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Budget 2021: 6 key budget proposals taxpayers should be aware of

Union Budget 2021-22: Here's a look at some budget proposals which may impact the salaried class and the common man.

The FM has proposed to exempt senior citizens from filing of income tax return if they are of the age 75 years or above, having only pension and interest income.

Union Budget 2021-22: Keeping the woes of taxpayers and the salaried class in times of the Covid-19 pandemic in view, Finance Minister Nirmala Sitharaman was expected to make some important announcements for them in her third budget. However, while the budget was bold in many senses, the wishes of the salaried class largely remained unfulfilled.

It was a growth-oriented budget, and so far as direct tax is concerned, without disturbing the individual tax rates, the FM focussed on bringing in efficiency and improved compliance in personal taxation.

Rishad Manekia, Founder and MD, Kairos Capital Private Ltd, a Mumbai-based financial planning firm, says, “The Budget 2021 was different from those in the past not because of what had changed but because of what had stayed the same. It was a welcome surprise that there was no change in the tax slabs, no increases in surcharges and no changes in exemptions and deductions. This is a welcome change and will ensure stability and predictability to the taxpayer.”

Whatever be the case, here’s a look at 6 budget proposals which may impact the salaried class and the common man:

1. Proposal to exempt senior citizens from filing ITR

The FM has proposed to exempt senior citizens from filing of income tax return if they are of the age 75 years or above, having only pension and interest income.

“There were expectations that the Budget would provide relief in terms of reduction in tax rates or increase in deductions, which to the dismay of the common man have been left untouched by the Finance Minister. However, relief has been provided to senior citizens of 75 years and above wherein they have been exempted from filing of tax return if they have only pension income and interest income in specified bank accounts subject to conditions. This would certainly bring a smile to an important strata of our society, being senior citizens,” says Divya Baweja, Partner, Deloitte India.

2. Faceless assessment

The focus of the FM has been to make the tax processes efficient and transparent. This was achieved by introduction of faceless assessment, appeal and penalty processes earlier. In line with these principles, the FM has proposed faceless proceedings at the Income Tax Appellate Tribunal (ITAT) so as to bring more transparency in disposal of appeals at the ITAT and also achieve equitable distribution of work amongst different benches of ITAT.

3. Interest earned on PF contribution

An interesting change not covered in the Budget Speech relates to taxation of interest earned by employees on their Provident Fund. Interest earned on annual PF contribution exceeding Rs 2.5 lakh from April 2021 will now be taxable. In the 2020 Budget, the FM had capped the tax exemption on employers contribution to PF, NPS and Superannuation fund exceeding an aggregate of Rs 7.5 lakh p.a.

“While last year’s change on taxation of employer contributions would impact higher salalried employees, the change proposed in today’s Budget with respect to interest earned on employee’s contribution will have a much wider impact,” says Alok Agrawal, Partner, Deloitte India.

4. NRI taxation

A further fillip to the NRIs is proposed. “Upon return to India a challenge is faced by the NRIs w.r.t. tax on accrued income in foreign retirement accounts in terms of tax credit for foreign taxes – this arises on account of differential tax years. Specific rules for NRI will be notified to removing hardship of double taxation,” says Tapati Ghose, Partner, Deloitte India.

5. Dividend payment to REIT/ InvIT exempt from TDS

The FM has proposed to make dividend payments to REITs (Real Estate Investment Trusts) and INVITs (Infrastructure Investment Trusts) exempt from TDS. “The Indian real estate sector is at an interesting juncture and I strongly believe REITs will define the future as they allow investors to expand their range of properties. The Finance Minister’s plan to introduce a Bill to set up a DFI (developmental financial institution) for long-term funding infra projects with a capital of Rs 20,000 crore and lending Rs 5 lakh crore in the next 3 years is a great move for India’s sustainable infrastructure,” says Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Ltd.

Sahil Vachani, MD & CEO, Max Ventures & Industries (MaxVIL), says, “The decision of not to deduct TDS on REITs and InVITs is a welcome move for the real estate industry, particularly the commercial category. It will help attract investment in commercial real estate assets and thereby will help boost the demand for A-grade office spaces across the country especially in the bigger cities, which are hubs of employment activities.”

6. Affordable housing

The Budget aims to give affordable housing a boost. The measures include, additional deduction of interest, up to Rs 1.5 lakh, for loans taken to buy an affordable house has been extended for loans taken till March 2022; tax holiday for Affordable Housing projects has been extended till March 2022; and tax exemption has been allowed for notified Affordable Rental Housing Projects.

Dr. Niranjan Hiranandani, National President NAREDCO, says, “The proposals for the annual budget reinforce the government’s focus on affordable housing. For the home buyer, the second extension of the deadline till 31 March 2022 for the additional Rs1.5 lakh tax deduction given on loans taken to buy a house in an affordable housing project is welcome, as is the developer whose affordable housing projects also get an extension for tax benefits, for projects completed till March 31, 2022. Similarly, tax exemption for notified affordable housing for migrant workers, and the deduction on payment of interest for affordable housing being extended by a year will give a fillip to this emerging segment.”

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