The most feared and most awaited event of the year; The Budget. Every person, every industry waited patiently for the announcement from our respected Finance Minister Nirmala Sitharaman.
With COVID-19 pandemic on the backdrop, India was waiting for a “get well soon”.
Let’s see what the Budget 2021 brought forward for us – Decoding Budget 2021:
1. No changes in personal income tax
Budget 2021 did not alter the personal income tax structure which meant that the common man is not burdened with tax levy this time. However, we have tried to summarise a few pointers to understand the changes
2. No ITR filing for senior citizen above the age of 75 years
Budget 2021 dictates that Senior citizens above the age of 75 years need not file Income Tax returns henceforth. However, this exemption is valid only if the senior citizen has income from pension and interest.
Only snitch here is that the bank interest should have been received from the same bank where the pension gets deposited.
3. Prefilled Income Tax Returns
Ease of filing will be achieved as a result of Prefilled Income tax returns with the details of interest, dividend, capital gains etc. This is a welcome change since time will be saved and accuracy will be achieved.
Capital gains especially for trading in shares and mutual funds is a very cumbersome task. Prefilled details of capital gain will be a relief.
4. Dividend not required to be considered for determining the advance tax
The dividend has been made taxable only on the receipt or declaration of the same from the view of Advance Tax calculation.
Earlier the taxpayers would need to pay the interest due to underestimation of dividend income while calculating the advance tax. However, with the change in Budget 2021, the taxpayer need not consider dividend in advance tax calculation unless it is declared or paid. This will reduce the interest and penalty on advance tax payments of the taxpayers.
Related article: Reviewing Your Financial Plan? Keep This Checklist Handy
5. Taxability of Interest on Employees Provident Fund (EPF) contribution
Interest on EPF contribution in excess of Rs. 2.5 lakhs, however, will be taxed only if withdrawn in such year.
This move is expected to divert the investors away from EPF, so that the investors would prefer to move in the funds to more lucrative options.
6. Double TDS rate where the taxpayer does not file Income Tax Return (ITR)
Budget 2021 has prescribed TDS at double rates where the taxpayer does not file Income Tax return.
This will encourage and push the non filers to file their ITR, which will increase the coverage of Income Tax.
7. Deduction for interest exemption of Affordable Housing remains unchanged this year too
The deduction will be allowed till the year-end i.e. March 2022, on the Affordable Housing Scheme for Rs. 1.5 lakhs.
This was a specific benefit given by Budget 2019, however, FM has reconsidered extending the same to the year 2021 is a positive sign for especially migrant workers and the lower working class.
Related article : How to select a suitable Tax regime for Yourself?
8. ULIPs brought into the tax net
Budget 2021 has brought in ULIPs under taxability net, prescribing that the capital gains on ULIPs will be taxable if the yearly premium is more than Rs. 2.5 lakhs.
ULIPs were having a specific advantage over regular ELSS (Equity Linked Saving Schemes) Funds due to no restriction on premium payments. However, with this amendment, ULIPs are pretty much at par with Mutual Funds.
9. Revision of return preponed by 3 months
Henceforth the taxpayers would be required to file the revised / belated returns by December 31st of every assessment year.
10. Rush start to Startups
Budget 2021 has boosted up the way ahead for the startups by prescribing some booster doses for revival and growth.
11. Removal of condition of waiting period for conversion of One Person Company (OPC)
Budget 2021 has removed the waiting period of 2 years for converting the OPC into a public limited company or private limited company.
12. No Cap on paid-up capital and turnover
Budget 2021 has eliminated the restrictions with respect to paid-up capital and turnover.
13. Non-Resident Indians (NRI) can incorporate OPC in India
This amendment will bring in the most required capital inflow in India especially in start ups.
14. Emphasis on healthcare
COVID-19 was an alarming state of events in the year 2020, which has reaffirmed the need to improve healthcare and sanitization activity.
15. Increased spending to 137% on Healthcare facilities.
Prime Minister Atmanirbhar Swasth Bharat Yojana will have competitive healthcare facilities with this spending.
16. COVID-19 Vaccine
FM has assured that more vaccines will be available soon and an amount of Rs. 35000 crores would be spent on vaccine efforts.
17. Privatisation, Divestment and Foreign Direct Investment (FDI)
Budget 2021 hs been truly an example of a progressive budget since it has talked in lengths and details about Divestment, privatization and foreign direct investment in government companies and public sector units
18. The monetisation of assets of PSUs
FM has announced that assets of Railways, Airports etc will be monetised through National Asset Monetisation Plan.
19. Disinvestment of PSUs (Public Sector Units)
List of PSUs will be made which are targeted for disinvestment and strategic disinvestment will be carried out to garner the funds
20. Changes in the Insurance Act to attract FDI (Foreign Direct Investment)
Budget 2021 has raised the FDI limit to 74% which was 49% earlier. This will attract more international players into the Insurance field due to allowability f foreign ownership.
21. Acche din for Government schemes
- Free Cooking gas
- Application of Minimum Wages Act to all workers inclusive etc.
Decoding Budget 2021 in all can be looked like more of an ambitious budget which has paved the way for the much sluggish economy bearing the impact of COVID19 hit. However, there is too less for the common man in terms of tax impacts and exemptions, apart from health and wellbeing concerns.
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Will tax on PF interest also cover contribution to PPF account?
Budget 2021 has proposed to levy income tax on interest earned by an employee/person on his/her contribution in excess of Rs 2.5 lakh in a financial year to a provident fund. It appears that tax will apply to the interest earned on contributions made to Employees’ Provident Fund (EPF), Voluntary Provident Fund (VPF) as well as Public Provident Fund (PPF). However, tax experts have clarified that there are separate limits for EPF/VPF and PPF i.e. contributions to PPF and EPF/VPF will not be aggregated for the purpose of calculating the Rs 2.5 lakh limit.
RBI has announced monetary policy today
Repo Rate: 4%
Reverse Repo Rate: 3.35%
The Monetary Policy Committee (MPC) decided to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year
Reasons for no change in rates:
- To revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.
- Concerns around core inflation coupled with widening fiscal deficit and normalization of economic activities.
- Also to normalize liquidity and drain out the surplus funds from the market.
Petrol, diesel price at fresh high; oil company says only tax cut by government can help
Petrol and diesel price was hiked by 35 paise per litre each after a gap of a week. The increase took petrol prices to a fresh high of Rs 86.65 a litre in Delhi and to Rs 93.20 in Mumbai. Diesel rates touched Rs 76.83 in Mumbai and an all-time high of Rs 83.67.
Reasons behind increase in petrol and diesel prices:
- There has been a sudden spike in international oil prices to USD 59 per barrel in the last 2-3 days because of a perception of mismatch in demand and supply as well as cut in production by Saudi.
- Addition of central and state taxes and dealer commission to the benchmark cost of production.
Tata Power Q3 results: Net profit up 22% to Rs 318 cr on debt reduction
Tata Power on Thursday reported a 22 percent year-on-year increase in consolidated net profit for the October-December quarter at Rs 318 crore on debt reduction, better performance of the Mundra plant, and steady operational performance across all businesses.
The company’s revenue rose 7.5 percent to Rs 7,598 crore during the December quarter. Earnings before interest, tax, depreciation, and amortization (EBITDA) rose 1 percent to Rs 1,997 crore from Rs 1,970 crore in the year-ago quarter.
The company has marked a new milestone for its distribution business by acquiring the distribution and retail supply of electricity in Odisha’s five circles of WESCO and six circles of SOUTHCO.
The company is bullish on its renewables business and said its solar engineering, procurement, and construction (EPC) business continues to grow.
FM Nirmala Sitharaman sets Rs 15 lakh income cap to tax NRIs
The Finance Minister has put in place a threshold of Rs 15 lakh for the levy of tax on incomes emerging from India while leaving out global incomes from the tax ambit.
Budget 2021 May Dent Retirement Savings as PF Interest Above a Certain Limit to Get Taxable
The budget has plugged a major tax leak by placing a cap on the Provident Fund contribution that will earn tax-free income. A lot of people contribute huge sums to the Provident Fund every month to gain tax-free interest. Now that has been capped at Rs 2.5 lakh a year. Interest earned on Provident Fund contributions above Rs 2.5 lakh a year will be taxable. This will apply only to the employee’s contribution and not that of the employer.
Cheaper gold, silver jewellery to add glitter to marriage season
Gold and silver jewellery will become cheaper in the country ahead of the upcoming wedding season with finance minister Nirmala Sitharaman reducing import duty on gold and silver to 7.5% from 12.5% in the Union budget. Besides bringing relief to the consumers, the move would make Indian jewellery more competitive in global markets and also help reduce gold smuggling into the country, industry insiders said. India imports around 800 -850 tonnes of gold annually. It is estimated that another 100-120 tonnes of gold enter the country through the grey market route. The duty cut may also help jewellery exports.
Why is the military taking control in Myanmar?
The announcement on military-owned Myawaddy TV cited Article 417 of the country’s constitution, which allows the military to take over in times of emergency. The announcer said the coronavirus crisis and the government’s failure to postpone the November elections were reasons for the emergency.
Indigo Paints shares debut at Rs. 2,607.50, a stellar 75% premium over IPO price
Indigo Paints shares kick-started trading with a bumper premium of 75 percent over its issue price on February 2, given the strong IPO subscription and Budget-driven bullish market sentiment. The stock opened at Rs 2607.50 on the BSE, against the public issue price of Rs 1,490, while the opening price on the National Stock Exchange was at Rs 2607.50, a 75 percent premium. At 10:07 hours IST, Indigo Paints shares were trading at Rs 2,533.45, up 70 percent, with volumes of 364,745shares on the BSE. On the NSE, it was quoting 70 percent higher at Rs 2,532.45, with volumes of 4,186,376 shares. The fifth-largest company in the Indian decorative paint industry in terms of revenue from operations has raised Rs 1,170 crore through the maiden public issue which was subscribed 117 times during January 20-22.
COVID-19 Vaccine Tracker News: Over 37.5 lakh beneficiaries receive the jab in India
The government has proposed a budget outlay of Rs 2,23,846 crore for health and wellbeing in 2021-2022, an increase of 137 percent from the previous year, with Rs 35,000 crore earmarked for COVID-19 vaccine in the upcoming fiscal. At least 37,58,843 beneficiaries have, so far, been vaccinated for COVID-19 through 69,215 sessions, the health ministry has said in a provisional report. The government proposed a budget outlay of Rs 2,23,846 crore for health and wellbeing in 2021-2022 on February 1, an increase of 137 percent from the previous year, with Rs 35,000 crore earmarked for COVID-19 vaccine in the upcoming fiscal.
Budget 2021: Here’s how retail investors and taxpayers will be affected
ULIPs to get taxed as well
ULIPs with very high premiums will also move into the tax net. Insurance policies are often hawked as tax-free investment havens. But now, policies with an annualized premium of Rs 2.5 lakh or more will be treated as mutual funds for tax purposes. This new change will apply to all new policies.
To read more about these changes here is an article : ULIPs with an annual premium above ₹2.5 lakh to be taxed.
Boost to affordable housing
The budget has extended the eligibility window for the additional deduction of Rs 1.5 lakh for home loans taken for affordable housing under Sec 80EEA by another year. The earlier deduction given last year is expiring on March 31 this year. This benefit is only for first-time homebuyers with loans of up to Rs 35 lakh for houses worth up to Rs 45 lakh. There are also restrictions on the house size (60 sq m in metros and 90 sq m in other towns and cities).
Easier compliance for the elderly
The budget has also made tax compliance easier for those above 75. They don’t need to file returns if they have income only from pension and interest. It is important to note that this exemption is only for filing tax returns, not for paying tax. Also, if they have income from rent and capital gains, they are not eligible for the exemption from filing tax returns.
Reopening of ITRs
In a significant step to improve the taxpayer sentiment, the budget has changed the time frame within which the tax department can re-open old ITRs. The time window has been reduced from six years to three years now. This will ensure that taxpayers are not harassed by the tax department for returns filed several years earlier.
Easier filing of capital gains tax and dividend
The budget has also made it easy to file capital gains tax. The capital gains and dividend income will now come pre-filled in the ITR forms. This will certainly help in improving tax compliance among taxpayers who used to ignore capital gains and interest because of the problems associated with calculating them. All in all, the budget is taking the nation in the right direction – investments in infrastructure, health, agriculture are excellent long-term bets.
Here are some of the unheard facts about budget 2021
Some of the facts which you don’t know about Budget 21. Here is the list
1. ULIP maturity is TAXABLE. Budget 2021 has proposed not to provide tax exemption under section 10(10D) of Income Tax Act for maturity proceeds of the unit-linked insurance policies (Ulips) with annual premium above ₹2.5 lakh. The rules will apply for Ulips issued on or after 1 February 2021. According to Budget memorandum, “Under the existing provisions of the Income Tax Act, there is no cap on the amount of annual premium being paid by any person during the term of the policy. Instances have come to the notice where high net worth individuals are claiming exemption under this clause by investing in Ulips with a huge premium. Allowing such exemption in policy/policies with huge premium defeats the legislative intent of this clause.”
Related Article: ULIPs with an annual premium above ₹2.5 lakh to be taxed.
2. TDS deduction by buyer if paying more than 50 Lacs in a year for purchase of Goods. Section 194Q of Income Tax. (1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent. of such sum exceeding fifty lakh rupees as income-tax. Explanation.––For the purposes of this sub-section,
“buyer” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
3. Limit of tax exemption of Interest on Provident Fund: In order to rationalise tax exemption for the income earned by high income employees, it is proposed to restrict tax exemption for the interest income earn on the employee’s contribution to various provident funds to the annual contribution of Rs 2.5 lakhs. This restriction shall be applicable only for the contribution made on or after 01/04/2021.
4. Relaxation to NRI for Income of Retirement Benefit Account: In order to remove the genuine hardship faced by the NRIs in respect of their income accrued on foreign retirement benefit account due to mismatch in taxation, it is proposed to notify rules for aligning the taxation of income arising on foreign retirement benefit account.
5. Timely deposit of Employees’ contribution to labour welfare funds by Due Date: Delay in deposit of the contribution of employees towards various welfare funds by employers result 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 that the late deposit of employees’ contribution by the employer shall never be allowed as deduction to the employer.
6. Exemption for Leave Travel Concession (LTC) cash scheme: In order to provide relief to employees, it is proposed to provide tax exemption to the amount given to an employee in lieu of LTC subject to incurring of specified expenditure.
Finance Minister in budget 2021 has made the maturity proceeds of the unit-linked insurance policies (Ulips) taxable. However, it will be taxable only if the annual premium is above ₹2.5 lakh. The rules will apply for Ulips issued on or after 1 February 2021. According to the Budget memorandum, “Under the existing provisions of the Income Tax Act, there is no cap on the amount of annual premium being paid by any person during the term of the policy. Instances have come to the notice where high net worth individuals are claiming exemption under this clause by investing in Ulips with a huge premium. Allowing such exemption in policy/policies with huge premium defeats the legislative intent of this clause.”
Are you wondering what will be the tax rate?
Ulips will be taxed at 10%, above an annual exemption of ₹1 lakh, at par with equity mutual funds. It is an attempt to rationalize taxation of Ulips. The non-exempt Ulips shall be provided with the same concessional capital gains tax regime as available to the mutual fund to provide parity with equity mutual funds.
Currently, the entire amount received under a life insurance policy is exempt under section 10(10D). Section 10(10D) of the Income Tax Act exempts any amount received under a life insurance policy including Ulips, if the sum assured is more than 10 times the annual premium. This exemption includes death benefits, maturity benefits and accrued bonus. It means until now, there was no upper limit applicable to the claim against a life insurance policy.