Union Budget 2021: Five Income Tax Changes You Should Know
This year’s budget has also proposed not to provide tax exemption under section 10(10D) of the Income Tax Act for maturity proceeds of the ULIPs with an annual premium above Rs 2.5 lakh.
The Union Budget 2021 presented by Finance Minister Nirmala Sitharaman on Monday did not announce change in income tax slabs for individuals, leaving them disappointed. However, she did announce some tweaks to the income tax rules which might interest taxpayers. These include unit-linked insurance policies (ULIP), employee’s contribution to provident fund for individuals in the high-income bracket and ease in filing of income tax returns for senior citizens among others.
Here are five takeaways in income tax changes announced in Budget 2021:
1. In a move to justify tax exemption for high income employees, the 2021 Budget proposed to restrict tax exemption for the interest income earned on the class’ contribution made to various provident funds up to the annual contribution of Rs 2.5 lakh. Accordingly, any interest accrued on such contributions to the provident fund above Rs 2.5 lakh will now be taxable. However, this provision will kick in for contributions made on or after April 1, 2021.
2. This year’s budget has also proposed not to provide tax exemption under section 10(10D) of the Income Tax Act for maturity proceeds of the ULIPs with an annual premium above Rs 2.5 lakh. As per the proposed rule, ULIPs taken on or after February 1, the maturity proceeds of such policies with an annual premium of more than Rs 2.5 lakh shall now be taxable, just like equity linked mutual fund schemes.
At present, long term capital gains (LTCG) arising out of the sale of listed equity shares/units of equity based mutual fund schemes are now taxed at the rate of 10 percent, if the LTCG surpasses Rs 1 lakh in a financial year. However, short term capital gains in equity mutual funds are taxed at the rate of 15 percent, if the shares/units are sold before one year.
3. The 2021 Budget also aims to ease compliance applicable to senior citizens aged 75 years or above. It proposed to exempt these senior individuals having pension income and interest from fixed deposit in the same bank shall not be required to file income tax returns, if the full amount of taxable income has been deducted by the paying bank for the financial year beginning April 1. However, this exception is only for these senior citizens who have only interest income other than pension.Advertisement
4. The 2021 Budget increased the additional tax deduction of Rs 1.5 lakh on interest paid on housing loan for purchase of affordable homes by an additional year (1 year) until March 31, 2022. This additional deduction of Rs 1.5 lakh and above Rs 2 lakh was introduced in the 2019 budget session, which allowed first time home buyers some relief up to Rs 45 lakh. The new additional deduction of Rs 1.5 lakh will therefore be available for loans taken up till March 31, 2022, for the purchase of an affordable home.
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5. Budget 2021 also proposed to insert a new section 206AB in the Income Tax Act as a special provision providing for a higher rate for tax deducted at source (TDS ) for the non-filers of income-tax return. Under the new proposed TDS, rate in this section is higher of the followings rates:
Twice the rate specified in the relevant provision of the Act or twice the rate or rates in force, or the rate of five per cent.