What Budget 2021 Means For Your Pocket

Finance Minister Nirmala Sitharaman presented India's first digital Budget - 'The Budget of Atmanirbhar Bharat' amid an unprecedented COVID-19 pandemic. Keeping in mind the nation's expectations for relief and recovery of the economy to pre-COVID levels, the government has set out a balanced budget from a larger perspective. 

Carrying on the idea of 'Aspirational India', the Budget takes its inspiration from the pillars of health, human capital, innovation, research and development, physical infrastructure, and inclusive development.

Budget 2021 left personal income tax rates unchanged. However, changes that would impact taxpayers were proposed. Some of the key proposals that will impact compliance requirement of taxpayers are summarised below:

No income-tax return filing requirement for senior citizens aged 75 years or above

Resident individual taxpayers aged 75 or more will not be required to file tax returns subject to certain conditions.  This would apply to senior citizens living on a pension and interest income from the bank that disburses it. The taxpayer will have to submit a declaration to the specified bank, which will compute the tax liability after allowing deduction under Chapter VI-A (for PPF and health insurance premium) and rebate u/s 87A of the Income-tax Act, 1961.

Exhaustive pre-filled income tax return forms

In previous years, simplified income tax return forms were provided to taxpayers by pre-filling salary income details, tax deducted at source and other tax details. The Budget proposes to further simplify the process. The forms will now have pre-filled details of capital gains and dividend from listed securities, interest from banks, post office etc. for taxpayers' convenience.

Reduced timelines for filing income tax returns:

Budget 2021 proposes to reduce the timeline for filing belated and revised tax returns by three months following technical improvements and better infrastructure availability. Therefore, the returns for 2021-22 can be filed latest by 31 December 2022. Under existing provisions, belated or revised returns could be filed till the end of the next financial year.

Extension of deduction u/s 80EEA of the Act for 2021-22

The Budget proposes to extend the time for claiming deduction u/s 80EEA of the Act for one year—till 31 March 2022. Additional deduction of interest amounting to Rs 1.5 lakh is allowed for affordable housing loans.

Exemption for Leave Travel Concession (LTC) Cash Scheme

The government initially announced the LTC Scheme in October 2020, and the consequential amendments were awaited. The same was introduced in the Union Budget 2021. The existing laws only provide for deduction regarding the value of travel concession or assistance received by or due to an employee based on actual travel undertaken. However, the LTC scheme provides the tax exemption on a deemed journey subject to meeting prescribed conditions.

Relaxation on advance tax in case of dividend income

Recognising that taxpayers may not be able to estimate income from dividend, the Budget proposed an advance tax liability u/s 234C of the Act that would be applicable on dividend income only after the dividend declaration or payment.

Reduction in timelines for assessment proceedings

Budget 2021 has reduced the period for reopening assessments from six years to three years.  In serious tax evasion cases, involving income concealment of Rs 50 lakh or more, assessments can be reopened up to ten years. However, the Principal Chief Commissioner's consent, the highest authority of the Income Tax Department is necessary.

Taxpayers are expected to benefit from these proposed changes, but the following require consideration:

Government has introduced the concept of 'faceless tribunal'. This would include establishing National Faceless Income Tax Appellate Tribunal Centre, e-communication between the tribunal and assesses, and conduct hearings through video-conferencing.

Budget 2021 proposes to limit exemptions on proceeds received from unit-linked insurance plans (ULIP) where the annual premium is more than Rs 2.5 lakh. Earlier, any sum received, including bonuses from such policies, were exempt from tax. 

To rationalise tax exemptions favouring lower-income earners, interest on employee's contribution to Provident Fund over Rs 2.5 lakh will now be taxable in the employees' hands.

Though there is no change in income-tax slab rates or deductions that the taxpayers expected, the government has taken specific measures expected to provide ease of compliance and convenience.

The author is Associate Partner at Grant Thornton Bharat

DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.