Finance Minister Nirmala Sitharaman presented the Union Budget for FY 2021-22 on February 1. The theme of the direct tax proposal was to simplify tax administration, facilitate compliance, and reduce litigation for taxpayers. No income tax slab changes were in the picture this time not were hikes in exemptions and deductions. Here are five key direct tax proposals that will affect individual taxpayers.
Taxability of interest on PF contribution
Interest on an employee's contribution to his EPF account on April 1, 2021, and thereafter will be taxable upon withdrawal if it exceeds Rs 2.5 lakh in a given year. This will increase tax liability, especially for HNIs, and high-income earners, many of whom make higher PF contributions. The proposal would also discourage voluntary EPF contributions or contributions to the Voluntary Provident Fund (VPF).
ULIPs with over Rs 2.5 lakh annual premium to lose tax edge
The budget 2021 brought the gains made from ULIPs with a premium of more than Rs 2.5 lakh on par with equity mutual funds. This means that the gains from such ULIPs will be treated as a capital gain just as they are in multilateral investment funds and will be taxed accordingly. This applies to proceeds from ULIPs issued as of February 1, 2021. The only exception is when payment is when the sum is received after the death of the policyholder, in which case the tax exemption will still apply.
Easier tax return filing
In addition to salary income, bank accounts, tax payments, and TDS details, pre-filled income tax returns will now also include details of capital gains from listed securities, dividend income, interest from banks, post office, etc., as announced in Union Budget 2021.
Reduced filing time for these ITRs
The time limit for filing delayed, i.e, belated and revised income tax returns, has been reduced by 3 months. The deadline to file these tax returns is now December 31 after the close of the tax year, as opposed to the earlier date of March 31 of the following calendar year. Likewise, the timeline for completing of assessment has been reduced by 3 months too.
DRC to help taxpayers
The Dispute Resolution Committee (DRC) is to be set up to provide assistance to taxpayers with taxable income of up to Rs 50 lakh and disputed income of up to Rs 10 lakh. Not only will all proceedings before the DRC will not only be faceless but also jurisdiction-less. This will reduce litigation for small taxpayers who wish to settle their tax matters in the initial stages, without going through the appellate process.
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