Budget 2021 and your Money

Yesterday evening, I got a call from one of my clients. He told me what he understood from the budget speech was that nothing euphoric was announced, so what made markets go 5% up.

I replied to him, no news is good news in these times. So, when FM proposed so much development expenditure without asking anything In return in the form of Covid cess or high equity taxation etc. then this is good news for the markets and so does investors react.

Budget 2021 was all about Spending on Building Roads & Infrastructure, Quality Healthcare, Education, and other areas that need development. When people are not spending, then the Government has to, as it is spending only that leads to demand and job creation and in turn growth.

So, when Government is spending to bring growth, without increasing any taxes on you, you are bound to go happy and invest more in stock markets to participate in expected growth.

2020 was a tough year for many. Yes, stock markets are showing a different picture, but the reality is something different. People are still experiencing the after-effects of the Covid Lockdown. Though the Vaccine is a positive development, the biggest challenge before the Government is now the revival of the economy.

And this is what was seen in the Budget 2021 announcements.

Below are the 10 announcements which may impact your personal finances:

Relaxation on Filing ITR by Senior Citizens:

In order to provide relief to Senior citizens, above 75 years of age, and to reduce compliance for them, it has been proposed to provide relaxation to them in filing the income tax return.

Provided the assessee should have only Pension and Interest Income. He/she would be required to fill and submit some specified forms, to specified banks which will calculate the tax liability (after adjusting Chapter VI A Deductions, and rebate u/s 87A) and deduct TDS. 

(Also Read: Tax benefits available for senior citizens)

Extension of tax benefits towards Affordable housing:

The deduction on Interest on Home loan up to Rs 1.50 lakh, u/s 80EEA has been extended on the loans sanctioned till 31^st March 2022. This was supposed to end on 31.03.2021.

Please note that this benefit is over and above section 24 Home loan benefit. This is applicable to first time home buyers, where the stamp duty value of the Residential house property does not exceed Rs 45 lakh.

(Also Read: All you wanted to know about the Affordable Housing Scheme)

Changes in the Tax Rules on ULIPs:

The government took note of the Tax exemption provided in the ULIPs, u/s 10(10D), and noticed that even the High-Net-worth Individuals are claiming this exemption by investing huge premiums.

They are of the view that the intention of this section is to benefit small and genuine cases of life insurance.

So, it is proposed, to make the maturity proceeds taxable under capital gains, for the policy where the annual premium is higher than Rs 2.50 lakh. In the case of multiple policies if the total aggregate premium paid is higher than Rs 2.50 lakh then the maturity proceeds of all the policies would be taxable.

However, the amount receivable on Death continues to be tax exempt.

This rule would apply on the Unit Linked Insurance Policies bought on and after 1^st Feb 2021.

(Also Read: ULIPs vs Mutual Funds)

Taxability of Interest on EPF deposits:

The Interest earned by EPF contributions above Rs 2.50 lakh a year, is proposed to be made taxable. If accepted, the interest earned will be taxed at nominal rates after adding to the total income.

This will be applicable to the employee’s contribution and not that of the employer. Thus, if you are the taking benefit of tax-free interest and contributing to EPF voluntarily, keep a watch on your total yearly deposit.

(Also Read: 5 important EPF rules you must know)

No TDS on Dividend Income:

In the last budget, the dividend income was made taxable in the hands of shareholders, and further to keep the compliance intact, TDS was applied at the distribution level.

In Budget 2021, the Finance minister proposed to do away with the TDS on dividend. And thus, from April 1’2021, assessees have to pay full tax on dividends themselves.  

Advance-tax liability on dividend income shall arise only after the declaration/payment of dividend.

(Also Read: All about Dividend and Capital Gains Taxation in Mutual Funds)

Better Structuring of Deposit Insurance Cover:

Deposit insurance gets activated only in the case of banks getting liquidated. But in the recent past, we have seen RBI imposing a moratorium on bank withdrawals causing trouble to the deposit holders in accessing their own funds when the bank was actually not running in a healthy state.

Finance Minister was for a better policy framework by Government and RBI, so the bank depositors will not face any difficulty when their bank is in trouble. Know more about Deposit Insurance Scheme in this article.

Car scrapping:

A separate voluntary vehicle scrapping policy will be announced soon, to phase out old and unfit vehicles. This will help in encouraging fuel-efficient, environment-friendly vehicles, thereby reducing vehicular pollution and oil import bill. Vehicles would undergo fitness tests in automated fitness centers after 20 years in the case of personal vehicles, and after 15 years in the case of commercial vehicles. Details of the scheme will be separately shared by the Ministry.

Reopening of assessment:

Presently, Income Tax Assessment can be re-opened up to 6 years and in serious tax fraud cases for up to 10 years. As a result, taxpayers have to remain under uncertainty for a long time.

To reduce this time-limit, it was proposed for re-opening of assessment to 3 years from the present 6 years. In serious tax evasion cases too, only where there is evidence of concealment of income of `50 lakh or more in a year, can the assessment be re-opened up to 10 years.

Even this reopening can be done only after the approval of the Principal Chief Commissioner, the highest level of the Income Tax Department.

Prefilled ITR forms:

In order to ease compliance for the taxpayer, details of salary income, tax payments, TDS, etc. already come pre-filled in income tax returns. 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.

(Also Read: Why is it important to fill ITR on time?)

Timely deposit of Employees contribution to EPF:

Delay in the deposit of the contribution of employees towards various welfare funds by employers results in permanent loss of interest/income for the employees. In order to ensure timely deposit of employees’ contribution to these funds by the employers, it is proposed to reiterate that the late deposit of employees’ contribution by the employer shall never be allowed as a deduction to the employer.

Conclusion:

Some people are so indifferent about the union budget when they say, how would this bring any difference in their life. This is the Government’s work.

Yes, the job is of government, but whatever they do will impact your life directly or indirectly. Economic Growth and contraction both impact you and thus each and every announcement of government, its proper implementation, the expected resultant prosperity or despair…all will impact you in one way or the other.

That’s why I always say, don’t just focus on the tax announcements, which may be a small increase or decrease in your tax outgo, but be concerned about the usage of the Tax money, and where ever possible try and question them on the same.

You should also re-look at your budget, so to be prepared for all kind of eventualities.

Government has many sources to cover up the deficits from, but you don’t. So, buckle up…interesting days ahead. 

Good Moneying!!