Budget 2021 has touched almost every section of the population. Here we are telling you what this budget means for an investor, taxpayer, depositor or general consumer.
Senior citizens benefit
There is good news for seniors. For those above 75 years of age, it will no longer be necessary to file income tax returns. This rule will come into effect from 2021-22. But, there is a small condition in it. Only those who are dependent on pension and interest income are exempted from filing tax returns.
However, if you are earning from investments in capital gains, equities or through mutual funds, then you will have to file income tax returns as before.
Pay tax on time or pay penalty
You have to make sure that you stick to the timeline fixed in filing your income tax return for the financial year 2020-21 (assessment year 2021-22). This is because the additional time available to file returns or correct mistakes later has now been reduced.
“Late or revised returns can now be filed only until December 31,” says Amit Maheshwari, partner of AKM Global. The deadline for filing returns is still 31 July, but the additional time available for filing the revised returns has been reduced for the financial year 2020-21.
You cannot complete this process by 31 March, as it is now. Instead, you have to complete this process by 31 December 2021 in any case.
Usually, you can file a return till December 31 by paying a late fee of Rs 5,000, while by March 31, you have to pay a penalty of Rs 10,000 to file the return.
Easy Compliance and Settlement System
The pre-filled (pre-filled) income tax form frees you from the confusion of taking longer to fill these forms. The Finance Minister has announced in his budget speech that now pre-filled income tax forms will come in which you will have already recorded the capital gains from listed securities and interest earned from banks or post-office.
“This will reveal the exact income of the assessee as well as save a lot of time spent preparing tax returns,” says Anish Shah, Transaction Tax – Associate Partner, BDO India.
Pre-filled forms also have a hidden advantage. This advantage is for the government. This will help the tax authorities to increase the tax net and ensure that people do not escape tax. Since your income tax forms will be pre-filled and you will have complete investment information, you will not be able to avoid the tax on them.
Tax disputes will be resolved at a fast pace
The timeline for re-opening of assessments under Income Tax Returns has now been reduced to three years from the earlier six years. Serious cases of tax evasion will also be the only cases where there will be evidence to hide income of Rs 50 lakh or more in a year.
Assessment can be opened in 10 years in such cases. This will also reduce the burden on the tax authorities and will provide relief for the tax payers as well as open the way for early disposal of cases.
Not filed tax return? Will have to pay more TDS
Till now only those who do not have PAN were asked to pay higher tax deduction at source (TDS) on large transactions such as rental income, bank interest or property. In 2021-22, anyone who has PAN, but is not giving tax returns, will also have to pay more tax deduction / collection at source (TDS or TCS).
Investment Charter for Financial Products
The Finance Minister has announced the formation of an investment charter to reduce mis-selling of financial products (using false promises in sales or using other unfair means).
This charter will be for investors of all products from across the financial sector. The picture will be clear when the details about this are revealed, but it is expected that the rights of investors will be decided in this charter. Apart from this, it should also outline the mechanism to address the grievances of the people. The charter should further strengthen the grievance redressal mechanism of existing financial products.
Stick to short-term debt funds
The government plans to borrow money from debt markets to invest in various infrastructure projects. 14 lakh crores (gross borrowing) for this financial year and 12 lakh crores more to be borrowed for the financial year 2021-22. This has led to an increase in yields and fall in the prices of debt securities. At the moment, stick to short-term debt funds.
Gain in gold
Gold and silver have become cheaper. The government has reduced customs duty from 7.5 per cent to 7.5 per cent in the budget. This will benefit those who buy gold.
Higher contribution to EPF will attract tax
To ensure that rich people do not save tax by investing in tax-free instruments created for middle class people, the tax on interest earned on employee’s contribution to all provident funds in Budget 2021 The exemption has been limited. If the employee’s contribution to the provident fund (whether statutory or voluntary) exceeds Rs 2.5 lakh per annum, the interest on this additional contribution will be taxable.
Contributions to be made on or after 1 April 2021 will be subject to taxation. The move will largely impact the contribution to the Voluntary Provident Fund (VPF). Until now, the entire interest collected on provident funds was tax-free.
ULIPs will be taxed like equity mutual funds
If you are thinking of investing in unit-linked insurance policies (ULIPs) and your objective is to earn tax-free earnings only on maturity, then you should think again.
In Budget 2021, a provision has been made that if the premium going in ULIP is more than Rs 2.5 lakh, then you will not get this rebate.
This means that the benefits on ULIP policies will be considered subject to short-term or long-term gains (LTCG) tax at the time of redemption or maturity. The same goes for other equity-based investments.
“The provisions of sections 111A and 112A will apply to the sale or redemption of these ULIPs and its holding period will attract 15 per cent short-term capital gains tax (STCG) or 10 per cent LTCG,” says Chetan Chandak, director of TaxBirbal.in.
Equity investment is considered as a long-term asset if held for more than a year. However, upon the death of a policyholder, the amount received by those dependent on it will still be tax-free.
According to current income tax laws, the maturity amount of life insurance policies is exempt from tax under section 10 (10D).
ULIPs are a mixed form of investment and insurance policies. They invest in equities, corporate debt and government securities. In this context, they can be compared to mutual funds.
In the old with-exit tax regime, both equity-linked savings schemes (ELSS) and ULIPs are entitled to tax deduction on 80C investment.
ULIPs come with a lock-in period of five years and after that you can surrender your policies and there is no charge on it.
Thoughts on dividend only after you get it
For advance tax, investors will be able to consider the dividend income only when they get it. This explanation was necessary because the record date of the dividend payment can be between two quarters or two years. Now, instead of the record date, the investor has to calculate the tax only after getting the dividend.
Claim for deposit insurance cover will be easy
The finance minister has said that the government and the Reserve Bank will prepare a better policy framework so that depositors can claim deposit insurance on the occasion of the bank’s problems.
The deposit insurance cover for last year’s budget bank depositors was raised from Rs one year to Rs 5 lakh.
However, till now it is available only when the bank sells. A better mechanism will enable the depositors to help the depositors even before the bank is sold.
Adil Shetty, CEO of BankBazaar.com, says, “This is a positive thing and customers will get protection in a situation in which we have seen in the past that the RBI imposed a moratorium on banks and imposed restrictions on withdrawal of deposits.”
Tax Benefit Zero-Coupon Bonds for Infra Funding
Soon retail investors will have another instrument to invest. To increase infrastructure growth, Budget 2021 has announced that infrastructure debt funds can now raise money by issuing zero-coupon bonds with tax benefits.
On getting more details about this, the picture will be clear and it will only know to what extent these bonds will get income tax benefits.
The budget 2021 proposes to increase customs duty on several things.
Mahesh Jaising, national leader and indirect tax partner at Deloitte India, says customs duties are in line with expectations in the two major focus areas.
Customs procedures are being revamped to make it easier to do business, as well as customs duty has been increased on the products or components which are being insisted on manufacturing in India.
He says, “These rate changes have been made in the sectors where PLI schemes have been announced. For example, solar, auto components, mobile parts and steel come in. ”
On the other hand, some chemicals and expensive metals and customs duties have been reduced in the budget.
Gold, silver and naphtha have been made cheaper. Petrol and diesel have been made expensive because of the Agriculture and Infrastructure Development Cess. Mobile phones and power banks have also become expensive.
The idea is to increase customs duty to encourage manufacturers to manufacture these products in India.