10 Income Tax Changes in Budget 2021

The common conception is that the Budget 2021-2022 did little to change the income tax regulations. This conception, however, is wrong, although the same people can be forgiven since truly the changes in income tax have been less than the previous years. The changes forwarded in this year’s budget include higher tax deduction at source, unit-linked insurance policies, exemption of dividend payment to REITs and InvITs and pre-filled ITRs, amongst others.

In this article, we shall go through these changes. 

1. Income tax filing for senior citizens, that is those above 75 years of age, is no longer a requirement. The Finance Minister said that people above 75 year of age whose source of income is only interest and pension are from now onwards exempted from filing their ITR, or income tax returns. They still have to pay their tax though, but there is no longer the need to file ITR. Note that this shall be the case only if the interest earned is from the same bank where one has pension deposited.

2. Some banks shall be notified by the central government in regards to senior citizen account holders being eligible for the above exemption. Such holders shall have to give a declaration to the concerned bank. The banks shall then compute income of senior citizens after taking into account deductions allowable under Chapter VI-A as well as allowable rebates under 87A. 

3. ITR Forms shall from now on have pre-filled information of interest, dividend and capital gains so that individual taxpayers have more ease. Details of capital gains shall be given, such as dividend income, listed securities, post office, and interest from banks, and etc. Also included shall be tax payments, salary income, TDS and others. 

4. Interest of employees’ share of EPF contribution on or later than 1st April 2021 shall be taxable, but only if it is more than Rs. 2.5 lakhs in a year. This shall result in more liability, even more so for High Net Worth Individuals who make higher contributions and don’t favor voluntary provident fund contributions. Apart from this, tax on employer’s aggregate contributions of more than Rs. 7.5 lakhs to NPS, EPF and superannuation fund and interest can make EPF less attractive.
   

5. The government has taken the decision to make dividend payments to REITs or Real Estate Investment Trusts as well as to infrastructure funds, exempt from TDS. Advance Tax liability for dividend income shall take place only after the payment or declaration of dividend since this amount cannot be estimated accurately for the payment of advance tax. The government has done away with dividend distribution tax to make investment more attractive. 

6. There shall be higher TDS for those who don’t file their income tax returns. There will be a new section named 206AB in the IT act. This section shall provide a higher TDS rate for ITR non-filers. 

7.  ULIPS or Unit Linked Insurance Plans are now bought under the tax bracket. Right now, if one redeeming of a ULIP is tax exempted as long as the policy’s total premium payable is not more than 10%. Under the new proposal, redemption of ULIPs issued on or later than 1st February 2021 when premium payable is more than Rs. 25 lakh shall now be subjected to Capital Gains Tax, which shall be on par as equity-oriented mutual funds.

8. There is a change regarding the LTC scheme notified. Employees shall continue to get exemptions for Leave Travel Concessions of 1/3rd of the concerned expenses or Rs. 36000, whichever is less for the period of 2018-2021. This shall be only if the expense of the purchase of goods or services which are liable to GST at the rate of 12% or more, as long as the payment is made by non-cash means, and is incurred between 12th October 2020 and 31st March, 2021. This amendment is just for the financial year of 2020-2021.

9. The government has increased tax holidays on affordable housing. This change has extended the additional deduction of tax of Rs. 1.5 lakh on interest paid on a housing loan for buying of affordable homes by one additional year. 

10. Lastly, the government has reduced the time limit for filing of delayed ITR. The final date of filing a revised ITR or a late ITR voluntarily shall now be 31st December 2022.