Union Budget 2021: Five Income Tax Changes You Should Know

The Union Budget 2021 presented by Finance Minister Nirmala Sitharaman on Monday did not announce a change in income tax slabs for individuals, leaving them disappointed. However, she has announced some tweaks to the income tax rules that may interest taxpayers. These include unit-linked insurance policies (ULIP), an employee's contribution to a provident fund for people in the high-income bracket, and the ease of filing income tax returns for seniors, among others.

Here are five takeaways in income tax changes announced in Union Budget 2021:

1. In a move to justify tax exemption for high-income employees, the Union Budget 2021proposed restrict tax exemption for the interest income earned on the class contribution made to various provident funds up to the annual contribution of Rs 2.5 lakh. Consequently, any interest earned on these provident fund contributions to the provident fund above Rs 2.5 lakh will now be taxable. However, this provision will kick in for contributions made as of April 1, 2021.
2. This year's Union Budget 2021 has also proposed not to introduce a tax exemption under Section 10 (10d) of the Income Tax Act to accumulate ULIPs with an annual premium above Rs 2.5 lakh. Under the proposed rule, ULIPs purchased as of February 1, the maturity proceeds to such policies with an annual premium of Rs 2.5 lakhs shall now be taxable, just like equity-linked mutual fund schemes.

Currently, long-term capital gains (LTCG) arising out of the sale of shares/equity-based mutual fund schemes are now taxed at a rate of 10 percent, if LTCG exceeds Rs 1 lakh in a financial year. However, a short-term capital gain of 15 percent is taxed on mutual funds, if the shares/units are sold before one year.

3. The Union Budget 2021 also aims to facilitate compliance applicable to people aged 75 years and over. It proposed to exempt these senior individuals who have pension income and interest are exempt from a fixed deposit in the same bank, they will not be required to file income tax returns, if the full amount of taxable income has been deducted by the paying bank for the financial year beginning April 1. However, this exception is only for seniors citizens who have only interest income other than pension.
4. The Union Budget 2021 increased the additional tax deduction of Rs 1.5 lakh on the interest paid on the housing loan for the purchase of affordable homes for an additional year (one year) until March 31, 2022. This additional deduction of Rs 1.5 lakh and more than Rs 2 lakhs was introduced in the 2019 budget session, which allowed first time home buyers some relief up to Rs 45 lakh. Therefore, a new additional deduction of Rs 1.5 lakh will be available for loans taken until March 31, 2022, for the purchase of affordable housing.
5. The Union Budget 2021 also proposed to insert a new section 206AB in the Income Tax Act as a special provision that provides a higher rate for tax deducted at source (TDS )for non-filers of the income tax return. Under the new proposed TDS, the rate in this section is higher of the followings rates:

Twice the rate specified in the relevant provision of the Act, or twice the rate or rates in force, or the rate of five percent.

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