Budget 2021: While no structural changes have been proposed to the personal tax rates, the Budget introduced some relief measures and proposals to facilitate ease of compliance for the taxpayers.

Union Budget 2021-22: The Finance Minister presented the first paperless Union Budget 2021-22 in the Parliament yesterday. While no structural changes have been proposed to the personal tax rates, it introduced some relief measures and proposals to facilitate ease of compliance for the taxpayers explained hereunder:

Senior Citizens (aged 75 years or above) exempt from ITR filing

It has been proposed that taxpayers, who are aged 75 years or above, having pension income and interest from the same specified bank where pension income is credited, would be exempt from filing the income-tax returns. The specified bank will be required to deduct the necessary taxes at source at the time of payment basis certain details furnished by the said taxpayer.

Extension of affordable housing deduction

The additional interest deduction of up to INR 1.5 lakh p.a. currently available for interest on a loan for purchase of an affordable house (whose stamp value does not exceed INR 45 lakh) by first-time home buyers has been extended to cases where the loan shall be sanctioned on or before 31st March 2022.

Constitution of Dispute Resolution Committee

Recently, the government had introduced slew of measures to expedite resolution of past litigation with schemes like Vivad-se-Vishwas. As a step further in this direction is the proposal to constitute a DRC for small and medium taxpayers. Any taxpayer with a taxable income up to INR 50 lakh and disputed income up to INR 10 lakh shall be eligible to approach the Committee. Of course details of the scheme needs to be evaluated separately.

Exemption on interest earned on Provident fund contribution capped

Under the existing tax provisions, interest received/accrued from employee’s provident fund (EPF) contributions as well as Public Provident Fund (PPF) is exempt from tax. With a view to curb exemption for high income taxpayers, it is proposed that the interest earned through such contributions (both EPF and PPF) above INR 2.5 lakh a year will now be taxable. This will only apply to the employee’s contribution in respect of EPF. Hence, both PPF and EPF interest on individual/ employee contribution above the specified limit for both will be taxable in the hands of the individual.

Relaxation from payment of advance tax for dividend income

From FY 2020-21 dividends are taxable in the hands of the individual investors. While there is TDS on such dividend in case if the dividend amount is large there was a potential liability for investors to pay advance tax on such income (after factoring the TDS). The government recognized difficulty of estimating dividend income accurately for paying necessary advance taxes through specified installments (it is dependent upon the investee company declaring/ paying the dividend). Hence, it has been proposed that advance tax liability on dividends shall arise only after the declaration/ payment by the company.

Relief to Non-Resident Indians

In order to help Non-Resident Indians returning to India, who generally face issues for their accrued incomes in foreign retirement accounts due to mismatch in timing of taxation of such income in the foreign country and India a new provision is added for manner of taxation of such income. The government will soon notify rules regarding the taxability in the hands of such NRIs relating to income from foreign retirement accounts which were opened whilst being non-resident in India.

Exemption on Unit Linked Insurance Plans (ULIPs) proceeds capped

Proceeds received on withdrawal/ maturity of ULIPs were fully exempt from tax currently as compared to units of equity oriented mutual funds (which suffered capital gains on transfer).  In order to bring parity it has been proposed that for ULIPs purchased on or after Feb 1st, 2021, the maturity proceeds of policy with an annual premium of more than INR 2.5 lakh will be taxable similar to equity oriented mutual fund.  In case of individual holding multiple ULIPs, the exemption shall be available only with respect to such policies aggregate premium whereof does not exceed INR 2.5 lakh for any of the previous years during the term of any of the policy.

For ease of filing of returns, the Budget has proposed that details of capital gains from listed securities, dividend income and interest from banks and post offices will also be pre-filled in income-tax return forms.

The government’s intent and thrust this time round appears to be on enhancing transparency, reduce litigation/ disputes and ease the burden of compliance for the taxpayers. With that in mind and the unprecedented times, the FM has made limited changes to the personal tax regime.

(By Parizad Sirwalla, Partner and Head, Global Mobility Services – Tax, KPMG in India)