Budget 2021: Changes in Income tax rules announced by FM Sitharaman

The taxpayers of India were expecting big announcements regarding income tax in Union Budget 2021, but were disappointed on Monday. The Finance Minister Nirmala Sitharaman's speech, however, included a few tweaks to the income tax rules which might interest taxpayers. Here are some of the changes that got included in the new budget.

The new budget aims to ease compliance burden on senior citizens aged 75 years or above. Budget 2021 proposed to exempt senior pensioners from the requirement of filing income tax returns, if the full amount of payable tax has already been deducted by the paying bank. The exemption is applicable for only those senior citizens who have only interest income apart from the pension income.

The time-limit for re-opening of assessment is being reduced to 3 years from six years. Re-opening of assessment up to ten years will be allowed only if there is evidence of undisclosed income of  Rs 50 lakh (or more) for a year. Also, Budget 2021 proposed to completely remove discretion in re-opening assessment, with only cases flagged by the system to be reopened.

Budget 2021 proposed to make the Income Tax Appellate Tribunal (ITAT) faceless and jurisdiction-less. A National Faceless Income-tax Appellate Tribunal Centre will be established, where all the communication between the Tribunal and the appellant will be done electronically. The personal hearing, if required, will take place through video-conferencing.

The Budget 2021 has made interest income taxable, with EPF contribution no longer bearing Exempt-Exempt-Exempt (EEE) status, except for high-income employees. The announcement is a potential shock for those who invest a large amount of corpus to the Employee's Provident Fund (EPF) and Voluntary Provident Fund (VPF) as EPF contributions are no longer tax-exempt.

Union Budget 2021 proposed to allow tax exemption for maturity proceeds of ULIPs, with an annual premium of up to Rs 2.5 lakh. However, the amount received on death will remain tax exempted, with no limit on the annual premium. The annual premium will be applicable for policies taken on or after February 1, 2021.

The new budget proposed to restrict tax exemption for the interest income earned on the employees' contribution to various provident funds to the annual contribution of Rs 2.5 lakh. Due to this, the interest earned on employee contribution to provident fund above Rs 2.5 lakh will no longer be tax-exempted. The restriction will be applicable for the contribution made on or after April 1, 2021.