5 Income Tax changes introduced in the recent Budget that you should know

Finance Minister Sitaraman recently introduced the Budget for the F.Y. 20-21 in the Loksabha. Touted as a “once in a hundred-year” budget, ordinary people, mostly the middle-class, had many expectations from this Budget.

As the economy is still emerging from the last year’s massive disruption due to Coronavirus, an all-inclusive budget was vital for reviving the economy.

So what did this Budget had for Income Taxpayers? Were there any alterations related to the Income Tax rule? I will be answering all these questions in this blog to give you an easy understanding.

So let’s get started.

Budget 2021

Although Finance Minister did not announce any significant changes in the Income Tax laws, some modifications were worth noting. Take an in-depth look at these modifications.

  • No ITR for senior citizens above 75

Keeping in line with the previous year’s Budget trend, the Government provided relief to the senior citizens above 75. The finance minister noted that on the 75th anniversary of India’s independence, no senior citizen above 75 years of age would have to file their ITR. But the pred-condition is, their source of income should be either Pension or any other interest.

This change shows that the Government is looking forward to reducing the Tax burden of senior citizens and keep taxing HNIs (High Net-worth Individuals)

  • Tax benefit for the first time home buyer

In the budget 2019, the Government announced that an additional tax benefit of 1.5 over and above the tax benefit of 2 lakh would be offered on the interest paid on housing loans up to 31st March 2021. This benefit will be provided only to home buyers’ first time on affordable home with a value of up to INR 45 lakh.

This tax-holiday for affordable housing & an additional extension of 1.5 lakh on the interest paid of home loans is set to boost the Real-estate sector, especially the affordable housing projects.

  • Restriction on Tax exemptions for High-Income employees

The proposed Budget restricted the tax emotions for High-Income employees on the interest earned by them their contribution to the P.F. above 2.5 lakh. This rule will apply to the investments made after 1st April 2021.

  • Introduction of section 206AB

To bring more people under the Income-tax net, the Government has decided to introduce section 206AB in the Income Tax Act. Under this act, there is a special provision on charging higher TDS rates for those who are not filing their Income Tax Returns

From the following three options, the highest will apply to such individuals:

  • Double rate than the applicable rate
  • Double rate than the rate mentioned in the relevant provision
  • 5% of the rate
  • No tax exemptions for the ULIPs with premium above 2.5 lakh

The Government has decided to withdraw the tax exemption under section 10(10D) of the Income Tax Act. Under this proposal, there will be no exemption on the maturity amount of the ULIPs (Unit-Linked Insurance Policies), which have an annual premium above 2.5 lakh.

Any ULIP purchased on or after 1st February 2021 will be taxable. The tax rate will be at par with the tax rate for equity-linked mutual funds.

The current tax rate for LTCG(Long Term Capital Gain) on equities & equity-oriented mutual funds sold after one year of purchase is 10% if the Gain is more than INR 1 lakh. In the shares sold within one year, the STCG (Short-term Capital Gain) due to selling of equities and equity-oriented mutual funds attracts a 15% tax rate on the Gain.

Final Thoughts

Although Taxpayers expected relief in the form of the raised threshold for Income tax slabs and reduction in the rates, the Government has decided to keep them as it is for now.

This means, if you are planning to optimize your Income Tax, it is vital for you to avail the services of Tax experts. E.g., at Probal, we help individuals & Businesses optimize their tax, while staying fully compliant with the existing laws.

I hope you like this excerpt of the Budget 2021 for Income Taxpayers. If you still need some more clarity on the matter, feel free to reach out. We will be happy to assist!

How did you find the current Union Budget?

Please do let us know in the comment section.

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