Effect of Union Budget 2021 on High-Income Individuals

The Budget 2021 did not make any changes to personal tax income tax rates. This is certainly a relief and benefit to high income earners and taxpayers, who were so far worried whether they will have to deal with even more cess and surcharges related to the Covid-19. 

Interest of PF or Provident Fund has been so far thought to be a reliable and tax-free way of income for those who are salaried. From 1st April 2021, the exemption on Provident Fund interest on contributions of employees towards the PF shall be limited as far as the said contributions are noted to be more than Rs, 250000 in average in a year.

Last year’s budget already gave a cap on non-taxable PF contributions from employers till Rs. 7.5 lakhs, and even gave the provision that interest from such contributions if exceed that amount shall be taxable. The current proposal says that interest on contributions made by employees beyond the annual average of Rs. 2.5 lakhs shall be taxable too. Thus, employees shall have to pay attention to the tax implications of PF contributions.

Another area in which taxation implications can come up is when investments to ULIPs, or Unit Linked Insurance Policies. Right now, there is an exemption for amounts received from a life insurance policy as long as the annual premium is not more than 10% of the actual sum assured.

However, one won’t get this exemption for ULIPs issued on or later than 1st February, 2021 if the average premium amount for any year is more than Rs. 2,50,000. In these cases, the ULIPs shall be seen or treated on par of equity funds, which means their maturity proceeds shall be taxable.

However, taxpayers shall be relieved to know that there are benefits when buying a residential property in those cases in which the agreement value depends on stamp duty value. To boost demand for properties, the safe harbor threshold is now 20% from the previous 10%.

Thus, if you buy a residential property, you will not have to worry about tax as long as the stamp duty value is not more than 120% of the value of agreement. 

One should remember that:

1. The agreement should not be more than Rs. 2 crores

2. The transfer takes place between 12th November 2020 and 30th June 2021

3. This transfer is from the first allotment of the residential property