Union Budget 2021 Updates. Photo: India TV
Union Budget 2021 Updates. Photo: India TV

The Finance Minister tabled the first Union Budget of the decade earlier on Monday. The Budget was expected to stimulate the economy marred by the Covid pandemic while the tax proposals for individual taxpayers were expected to reduce tax impact. The FM sought to stay away from popular measures and chose to ease operational challenges in line with one of the pillars which is “Minimum government with maximum governance”.

All the Benefits of Indian Budget 2021 Explained

Tax savings measures

While the tax savings avenues were minimal, the Finance Minister still deemed it important to extend the benefit of “Affordable housing” for another year. The existing deduction of Rs 1.5 lakh available under section 80EEA has been extended for loans taken till March 31, 2022. The benefit is available in addition to Rs 2 lakh deduction if the stamp duty value of the residential house does not exceed Rs 45 lakh and the individual does not own residential property at the time of availing the loan, according to Indian Express.

The Budget has provided relief to home buyers in case of variance between stamp duty value and agreement value. Currently, where the individual buys any immovable property and the stamp duty value exceeds the agreement value by 10%, the difference needs to be offered to tax by the buyer. The safe harbor threshold has been increased from 10% to 20%. So, an individual buying a residential house property will not be subject to tax unless the stamp duty value of the unit exceeds 120% of the agreement value. However, there are certain conditions to be met such as:

The transfer of residential unit takes place between November 12, 2020, to June 30, 2021

The transfer is by way of first time allotment of the residential unit to any person

The agreement value does not exceed Rs 2 crore.

Taxing avenues

Currently, an exemption is available for sum received under a life insurance policy, if the annual premium payable on such policy does not exceed 10% of the actual capital sum assured. However, this exemption will not be available in respect of Unit-Linked Insurance Policies issued on or after 1 day of February 2021, if the aggregate amount of premium payable in respect of the policy for any year exceeds Rs 250,000. In such a case, these ULIPs shall be treated on par with the equity-oriented funds and proceeds received on maturity would be taxed as income from capital gains.

Budget 2021 has also proposed that the tax exemption to interest on employee contributions to the provident fund shall be limited to the extent the contributions by the employee do not exceed Rs 250,000 in aggregate, during the year.

Ease of compliance

To reduce the litigation uncertainty, the time limit for reopening of tax assessments have been reduced to three years from the current threshold of six years. Further, tax audit limits have been increased from Rs 5 crore to Rs 10 crore if the digital transaction exceeds 95% of total revenue in order to promote a digital economy. For filing of belated and revised tax returns, the timeline shall be nine months from the end of the financial year while the time limit for completion of assessment proceedings will be 21 months from the end of the financial year. A faceless dispute resolution committee shall be set up to ensure early resolution for taxpayers with taxable income up to Rs 50 Lakh and disputed tax up to INR 10 lakhs.

All these changes will go a long way in providing some sense of relief and stability to the taxpayers.

A relief has been provided to senior citizens of 75 years and above age from the filing of tax return if the individual has only pension income and interest income from the same bank, in which he is receiving a pension. The last Budget had introduced taxes in the hands of the shareholder for dividend income. In order to ease compliance, the advance tax liability on dividends shall arise only upon declaration of dividend similarly on lines of capital gains. With an increased focus on ease of compliance, the pre-filled information in the tax return shall be available now in case of dividend, capital gain from listed company and interest from banks/ Post office. This will ensure that reporting of such incomes is not missed while reporting in the tax return.

These provisions would help reduce the margin of error which results in inadvertent demands of taxpayers.

The Budget 2021 expectations, through the lens of an individual, had centered around leaving more cash in the hand, enabling higher savings. However, with the tight fiscal situation in hand, the Budget should be hailed as a well-balanced budget with a focus on increasing expenses on infrastructure and the creation of job opportunities.

Noteworthy changes on Segments

Finance Minister Nirmala Sitharaman presented the Union Budget for 2021-22 in Parliament. Photo: Fortune India
Finance Minister Nirmala Sitharaman presented the Union Budget for 2021-22 in Parliament. Photo: Fortune India

Direct taxes

Relief for senior citizens

In order to reduce the compliance burden, senior citizens aged 75 years and above earning only pension and interest income have been exempted from filing tax returns. This is subject to the condition that such a person will submit the required details to the bank, which will calculate the tax applicable to their income, as reported by The Print.

Relaxation for housing loan

In Budget 2020, an additional deduction of interest up to Rs 1,50,000 had been provided under Section 80EEA on loans taken to purchase residential house property, subject to satisfaction of specified conditions. This has been extended to 31 March 2022.

Leave travel concession

Recognizing the situation brought by the Covid-19 pandemic, the Budget provides for availing leave travel concession. This will cover expenditure made by such employees or family members on goods and services on which a GST rate of 12% or more is applicable and payment is made by way of electronic mode. This is for FY 2020-21 only. However, the exemption shall not exceed Rs 36,000 or one-third of the expenditure, whichever is lower.

The new dispute resolution mechanism

In order to settle disputes of small and medium taxpayers having returned income of Rs 50 lakh (or less) where the aggregate variation is Rs, 10 lakh (or less), a Dispute Resolution Committee (DRC) will be formed. The scheme will authorize reduction and/or waiver of penalty and immunity from prosecution.

Abolishment of settlement commission

The income tax settlement commission has been abolished, which means that there is no avenue now to seek immunity for evasion, a move that indirectly respects honest taxpayers.

Plugging abuse of welfare schemes

Currently, the exemption is available for sums received under a life insurance policy where the premium payable for any of the years does not exceed 10 percent of the actual sum assured. Such exemption shall not apply to a unit-linked insurance plan (ULIP) issued on or after 1 February 2021, if the amount of premium payable exceeds Rs 2,50,000. Such income would be subject to tax as capital gains.

In order to discourage tax planning by high-net-worth individuals, interest on the provident fund (PF), which was otherwise tax-free, shall be taxable in case the employee contribution to PF is more than Rs 2,50,000 in a year. Further, in case of maturity of life insurance policy, wherein a premium of more than Rs 2,50,000 is paid for a policy entered on or after 1 February 2021 shall be taxable as capital gains.

Reduction in the time limit for belated returns and assessments

The time limit for reassessment has been reduced from 6 years to 3 years and for undisclosed assets, it has been reduced from 16 years to 10 years.

The time limit for belated returns has been reduced from March 31 to December 31.

The time limit for completion of assessments has also been reduced by three months.

This is likely to significantly save the individuals from the earlier wide discretionary powers available with tax officers.

Extension of social security coverage schemes

In a welcome move by the government, gig workers will now be able to avail the benefit of social security schemes.

Further, e-commerce workers will now be covered under the Employees’ State Insurance Scheme (ESI), Employees’ Provident Fund (EPF) and the minimum wage rule.

Others

The Modi government has provided that in order to claim a deduction for a contribution to various employee welfare funds, the employer will have to deposit the amount within the specified due date.

Interest shall not be chargeable on a taxpayer earning dividend income for failure to comply with advance tax provisions if tax is paid in subsequent advance tax installments after the declaration or payment of dividend.

Media's Reactions to Budget 2021

Mint: 'FM Delivers A Booster Dose'

Photo: Livemint
Photo: Livemint

Stock investors cheer loosening of purse strings to boost economic growth and wide-ranging reform measures, without imposing additional burden on taxpayers and consumers, Mint reported. It noted that in financing the deficit, the budget has reduced its reliance on divestment, betting instead on monetizing assets, India Today cites.

The Economic Times: ‘Spend it Like Sitharaman’

Taking forward Nirmala Sitharaman’s ‘We Have Spent, We Have Spent, We Have Spent’ remark after the presentation on Monday, The Economic Times noted a big reform push in banking, insurance and highlighted the meaning of the budget for the economy, investors and markets, business and consumers.

The Telegraph: ‘Bluff Nailed’

Photo: Twitter
Photo: Twitter

Living up to its reputation, The Telegraph noted the ‘bluffs’ in the Budget presented by Nirmala Sitharaman. PM Modi says farmers and villagers are at the heart of the budget, the newspaper quoted PM Modi as saying. “Evidently, it is also a heart studded with nasty nails in a lethal carpet laid out for protesting farmers,” The Telegraph noted.

Noting no change in personal income tax slabs despite the revenue strain caused by coronavirus pandemic, Hindustan Times said Finance Minister Nirmala Sitharaman has gone for big boost in capital expenditure and loosening purse strings on fiscal deficit.

Business Standard: 'Budget bets big on growth'

Business Standard said braving the inevitable questions that will be asked by the bond markets and by rating agencies, the government “bet boldly on a growth revival providing India with favorable debt dynamics going forward.”

The Times of India: 'Double shot: Spendovax + Privamax'

Photo: Times of India
Photo: Times of India

The TOI said FM Nirmala Sitharaman has chosen to aggressively ramp up expenditure while making the boldest push yet to sell govt assets. The lead story highlighted how Sitharaman left tax rates largely untouched and bet big on privatization and asset creation to power the Indian economy out of the post-Covid slump.

The Indian Express: ‘The Get Well Budget’

The Indian Express called Budget 2021 as a major boost to expenditure with a sharp increase in capital expenditure and big infra outlay. In ‘Big-spending push blended with bold financial reforms’, with Nirmala Sitharaman’s 2-column photo on the left, the paper said Nirmala Sitharaman liberated herself from fiscal restraints to budget for a massive expenditure push to bolster the economy’s nascent recovery.

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