Taxpayers were expecting some big announcements regarding income tax in Union Budget 2021, but were disappointed on Monday. However, Finance Minister Nirmala Sitharaman in her Budget Speech did announce some tweaks to the income tax rules which might interest taxpayers.
Here are changes to income tax rules which were announced in Union Budget 2021:
1) Budget 2021 aims to ease compliance burden on senior citizens aged 75 years or above. Hence, Union Budget 2021 proposed to exempt these 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. This exemption is for only those senior citizens who have only interest income apart from the pension income.
2) The time-limit for re-opening of assessment is being reduced to 3 years. Originally this was 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. Further, Budget 2021 proposed to completely remove discretion in re-opening assessment. From now on, only cases flagged by the system will be reopened.
3) Budget 2021 has proposed to make the Income Tax Appellate Tribunal (ITAT) faceless and jurisdiction-less. "A National Faceless Income-tax Appellate Tribunal Centre shall be established and all the communication between the Tribunal and the appellant shall be made electronically. Wherever personal hearing is needed, it shall be done through video-conferencing," Finance Ministers's said in her Budget speech.
4) The Budget 2021 has made interest income taxable. With this, EPF contribution no longer has the Exempt-Exempt-Exempt (EEE) status, except for high-income employees. This announcement is a potential shock for those who are investing a larger amount of corpus to the Employee's Provident Fund (EPF) and Voluntary Provident Fund (VPF) as EPF contributions are no longer tax-exempt.
5) Union Budget 2021 has proposed to allow tax exemption for maturity proceeds of ULIPs having annual premium up to Rs 2.5 lakh. However, the amount received on death shall continue to remain taxation exempt without any limit on the annual premium. The cap of Rs 2.5 lakh on the annual premium of ULIP will be applicable for policies taken on or after February 1, 2021.
6) Budget 2021 has 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. Henceforth, any interest earned on employee contribution to provident fund above Rs 2.5 lakh is no longer tax-exempt. This restriction shall be applicable only for the contribution made on or after April 1, 2021.