Union Budget 2021: Income Tax Highlights for Individuals

The Budget goes on lengths about various sectors. Hence it is necessary to decode the layers of many announcements that may benefit the citizen. In fact, the Union Budget 2021 left individual Income Tax payers wondering how much they will have to pay; or whether they have any relaxations.

Thus, here are some key Income Tax highlights that individual taxpayers should know.

For Individuals

1. No change in Income Tax Slab rates

There have been no changes in the current and previous income tax rates.

Previous (2020-21) and Current (2021-22) Income Tax Slab

2. Advance Taxes on Dividend only after dividend release

In the Union Budget 2021, the government has provided a relief to advance taxpayers. Now, taxpayers will not have to estimate their dividend income while making advance tax payments. They now have to pay Advance tax only when the company pays or declares the dividend. This will save payment of interest by the taxpayer due to underestimation while paying advance taxes. Further, it also resolves the hassle of claiming back the payment of extra advance tax.

The Union Budget has also proposed to make dividend payments to REIT and Infrastructure Investment Trusts exempt from TDS.

3. ITR Filing non-mandatory for Senior Citizens

The Finance Minister proposed that senior citizens (above the age of 75) who earn only through pension and interest income from deposits would not have to file Income Tax Return. The new Section 194P has asked banks to deduct tax on senior citizens more than 75 years of age who have a pension and interest income from the bank. This reduces the hassle for senior citizens who had to file ITR.

4. Increased fields while filing ITR

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. Thus, it will make filing easier.

5. One more year to take housing loans

Tax exemption for affordable housing further extended by 1 year. It will benefit first-time homebuyers who will get an extra deduction of Rs 1.5 lakh (over and above the existing deduction of Rs 2 lakh) for interest on housing loan for a house upto Rs 45 lakh if the person takes a loan before March 31, 2022.

6. Relief to NRI retirement fund

There is a proposal to notify rules for removing hardship for double taxation. That is, the Central government will announce rules to determine the manner and year of taxability of income from overseas retirement funds opened by a resident taxpayer while he was residing in a foreign country. This will provide relief from hardship on account of double taxation due to mismatch in the timing of taxation in different countries

7. PF interest chargeable at redemption stage

EPF interest income above Rs 2.5 lakh will be taxable. Interest income from PF contribution above Rs 2.5 lakh/year will now be taxed, as per Sitharaman’s Budget proposals. But, the interest on employee’s share of contribution to EPF on or after April 1, 2021, will be taxable at the stage of withdrawal if it exceeds Rs 2.5 lakh in any year. Further, in case the employee’s PF contribution was deducted but not deposited by the employer, it will not be allowed as a deduction for the employer.

8. ULIPs taxable as Capital Gains after 2.5 lakhs

ULIPs issued on or after February 1, 2021, will be taxable as capital gains, stated the Finance Minister. Further, the government has proposed to allow tax exemption on the maturity of ULIP if the amount of premium exceeds Rs 2.5 lakh in any year (except when received on death). Where a taxpayer pays a premium for more than one ULIP (issued after February 1, 2021) exemption shall apply to that ULIP whose premium is less than 2.5 lakhs.