The Finance Minister, Ms. Nirmala Sitharaman announced the Union Budget for the next financial year yesterday. There were no changes in the tax rates/slabs but some changes have been made to make tax compliance easier. The focus on self-reliance and increased spending on healthcare are some positives that look at taking the economy ahead.
Here are some of the significant announcements that you need to know.
Ease in tax Compliance
Some of the important points that could aid better tax compliance are
Senior citizens (above 75) are now exempted from tax filing if their income includes only interest and pension.
Tax return forms will come filled with details on interest paid from banks, capital gains from the sale of securities, mutual funds, etc, and dividends received from securities. The time limit for reopening of tax assessments have been brought down from 6 years to 3 years.
Continued deduction on interest on home loan for affordable housing
Section 80 EEA of the Income Tax Act allows an additional deduction of Rs 1.5 lakh on home loans availed for affordable housing projects where the registration value of the house should not exceed Rs 45 lakhs. Only first time home buyers could avail of this deduction till 31 Mar 2021.
The Union Budget has increased the time frame of this deduction for loans sanctioned till 31 Mar 2022.
Taxation of PF contributions
Provident Fund contributions have always been under the Exempt-Exempt-exempt category, which means right from your contribution to the interest earned and the maturity redemption were all out of the tax net. This had led to bigger subscription amounts, especially under Voluntary Provident Fund (VPF).
Going forward, the interest earned on PF contributions in excess of Rs 2.5 lakh in an FY will be subject to tax.
Taxation on Maturity of ULIPs
Unit Linked Insurance Plans are those unique insurance plans that come with the benefits of investing. The maturity proceeds of ULIPs have been exempt from taxes which was one of the big benefits of investing in these plans. This benefit was extended to all plans where the premium did not exceed 10% of the sum assured.
From 01 Feb 2021, the maturity proceeds of ULIPs that have a yearly premium of more than Rs 2.5 lakhs will be taxable. But if these proceeds are received on the death of the policyholder, the same will not be taxable.
You need not estimate advance tax on dividends
From the current Financial Year (2020-21) dividends received from investment in equities or mutual funds are taxable at your personal income tax slabs. However, the budget has clarified that an investor need not estimate the dividend income and pay advance tax on it. The tax liability will be calculated only after the payment of the dividend.
Gold and Silver to get cheaper
As a part of rationalising custom duties, the budget cut import duty on gold and silver from 12.5% to 7.5%. But, an Agriculture Infrastructure and Development Cess of 2.5% will be levied on these two metals. So, there is a net-net effect of 2.5% lower duty on gold and silver which can lead to lower prices. For a gold loving country that we are, this should bode well.
Cap on Foreign Direct Investment in insurance sector increased
The insurance sector had a cap of 49% for any foreign direct investment. This has been increased to 74% which means foreign players can increase their investments or new players can enter the insurance market in India with bigger investments. After all, Covid has driven home the importance of having insurance in place and India is a country with an insurance penetration of 3.7% of GDP as against a world average of 6.31%.
Certain white goods may get expensive
Going by the objective of Atmanirbharta or Self-reliance, the budget announced a 2.5% customs duty on certain imported products like Printed Circuit Boards, camera parts, parts of lithium-ion batteries, compressors on Air conditioners and refrigerators. Over a dozen components involved in the automobile sector and handset industries will also be subject to import duty, so we can expect an increase in prices on these.
On the other hand, certain metals like copper, iron, steel are set to get cheaper.
Government increases spending on healthcare
Keep in line with the need of the hour, the Government proposed a 137% increase in spending on healthcare. Rs 35000 crores have also been earmarked for the procurement of Covid vaccines.
Vehicle scrapping policy put in place
If your car/bike is more than 20 years old or if a commercial vehicle is more than 15 years old, then you may get to scrap your car and receive a credit for the same while buying a new vehicle. This is put in place to put a check on pollution.
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