How Will the Budget 2021 Impact Your Personal Finances?

The finance minister (FM) has provided Rs 5.54 lakh crore for capital expenditure, a sharp increase of 34.5% in capital expenditure and has announced various infrastructure projects. This could potentially generate employment opportunities and get the wheels of the economy spinning.

Besides that, there was not much in store for the common man, who was hoping to see relief coming (in the form rise in base exemption limit and increase in deductions under various Sections under the 80s) after the pandemic, this was quite disappointing. The personal income tax rates and deductions under various Sections under the 80s were left unchanged.

There are, of course, reforms related to tax proposals that can provide some relief to individual tax payers...

Relief to senior citizens and NRIs

For senior citizens aged 75 and above whose only source of income is pension and interests, FM has provided relief by proposing exemption from filing their income tax returns. The paying bank will deduct the necessary tax on income.

But the catch is, if the interest income earned is less than the base exemption limit, the senior assessee will have to file ITR to claim a tax refund because the tax deduction at source has already taken place if Form 15H isn't furnished.

For NRIs, who face issues with respect to their accrued incomes in their foreign retirement accounts and have difficulties in getting credit for Indian taxes in foreign jurisdictions, the government has notifiedrules for removing their hardship of double taxation.

Exemption from audit

To incentivise digital transactions and reduce the compliance burden for persons who are undertaking 95% of their transactions digitally, i.e. almost all of their transactions digitally, the budget proposed an increase in the limit for tax audit from Rs 5 crore to Rs 10 crore.

Ease of filing returns

Currently, details of salary income, tax payments, TDS, etc. already appears pre-filled on the income tax returns form. To further ease filing of returns, details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. will also be pre-filled now.

Assessment and dispute resolution

The time limit for the reopening of income tax assessment is being reduced to 3 years from the current 6 years from the end of the relevant assessment year. It proposed the reopening of such cases be allowed for up to 10 years only if there is evidence of undisclosed income of Rs 50 lakh or more for a year.

The budget also proposed to completely remove discretion in the reopening of assessments. Henceforth, reopening shall be made only in cases flagged by the system on the basis of data analytics, the objection of C&AG, and in search/survey cases.

Furthermore, in order to bring certainty in income tax proceedings at the earliest, it proposed to reduce the time limits for general assessment or processing of income tax return by three months as well as for filing of returns.

A Dispute Resolution Committee will be constituted for small tax-payers, which will be faceless to ensure efficiency, transparency, and accountability. Tax-payers having taxable income of up to Rs 50 lakh and disputed income up to Rs 10 lakh will be eligible to approach the Committee.

To provide a transparent tax appellate mechanism, the budget proposed to make the Income Tax Appellate Tribunal faceless and jurisdiction-less, where all communication between the Tribunal and the appellant shall be electronic. If personal hearing is needed, it will be done through video-conferencing.

Housing for all

In order to 'incentivise the purchase of affordable house', it is proposed to extend the eligibility period for a claiming additional deduction for the interest of Rs 1.5 lakh paid for a loan taken for the purchase of an affordable house to 31st March 2022. This would provide a boost to the affordable housing segment.

Rationalisation measures

The FM has proposed allowing tax exemption for maturity proceeds of the ULIP having an annual premium up to Rs 2.5 lakh, in order to rationalise taxation of ULIP. However, the amount received on death shall continue to remain exempt without any limit on the annual premium. The cap of Rs 2.5 lakh on the annual premium of ULIP shall be applicable only for the policies taken on or after February 01, 2021.

Additionally, in order to provide parity, the non-exempt ULIP shall be provided with the same concessional capital gains taxation regime as available to the mutual fund investors.

In order to rationalise tax exemption for the income earned by high-income employees, it 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. This restriction shall be applicable only for the contribution made on or after April 01, 2021.

Investor Charter

Taking steps towards investor protection, the FM has proposed to introduce an investor charter as a right of all financial investors across all financial products. The charter is expected to lay down the rights of investors and strengthen the grievance redressal and resolution mechanisms.

Similarly, to help depositors of banks that are currently under stress, the government will streamline the Deposit Insurance Act so that depositors of such a bank can get easy and time-bound access to their deposits to the extent of the deposit insurance cover. Notably, the government had approved an increase in the Deposit Insurance cover from Rs 1 lakh to Rs 5 lakh for bank customers.

Dividend Relief

In the previous budget, the government had made dividends taxable in the hands of shareholders. Since, the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax, the FM has proposed to provide that advance tax liability on dividend income shall arise only after the declaration/payment of dividend. Also, for Foreign Portfolio Investors, it is proposed to enable deduction of tax on dividend income at lower treaty rate.

Social security to gig workers

The government will extend social security benefits to gig and platform workers. Minimum wages will apply to all categories of workers, and they will all be covered by the Employees State Insurance Corporation. Women will be allowed to work in all categories and also in the night-shifts with adequate protection.

To conclude...

Overall, Union Budget focused on providing growth stimulus at the cost of fiscal deficit target being raised to 9.5% of the GDP (which was necessary amidst the pandemic); but not sufficient measures that can actually put extra-disposable income in the hands of the Aam Aadmi.

Warm Regards,
Divya Grover
Research Analyst

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