The economic growth of any country depends on the strength of its income tax system. The Ministry of Finance examines the existing rules and submits them for discussion in Parliament. The Union budget presented by the Minister of Finance also contains changes to the provisions relating to income tax, if necessary proposed by the income tax service.
The Union budget 2021 made some changes to the income tax rules, which are as follows:
Taxability of the interest of the provident fund
If we take a look at all the provisions that have changed this year, one of the most obvious changes has been to bring the PF excess contribution under the tax net. PF has remained as a preferred investment option for low and middle incomes and high incomes. High income people used it as a shield to earn tax exempt income. Our finance minister said they had seen nearly crores of deposits against a PAN in just one month, as a result of which they introduced a ceiling limit of Rs.2.5 lakh. As a result, any interest earned by the PF on an investment greater than Rs 2.5 lakh will be taxed according to the individual’s income tax slab. This provision applies to all deposits made from April 1, 2021.
Help for seniors over 75
Budget 2021 also introduced a new provision to provide compliance relief for those aged 75 or older, who only have retirement and interest income. These seniors are exempt from filing an income tax return (RTI). It should be noted that the relief only concerns the filing of the declaration. Authorized banks that collect such retirement pensions and senior interest income will deduct the TDS and submit it to the government provided certain conditions are met. This reduction is applicable from the 2021-22 financial year.
Choice of the new tax system
The government introduced a new tax regime in the previous 2020 budget. A taxpayer could choose between the new tax regime or the existing / old tax regime from April 1, 2020. A taxpayer opting for the new tax regime had to waive all main exemptions and deductions allowed under the current regime. For example, housing allowance, travel allowance, all deductions allowed under section 80C such as LIC premium, ELSS, contingency fund investment, medical insurance premium under section 80D, etc., are not allowed in the new tax regime. In short, all chapter VI-A deductions are not authorized under the new tax regime. (with the exception of a few, such as employer contributions to the NPS under section 80CCD (2) can be claimed). The new regime was introduced to make filing returns easier, especially for low-income people.
Higher TDS for non-filers
The 2021 finance bill also introduced new provisions for withholding and collecting withholding tax at higher rates if the receiver has not filed an RTI. As a result, section 206AB is introduced, which requires the deductor to deduct TDS at a higher rate if the person receiving the payment (detained)
– Has not filed an RTI in the past two years.
– Has a TDS of over Rs.50,000 in the previous two years.
A similar provision (article 206CCA) is introduced for a higher tax collection.
India’s Ministry of Finance has introduced these sections to increase compliance with RTIs and fight tax evasion.
Unit-linked insurance policy tax (ULIP)
The 2021 Union budget also placed ULIPs with higher premiums in the tax bracket. As a result, the surrender of ULIP policies will only be exempt if the cumulative premium paid for these policies does not exceed Rs 2.5 lakh from February 1, 2021.
Therefore, if an investor purchased a ULIP policy before February 1, 2021, the maturity product is tax-exempt regardless of the premium paid. For policies issued after February 1, 2021 with an annual premium above Rs 2.5 lakh (for all policies as a whole), these policies would be subject to capital gains tax.
Extended late return due date
Atc Finance 2021 has permanently changed the deadline for filing a late declaration, reducing it by three months. The due date for late filing has been changed to December 31 of the tax year from that year.
However, for the current 2020-21 fiscal year, this date has been extended to March 31, 2022 due to new portal and covid-19 issues.
Launch of the annual information declaration (AIS)
The Income Tax Service recently launched an Annual Information Declaration (AIS) on this new portal, gradually replacing the existing 26AS form. Currently, Form 26AS, also a tax credit statement, offers details of tax collected, tax deducted, self-assessment or withholding taxes paid, etc., related to taxpayers. In comparison, AIS is like an extended version of Form 26AS.
Additional information such as interest earned, dividend income, mutual fund transactions, overseas remittances, salary breakdown, off-market transactions, etc., will now be available in the AIS.
The AIS has a feature to submit comments online for details that are inaccurate or not owned by the taxpayer. The feedback function will allow taxpayers to identify incorrect information reflected in the AIS and provide feedback for corrective action. This will help to quickly correct real errors and reduce notices from the income tax service.
Modification of a penalty for late filing of returns
The original due date for filing declarations for fiscal year 2020-21 has been extended to December 31, 2021 for those not covered by the audit. Until the previous year, if the taxpayer missed the deadline of December 31 of the tax year, the maximum penalty was Rs 10,000. However, the amount of the late filing penalty was reduced to 5 000 rupees.
Warning:Archit Gupta is the founder and CEO of Clear. The opinions expressed in this article are those of the author and do not represent the position of this publication.
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