The economic growth of any country depends on how strong its income tax system is. The Finance Ministry reviews the existing rules and puts them up for discussion in Parliament. The Union Budget presented by the Finance Minister also includes changes in the income tax provisions proposed by the Income Tax Department.
The Union Budget 2021 made some changes in the Income Tax Rules, which are as follows:
Taxability of interest from provident fund
If we look at all the provisions that were changed this year, one of the most obvious changes was to bring the additional contribution of PF into the taxable net. PF continues to be a preferred investment option for low and middle income earners and high income earners. High income earners used it as a shield to earn tax-free income. Our finance minister had said that he deposited about crores against a PAN in just one month due to which he fixed a limit of Rs 2.5 lakhs. Accordingly, any interest earned from PF on investments above Rs 2.5 lakh will be taxed as per the income tax slab of the individual. This provision is applicable to all deposits made on or after April 1, 2021.
75. Relief to senior citizens over the age of
Budget 2021 also introduced a new provision to give compliance relief to senior citizens aged 75 or above, who have only pension and interest income. These senior citizens are exempted from filing their Income Tax Return (ITR). It is to be noted that the relief is only from return filing. The authorized banks receiving pension and interest income of these senior citizens will deduct TDS and deposit it to the government, subject to certain conditions. This relief is applicable from the financial year 2021-22.
new tax regime
The government has introduced a new tax regime in the last budget 2020. A taxpayer can choose between the new tax regime or existing/old tax regime commencing from 1st April 2020. The taxpayer opting for the new tax regime had to forsake all. Large discounts and deductions are allowed in the current system. For example, all deductions under section 80C like house rent allowance, leave travel allowance, LIC premium, ELSS, provident fund investment, medical insurance premium under section 80D, etc. are not allowed in the new tax regime. In short, not all deductions are allowed under Chapter VI-A under the new tax regime. (Except few, such as employer contribution towards NPS can be claimed under section 80CCD(2)). The new system was introduced to ease the return filing especially for the low income people.
Higher TDS for non-filers
The Finance Bill 2021 also introduced new provisions on higher rates for deduction and collection of tax at source if the receiver has not filed ITR. Accordingly, section 206AB has been introduced, which mandates the deductor to deduct TDS at higher rate to the person receiving the payment (deductor).
Have not filed ITR for the last two years.
Have TDS of more than Rs 50,000 in the last two years.
A similar provision (Section 206CCA) has been introduced for higher tax collection.
The Finance Ministry of India has introduced these sections to enhance ITR compliance and curb tax evasion.
Tax on Unit Linked Insurance Policies (ULIPs)
The Union Budget 2021 has also placed high premium ULIPs in the tax bracket. Accordingly, redemption of ULIP policies will be waived only if the cumulative premium paid for such policies does not exceed Rs 2.5 lakh with effect from February 1, 2021.
So if an investor has a ULIP policy purchased before 1st February 2021, the maturity proceeds are tax-free, irrespective of the premiums paid. For policies issued after February 1, 2021 and annual premium of more than Rs 2.5 lakh (for all policies in aggregate), these policies will be subject to capital gains tax.
Due date for delayed returns extended
Finance ATC 2021 permanently revised the due date for filing delayed returns, reducing it to three months. The due date for late filing has been changed from this year to 31st December of the assessment year.
However, for the current financial year 2020-21, this date has been extended to 31 March 2022 due to new portal issues and COVID-19.
Launch of Annual Information Statement (AIS)
The Income Tax Department recently launched an Annual Information Statement (AIS) on this new portal, which is gradually replacing the existing Form 26AS. Presently, Form 26AS, also a tax credit statement, provides details of taxpayers relating to tax collected, tax deducted, self-assessed or advance tax paid, etc. In comparison, AIS is like an expanded version of Form 26AS.
Additional information like interest earned, dividend income, mutual fund transactions, foreign remittances, salary breakup, off-market transactions etc. will now be available in AIS.
AIS has facility to submit online response for incorrect or details related to the taxpayer. The Feedback feature will enable taxpayers to identify incorrect information reflected in the AIS and provide feedback for corrective action. This will help in quick rectification of genuine errors and reduce notices from Income Tax Department.
Change in penalty for delay in filing return
The original due date for filing returns for the financial year 2020-21 has been extended till December 31, 2021 for persons not covered by the audit. Till last year, if the taxpayer missed the deadline of December 31 of the assessment year, the maximum penalty was Rs 10,000. However, the penalty amount for late filing has been reduced to Rs 5,000.
Disclaimer:Archit Gupta is the founder and CEO of Clear. The views expressed in this article are those of the author and do not represent the stand of this publication.
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