

The finance minister provided a major boost to healthcare and infrastructure sectors in Union Budget 2021. There was no change in Income Tax slabs this year.

However, certain important proposals have been made, which can have an impact on an individual’s Personal Finance & taxation aspects.

In this post, I have tried to list down the important Budget 2021-22 proposals, all at one place.

In case, you would like to add or correct any of the below points, kindly feel free to leave a comment and I will update this list accordingly.

Comprehensive list of Budget 2021-22 Proposals for FY 2021-22 / AY 2022-23

1) Latest Income Tax Slab Rates FY 2021-22

Below is the income tax slab structure as per the new tax regime. Individuals opting to pay tax under the new lower personal income tax regime will have to forgo almost all tax breaks that you have been claiming in the old tax structure.

2) Taxation of EPF Interest

As of now (FY 2020-21), the interest income earned on contributions to EPF made by the employee are completely TAX-FREE.

However, with effective from 1st April, 2021, no more tax free interest on more than Rs 2.5 lakh a year contribution towards EPF/VPF (only employee contribution). This is applicable to Pvt PF trusts as well.

From 1st April 2021 onwards, the interest on any contribution above Rs. 2.5 lakh by an employee to a recognized provident fund is taxable as per the provisions of the Finance bill 2021.

• If employee contribution is more than Rs 2.5 lakh, the interest earned on the excess amount is taxable wef 1st April 2021 onwards.
• Example – If employee share EPF + VPF is Rs 4.5 lakh in FY 2021-22 then the interest earned on excess Rs 2 lakh (Rs 4.5 L – Rs 2.5 L) will be taxable in FY 2021-22 / AY 2021-22.
• You will then need to determine the interest amount corresponding to the excess, that is Rs. 2 lakh and declare it as income and pay tax as per applicable income tax slab rate.
• Note that the additional interest on this amount (Rs 2 lakh) in subsequent assessment years is not taxable.

3) Taxation of Maturity proceeds from ULIPs

Maturity proceeds from ULIP policies (taken on or after 1st feb, 2021) will be tax free only if the total annual premium on them does not exceed Rs 2.5 lakh.

So, gains on ULIP equity funds (for such non-exempt ULIPs) will be taxed at 15% (short term) or 10% (long-term). If it is a ULIP debt fund (for non-exempt ULIPs), the gains will be taxed at your applicable slab rate (short term) and 20% after indexation for long term gains.

Death Benefit from ULIP will still be exempt from tax, irrespective of the quantum of ULIP premium paid. The proposal does not affect the tax treatment of death benefit.

4) No ITR Filing for Senior Citizens

Senior Citizens of age 75 years and above who have only Pension and Interest income from Banks/Post office need not file their Income Tax Returns. The banks will deduct the applicable taxes though. The conditions for exemption from filing ITR from 1st April, 2021 are:

• The senior citizen should be a resident and should be 75 years of age or more during the financial year for which tax has to be paid.
• He / She must receive a pension and interest income from the same bank.
• Your banker will deduct the applicable taxes on your Income.
• Only certain specified banks are allowed for this purpose.
• A declaration should be given to the bank in this regard.

5) Belated Income Tax Returns – New Timeline

It has been proposed to reduce the time-line for Belated Returns and Revised Returns by 3 months.

For example, a belated return or revised return for FY 2020-21 would need to be filed on or before 31-December 2021 or completion of assessment, whichever is earlier.

6) No TDS on Dividends from REITs & InvITs

To provide ease of compliance, Budget 2021 has proposed to make dividend payment to REIT (Real Estate Investment Trusts) and InvIT (Infrastructure Investment Trusts) exempt from Tax Deduction at Source (TDS). But, note that such income is still a taxable income.

7) IT Deduction on Home Loan Interest Payment (Sect 80EEA)

The Rs 1.5 lakh Additional Income Tax deduction on affordable home loans will be extended for one more year, u/s 80EEA. The Interest deduction (Sec 80EEA) of Rs.1.5 lakhs to be extended for loans taken till 31st March, 2022. This deduction can not be claimed if you opt for new tax slabs.

• The additional tax deduction of Rs 1,50,000 is for first-time home borrowers only. In case, you have an existing residential property, you can not claim tax benefit u/s 80EEA.
• Do note that your property should have a stamp duty value of maximum Rs 45 lakh (Stamp Duty Value). Only such properties fall under ‘affordable housing’ category. Notice that its the Registration value and not the ‘agreement value’. In majority of the property deals, there will be white and black money proportion (though this is legally not allowed).

   

  8) Faceless Assessments & Scrutiny

  Income Tax Appellate Tribunal to become Faceless. It has been proposed to make proceedings before the Income-Tax Appellate Tribunal (ITAT) faceless, only electronic communication will be done.

  9) Pre-filled ITR Forms

  The details of your Capital Gains (Long term & Short Term), Dividend Income and Interest income will be pre-filled in the Income Tax Return Forms.

  10) Cess on Gold & Silver

  In a bid to boost agriculture infrastructure, the government has announced a cess on certain items, including petrol, diesel, gold and some imported agricultural products.

  Gold & Silver, both will attract 2.5% of agriculture infrastructure and development cess.

  11) Re-opening of Tax Assessments – Timeline

  The reopening of your previous years’ tax assessments can now happen till 3 years versus, except in serious cases. The existing time limit is 6 years.

  12) Vehicle Scrapping Policy

  • The main aim of this policy is to phase out cars and commercial vehicles which are older than 20 or 15 years, respectively. 
  • A fitness test will be conducted at automated fitness centres, which will determine whether the vehicle in question is qualified to run on roads, or headed for the scrap heap.
  • Each fitness test would cost approximately Rs 40,000. This is in addition to the road tax, and possible “Green Tax” that you have to pay while mandatorily renewing your private vehicle’s registration after the 15-year period.
  • Each fitness certificate is applicable for five years, after which the owner of the vehicle will be required to get another fitness test, costing the same. 
  • The policy, which will be in effect from April 1, 2022, may also offer a monetary incentive to the owners sending their vehicles to the scrap heap, although if the vehicle fails the fitness test thrice, they wouldn’t be left with much of a choice.

  13) NRIs & Double Taxation

  As per the Govt – “When Non-Resident Indians return to India, they have issues with respect to their accrued incomes in their foreign retirement accounts. This is usually due to a mismatch in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions.”

  According to the memorandum explaining the provisions of Finance Bill, 2021, a mismatch was recorded in the year of taxability of withdrawal from retirement funds that were opened while residing in foreign countries. Currently, the withdrawal may be taxed on receipt basis in foreign countries, while on an accrual basis in India.

  Hence, the Govt will soon notify certain rules in order to remove hardship of Double Taxation wrt NRI’s income. (NRIs allowed to operate One Person Companies in India.)

  14) EPF dues not deposited by Employer

  Only 321,800 companies paid their statutory employees provident fund dues in April 2020, almost 178,000 fewer than those that paid in the previous period, latest data from the Employees Provident Fund Organization (EPFO) showed.

  Taking a cue from this, the finance bill clarifies that if there is a delay in depositing the Provident Fund of employees, this sum will not be allowed as a deduction in the hands of Employer.

  This  will come into effect from April 1, 2021 and will apply to the companies/employers filing ITR for FY 2020-21.

  15) Tax Liability on Dividends

  Advance tax liability on dividend income will arise only after declaration or payment of dividend by the Companies.

  I hope you find this post informative and useful. Do share your comments, cheers!