The new income tax laws will take effect on April 1, according to Union Finance Minister Nirmala Sitharaman’s announcement in the Union Budget 2021. In FY 2021-22, a range of changes to the income tax laws would affect taxpayers.
Notably, the Central Government has set March 31 as the deadline for linking PAN (Permanent Account Number) to AADHAR card; otherwise, PAN will become inactive on April 1.
By March 31, taxpayers must also complete the updated ITR (Income Tax Return). As a result, in compliance with FM Sitharaman’s budget announcements, complete the tasks mentioned below by March 31.
Tax Deducted at Source (TDS)
In the Union Budget 2021, FM Sitharaman suggested higher TDS or TCS rates in order to enable more people to file ITRs. The finance minister introduced new sections 206AB and 206CCA as a special provision for the deduction of higher TDS and TCS rates for non-filers of an ITR, respectively.
Tax on PF interest
According to the Budget 2021, if an employee’s investments in the Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF) cross Rs 2.5 lakh in a financial year, the interest received on those contributions will be taxable in the employee’s hands.
Furthermore, if the employer does not contribute to the EPF account, interest on deposits up to Rs 5 lakh in a financial year is tax-free.
To avoid paying tax on PF interest in the new fiscal year, make sure that your EPF account deposits do not surpass the above-mentioned limits.
Reduction in the time limit for filing belated, revised ITR
Another announcement made in Budget 2021 was a three-month reduction in the period allotted for filing belated and amended income tax returns (ITRs). The new law applies to the filing of income tax returns for the fiscal years 2020 and 2021. What effect does this have on you? According to the previous regulation, if a taxpayer missed the deadline for filing your ITR for the fiscal year 2020-21, you would have had until March 31, 2022 to file a late ITR, but only if you paid a maximum penalty of Rs 10,000.
However, due to the reduction of the filing period, you only have until December 31, 2021 to file a late ITR, giving you three months less time to do so. Instead of March 31, 2022, as was the case under the old rule, December 31, 2021 would be the last date to file an updated ITR if errors were made when the initial ITR was filed.
Taxation of Unit linked insurance policy (ULIP)
Budget 2021 has made taxable the maturity sum of ULIPs purchased by an individual if their aggregate annual premium is more than Rs 2.5 lakh, in order to introduce long-term gains taxation parity between equity shares or equity-oriented mutual funds and ULIPs.
Thus, if the total of the annual premiums of two ULIPs reaches Rs 2.5 lakh in a year, the policyholder’s maturity amounts will be taxable. Only ULIPs released on or after February 1, 2021 will be subject to the new legislation. This amendment would not affect current ULIPs with an annual premium of more than Rs 2.5 lakh.
Choice to select ‘New tax regime’ instead of old tax regime
The new tax regime was introduced by the Centre in last year’s budget. As a result, taxpayers who meet certain criteria can choose between a simpler tax regime and lower tax rates.
Taxpayers, on the other hand, will be able to choose between the new and old tax regimes for FY2020-21, which will begin on April 1, 2021.
No tax filing for senior citizens above 75
Exempt from filing ITR are people over 75 whose pension income and interest from FDs (fixed deposits) come from the same bank and who depend on interest income. The bank that holds the pension account will subtract income taxes and deposit them with the government. However, the individual must have only interest from FDs and pension income accrued in the same bank account to qualify.
In Budget 2021, FM Sitharaman introduced a tax exemption in place of the amount previously given to an employee in favour of LTC (Leave Travel Concession). Last year, the Centre launched a programme for those who were unable to claim their LTC tax benefits due to COVID-related travel restrictions. The scheme is only valid until March 31, 2021, which means that the money must be invested by that date to be eligible for the LTC.
Public sector banks merger
If you are a customer of any of the following seven public sector banks: Dena Bank, Vijaya Bank, Corporation Bank, Andhra Bank, Oriental Bank of Commerce, United Bank of India, and Allahabad Bank, your passbook and cheque book will become non-functional as of April 1, 2021.
Small or medium taxpayers would benefit from a number of steps announced by the government to reduce their tax burden. Senior citizens who receive pensions and interest payments are excluded from filing tax returns. Pre-filled tax returns will also be issued to taxpayers, and will provide information on capital gains from listed stocks, dividend income, and interest from banks, post offices, and other sources.
The government also closed the loophole and slapped stiff penalties on the two most common tax-free options for high-income earners. ULIPs taxation has been simplified, with the budget proposing a tax exemption for maturity proceeds of ULIPs with annual premiums of up to INR 2.50 lacs. Second, the tax exemption for interest income received on an employee’s annual contribution to various provident funds is limited to INR 2.50 lacs.
The government’s tax policies combined with technology’s support would go a long way toward transforming India into an Atmanirbhar Bharat and realising the dream of building a US$ 5 trillion economy.