Union Budget 2021: Impact on Individual Tax payers

Let’s Know How the Union Budget 2021 impact on individual Tax Payers. The Union Finance Budget 2021 has been passed recently by the central government. With a mix of benefits and with a motive to expand the tax base, here are the impacts which the finance budget for 2021 has created on the individual tax payers of the country.

♦ Individual Tax Payers (Senior Citizens) above the age of 75 years – Union Budget 2021

As per Union Budget 2021, All the senior citizens being individual tax payers above the age of 75 years and having only the following source of income:

− Pension

− Interest income (from the same bank where pension is credited)

Will not be required to file their Income Tax Returns. The relevant authorities will deduct tax (TDS) wherever applicable, and remit the same.

♦ Tax on Interest from Provided Fund contribution

By fixing a limit on the interest free income earned from PF contributions, the Union budget 2021 has fixed a tax leakage. Until the budget was passed, the interest earned from PF contributions was completely tax free, how much ever the amount may be. But hereafter, the interest from PF contributions exceeding Rs. 2, 50, 000/- (two lakhs fifty thousand) in a financial year shall be subject to tax at the applicable slab rate for the individual. However, as a small relief, this will apply only to the employee’s contribution and not that of the employer’s contribution.

♦ Taxation of Unit- Linked Insurance Plan (ULIP)

Currently, exemption is available for sum received under a life insurance policy where the premium payable for any of the years, does not exceed 10 % of the actual sum assured. Such exemption shall not apply to ULIP issued on or after 1 February 2021. From now, policies with an annualized premium of Rs 2.5 lakh or more will be treated as mutual funds for tax purposes, and if any sum is received from such ULIP other than due to death of the person, such income would be subject to tax as capital gains.

♦ The Income Tax Returns will now be pre- filled with more information/ Tax on dividend

With a motive to make tax filing process easier and to ensure tapping of tax from relevant sources of income, the income tax return from now on shall come pre- filled with additional details such as capital gain from sale of shares/ mutual fund units, dividend income, interest from banks/ post office. Until now, only details such as salary income, tax deducted at source, bank details etc were pre- filled in the income tax returns.
(Also, with respect to the dividend income, the Union budget 2021 has announced that ‘Advance Tax’ on dividend income need not be paid until the dividend is declared/ paid.) 

♦ Reopening of Income Tax cases

As a major sign of relief to the tax payers, the Union budget 2021 has reduced the time frame up-to which the tax department can re-open old income tax cases. The existing time frame of 6 years has now been reduced to just 3 years from now. However, in case of serious tax fraud cases where the concealment of income is Rs 50 lakh or more it would be 10 years.

♦ Revised time limits with respect to filing of belated income tax return

With effect from 1st April 2021, the time limit to file belated income tax returns (where a return is not filed within the original due date specified, that is late filing of returns) is proposed to be reduced. 
Presently, belated returns and revised returns (where a taxpayer seeks to file a return to correct any omission or mistake made in the original return) can be filed before the end of the subsequent financial year or completion of assessment whichever is earlier. For example, a belated return or revised return for previous year 2019-20 could be filed on or before 31 March 2021 or completion of assessment, whichever is earlier.
However, currently, it has been proposed to reduce the above timeline for belated returns and revised returns by 3 months. For example, a belated return or revised return for financial year 2020-21 would now need to be filed on or before 31 December 2021 or completion of assessment, whichever is earlier.

♦ Relief to house buyers – Union Budget 2021

Union Budget 2021, Under the provisions of section 80 EEA of Income Tax Act, an additional deduction of 
Rs. 1, 50, 000/- is available with respect to the interest paid on housing loan taken to purchase a residential house property. However, with this benefit ending on 31st March 2020, the Union budget has proposed to extend the benefit till 31st March 2022.
(However, to avail this benefit, certain specified conditions need to be satisfied by the tax payer. These include: Individual should not own any house property on the date of sanction of loan, Stamp duty value of the property bought should not exceed Rs. 45, 00, 000/-, Restrictions on house size, etc.)

♦ Other decisions announced in the Union Budget 2021

− National Faceless Income-tax Appellate Tribunal Centre proposed ed to be set up for all second-level appeal cases.

− For individuals with overseas retirement funds, central government will announce rules to determine the manner and year of taxability of income from overseas retirement funds opened by a resident taxpayer while he was a residing in a foreign country. This will provide relief from hardship faced on account of double taxation due to mismatch in timing of taxation in different countries.

A glimpse of the income tax slab and tax rates applicable for Financial Year 2020-21 (Assessment Year 2021-22) – Union Budget 2021

# For individuals other than senior citizen (less than 60 years) and super senior citizen (less than 80 years)
** For all individuals irrespective of age. It shall be noted that if a person opts to pay tax as per ‘New Scheme’, certain deduction and exemptions available shall need to be forgone.

Taxable Income For Senior Citizens – 60 Years or more & Tax Rates:

Taxable Income For Super Senior  Citizens – 80 Years or more & Tax Rates:

In addition to the above tax rates, a surcharge at applicable rates and Health & Education Cess shall be applied on the tax amount.

Surcharge:
a) 10% of Income tax where total income exceeds Rs.50 lakh
b) 15% of Income tax where total income exceeds Rs.1 crore
c) 25% of Income tax where total income exceeds Rs.2 crore
d) 37% of Income tax where total income exceeds Rs.5 crore

Health & Education Cess: 

4% on the amount of tax, including surcharge.

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