How Budget 2021 will impact your personal finances
The Union Budget 2021, some of the major expectations like those pertaining to direct taxes like decreasing the slab rates or increasing the Section 80C tax deduction limits or special allowances for employees working from home were not met, Finance Minister Nirmala Sitharaman did make several announcements aimed at easing the financial difficulties of common Indians.
Here are some of the Budget 2021 announcements that could impact your finances in the near future.
1. Senior citizens above the age of 75 years to be exempted from tax filing
Senior citizens above the age of 75 years and having only interest and pension as income sources would be exempted from filing their income tax returns. “For senior citizens who only have pension and interest income, I propose exemption from filing their income tax returns. The paying bank will deduct the necessary tax on their income,” FM Sitharaman announced. The announcement is expected to reduce the tax-filing hassles for eligible senior citizens.
2. The last date for tax exemption u/s 80EEA extended by one year
The last date for availing the additional tax deduction under Section 80EEA of the I-T Act has now been extended by one more year to March 31, 2022. Under Section 80EEA, a home buyer purchasing their first affordable home can avail an additional tax deduction of up to Rs 1.5 lakh against their home loan interest. Do note this benefit is over and above tax deduction benefit of up to Rs. 2 lakh available under Section 24. This announcement will attract several prospective buyers of affordable homes who fulfil the criteria to avail the tax benefit under this scheme. These criteria include the benefit could be availed only by first-time homebuyers for a property valued at less than Rs. 45 lakh and the loan sanctioned during FY2019-20, 2020-21 or 2021-22. Also, the carpet area of the property shouldn’t exceed 645 sq. ft. in metros and 968 sq. ft. in other cities and towns.
3. Pre-filled ITR to make tax-filing more hassle-free
In Budget 2020, the government started seeking data related to taxpayers’ financial transactions from institutions like banks, stockbrokers, insurance companies, depositories, etc. In Budget 2021, the government has proposed that the pre-filled ITR form will also consist of data like capital gains from investments in mutual funds and shares, dividend income, interest received from the bank, etc. “In order to ease compliance for the taxpayer, details of salary income, tax payments, TDS, etc. already come pre-filled in income tax returns. To further ease filing of returns, details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. will also be pre-filled,” FM Sitharaman announced in her latest Budget speech. The pre-filled form will ease the tax-filing process for a large number of taxpayers while also making it more accurate and transparent.
4. DICGC to facilitate time-bound resolutions
In the previous Budget, the government had increased the deposit insurance coverage from Rs 1 lakh to Rs 5 lakh in the interest of depositors. But the claim could only be made if the bank’s license was cancelled and its liquidation proceedings were started. Now, as per the latest announcement, bank customers whose accounts are inaccessible due to moratorium can also expect to get access to their funds up to the insurance limit. This is a positive development and protects bank customers from the kind of situations we had seen in the recent past when the RBI had imposed a moratorium on banks and limited access to deposits. Do note, however, the Rs. 5 lakh deposit includes the total amount, including principal and interest thereof.
5. A few other announcements that may impact you
Capital gains tax has now been proposed on the gains made through unit-linked plans (ULIPs). “In order to rationalise taxation of ULIP, it is proposed to allow tax exemption for maturity proceed of the ULIP having annual premium up to Rs. 2.5 lakh. However, the amount received on death shall continue to remain exempt without any limit on the annual premium. The cap of Rs. 2.5 lakh on the annual premium of ULIP shall be applicable only for the policies taken on or after 01.02.2021. Further, in order to provide parity, the non-exempt ULIP shall be provided same concessional capital gains taxation regime as available to the mutual fund,” the government has announced. This will be an extremely crucial consideration for ULIP investors whose annual premiums are above Rs. 2.5 lakh. The long-term capital gains on equity funds (when the holding period is more than one year) exceeding Rs. 1 lakh are taxed at a 10% rate with 4% cess.
Lastly, the FM has also proposed in Budget 2021 to reduce the time allowed for re-opening tax investigations from 6 years to 3 years with an exemption of serious cases, for which permitted time is up to ten years.