Union Budget 2021-22: Here are 10 income tax changes announced

The changes include unit-linked insurance policies (ULIP), pre-filled income tax returns (ITR) forms, higher tax deduction at source (TDS) for non-filers of income tax returns and exemption of dividend payment to REIT/InvIT from TDS among others.

Union finance minister Nirmala Sitharaman did not announce any change in income tax slabs for individuals taxpayers but made some changes in the rules for income tax in her budget to help ease the compliance for taxpayers. These include unit-linked insurance policies (ULIP), pre-filled income tax returns (ITR) forms, higher tax deduction at source (TDS) for non-filers of income tax returns and exemption of dividend payment to REIT/ InvIT from TDS among others.

Here are 10 changes announced by Sitharaman in Budget 2021:

1. No income tax filing required for senior citizens above 75: Sitharaman announced in Union Budget 2021 that senior citizens above the age of 75 years, who only have pension and interest as a source of income, will be exempted from filing their income tax return (ITR). These senior citizens have not been exempted from paying tax but are exempted from filing an ITR if they fulfill certain conditions. They will be exempted from filing ITR only in the case where the interest income is earned in the same bank where the pension is deposited.

2. The government will notify a few banks where account holders will be eligible for this exemption and they will have to provide a declaration to the specified bank. After that, the specified bank will have to compute the income of such senior citizens after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A of the Act, for the relevant assessment year and deduct income tax on the basis of rates in force. Such senior citizens will not have to furnish a return of income for this assessment year after that.

3. Pre-filled ITR forms: ITR form will now have pre-filled information on dividend, interest and capital gains to ease compliance for individual taxpayers. Details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. will also come pre-filled. Details of salary income, tax payments, TDS, etc will also be there in ITR forms.

4. EPF contribution: Interest on employee’s share of contribution to Employees' Provident Fund (EPF) on or after April 1, 2021, will be taxable at the stage of withdrawal if it exceeds ₹2.5 lakh in any year. This will lead to additional tax liability, especially for High Networth Individuals (HNIs) who make higher contributions and will also discourage voluntary provident fund (VPF) contributions. This along with taxation of aggregate employer’s contributions in excess of ₹7.5 lakh to EPF, NPS and superannuation fund and interest thereon introduced last year, may make EPF an even less attractive retirement scheme.

5. REIT/ InvIT exemption: The government has proposed to make dividend payment to Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) exempt from TDS. The government has proposed that advance tax liability on dividend income shall arise only after the declaration/payment of dividend as the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax. The government had abolished dividend distribution tax to incentivise investment and dividend was made taxable in the hands of shareholders in the budget last year.

6. Higher TDS for non-filers of income tax returns: The government has proposed to insert a new section 206AB in the Income Tax Act as a special provision providing for a higher rate for TDS for the non-filers of an income tax return. The proposed TDS rate in this section will have twice the rate specified in the relevant provision of the Act, or twice the rate or rates in force, or the rate of 5%.

7. The government has brought Unit Linked Insurance Plans (ULIPs) under tax bracket. Currently, the redemption of ULIPs is tax-exempt provided the total premium payable for the policy does not exceed 10% of the assured sum. Under the new proposals, the redemption of ULIPs issued on or after 1 February 2021 where the annual premium payable by the individual exceeds ₹2.5 lakh would be subjected to capital gains tax, at par with equity-oriented mutual funds.

8. LTC scheme notified: Employees can still avail exemption for leave travel concession (LTC) of one-third of specified expenditure or ₹36,000 whichever is less, for the block of 2018-21 if they have incurred expenditure on purchase of goods/ services liable to GST @ 12% or more, provided the payment is made via non-cash mode and incurred during the period October 12, 2020, to March 31, 2021. The amendment is proposed to be for the financial year 20-21 only.

9. Tax holiday on affordable housing extended: The government has extended the additional tax deduction of ₹1.5 lakh on interest paid on housing loan for the purchase of affordable homes by one more year to March 31, 2022. The additional deduction of Rs1.5 lakh over and above ₹2 lakh was introduced in the 2019 budget. This was allowed for those buying homes for the first time and of up to ₹45 lakh cost.

10. Time limit for filing delayed ITR reduced: The last date to file a revised income-tax return or belated return on a voluntary basis will now be December 31 after the close of the financial year instead of March 31, 2022.