Income Tax Budget 2021 Highlights: What Budget says for home buyers, EPF, ULIP, NRIs, Senior Citizens

Budget 2021 has proposed to extend the ITR filing due dates for a certain category of taxpayers whose accounts need to be audited. The timeline for filing belated/revised returns have also been proposed to be reduced from April 1, 2021. Read Full Details

Finance Minister Nirmala Sitharaman, while presenting the Budget 2021, has proposed taxability of interest on various provident funds where income is exempt. Read full details here

The government on Monday projected a 16.67 per cent growth in gross tax revenue in the next fiscal beginning April 1, at over Rs 22.17 lakh crore. The revised estimates of gross tax revenue for the current fiscal has been pegged at Rs 19 lakh crore, lower than the Rs 24.23 lakh crore budgeted earlier. Economic Affairs Secretary Tarun Bajaj said “our revenue figure is under-stated not overstated. We have taken nominal GDP at 14.4 per cent and revenue growth at 16.7 per cent. So the buoyancy is only 1.16. We are hopeful we will get more than this”. In 2021-22 fiscal, while the corporate tax collection is expected to grow 22.65 per cent at Rs 5.47 lakh crore, personal income tax is estimated to grow 22 per cent to Rs 5.61 lakh crore. Customs collection is projected to grow 21.43 per cent to Rs 1.36 lakh crore in the next fiscal. In current fiscal, customs collection as per revised estimate stood at Rs 1.12 lakh crore. Excise duty revenue has been pegged at Rs 3.35 lakh crore in 2021-22 fiscal, lower than Rs 3.61 lakh crore estimated this fiscal. Centre’s GST revenues, including compensation cess, is pegged at Rs 6.30 lakh crore in the fiscal beginning April 1. It was Rs 5.15 lakh crore in the current fiscal.  (PTI) 

Abhishek A Rastogi of Khaitan & Co said tax holiday extension for start-ups till March 2022 gives necessary boost to the newage economy. The moot point, however, remains whether this extension is enough for start-ups to come to the normal growth rate trajectory, and whether there will be any further extensions as we move closer to the new deadline. Interestingly, capital gains exemption on investments in start-ups have also been extended to March 2022, incentivising investment especially in the promising ventures, he said. On the proposal to prospectively amend Section 2(42C) of the Income Tax Act defining slump sale may impact computation of capital gains in case of slump exchange transactions. The slump exchange transactions are a regular feature in holding-subsidiary slump exchange model with a view that capital gains are not applicable, he said. While the government has been working to curb tax evasion, a move towards de-criminalisation of offences will help the economy in the long-run. While steps towards decriminalisation have been taken with respect to LLPs, a move in that direction for GST is of utmost importance, Rastogi said. (PTI)

Sonu Iyer of EY India said the continued focus on making the lives of the taxpayers easy by measures like no tax return filing requirement for persons over 75 years and above earning only pension income, pre-filling of tax returns with capital gains and interest income details, and faceless tax assessments expanded to include tax tribunals and dispute resolution committee, among others, is very positive. (PTI)

Taxation experts have opined that making no major changes in the tax structure signal a strong resolve to have stability in the tax regime and at the same time, expressed the hope that the government returns to fiscal consolidation sooner than later. Surprising everyone, especially the markets which closed with the biggest Budget-day gains of 5 per cent, the Budget left all taxes unchanged barring for some cess to fund the farm sector or increase any direct taxes. All it did was to tweak the customs and excise duties on certain products to rationalise them. EY India’s Sudhir Kapadia said no major changes in the design or rates of direct taxation signals strong resolve to have stability in the tax regime. Though foreign shareholders in domestic companies will get the benefit of lower withholding rates on dividends under tax treaties, disallowance of deduction on goodwill in merger transactions is an unexpected dampener, he added. Also, the proposed dispute resolution committee for only small taxpayers is disappointing, as there is a crying need for an omnibus mediation channel for all taxpayers, especially where large tax disputes are likely to arise, he said. (PTI)

The government on Monday clarified transactions involving royalty/ technical services fee would be taxable under income-tax and not be liable for equalisation levy that is paid by foreign companies for conducting business with Indian parties, while explaining what would construe online sale of goods or services. The Union Budget also clarified that transactions taxable under income-tax are not liable for equalisation levy. In the past, there have been concerns on the interpretation of the equalisation levy provisions. “It is seen that there is need for some clarification to correctly reflect the intention of various provisions concerning this levy,” according to the explanatory memorandum in the Budget 2021-22. It further said: “In order to provide certainty, it is being expressly clarified that transactions taxable under income-tax are not liable for equalisation levy. Further, it is also proposed to clarify regarding the applicability of equalisation levy on physical/offline supply of goods and services”. (PTI)

“As per expectation, the Finance Minister has given a boost to spending in healthcare and infrastructure sector in this year’s budget. The budget has also put emphasis on a stable tax regime and not introduced any new tax, major change in the taxation structure to ensure that there are no surprises for the long term investors. Few reforms for ease of doing business in India have also been announced which will be an added opportunity to attract interest from foreign investors. Another welcome change by the foreign investors is changing the TDS provisions for FPIs on dividend. This was a pain point for some time, and it is a positive move to enable deduction of tax at lower treaty rate. Additionally, FDI in the insurance sector has been raised from 49% to 74%. This will also help to attract the flow of capital to the insurance sector and thus benefitting the overall economy,” says Anuja Bhargava, Head of General Counsel Operations, Fidelity International.

“The move to increase FDI in insurance from 49% to 74% bodes well for the companies who have been facing capacity constraints owing to lack of capital. This move will help the companies raise fresh capital and enhance growth prospects. None of the large players face any capital stress. Overall, this will lead to increase in competition from smaller players. The move to remove exemption for ULIP plans where premium is greater than Rs2.5 lakhs per annum could impact flows in the segment where ICICI Pru and SBI Life have the highest share,” says Prayesh Jain, Lead Analyst, Institutional Equities at YES SECURITIES .

Finance Minister Nirmala Sitharaman said, “In the previous Budget, I had abolished the Dividend Distribution Tax (DDT) in order to incentivise investment. Dividend was made taxable in the hands of shareholders. Now, in order to provide ease of compliance, I propose to make dividend payment to REIT/ InvIT exempt from TDS. Further, as the amount of dividend income cannot be estimated correctly
by the shareholders for paying advance tax, I propose to provide that advance tax liability on dividend income shall arise only after the
declaration/payment of dividend. Also, for Foreign Portfolio Investors, I propose to enable deduction of tax on dividend income at lower treaty rate.”

Anuj Mathur, MD and CEO, Canara HSBC OBC Life Insurance, says: “Relaxation in FDI is a positive news for the insurance sector as raising the investment cap in insurance companies was one of the key demands of various global investors after the government had amended the FDI policy to allow 100 per cent foreign investment in insurance intermediaries during last year’s budget. The move will help insurers attract more capital to expand business; it would also potentially boost the government’s divestment programme. Increase in FDI limits will help insurance companies to raise funds to ensure their solvency is maintained in line with growing business needs. We may also see increase M&A in the sector while paving the way for PE funds to enter the space”

“In the backdrop of an extremely challenging landscape, the Budget 2021 has successfully managed to meet the requirements from several quarters. The tax proposals, though falling short of any rationalization of the direct tax structure, are sufficient to provide relief to the taxpayer,” says Dhirendra Mahyavanshi, Co-Founder, Turtlemint ( An Insurtech Company)

“Measures like exempting senior citizens (75 years and above) who only have pension and interest income from filing income tax returns, increase in limit for tax audit for persons who carry out 95% of their transactions digitally, and an additional deduction of Rs. 1,50,000 for loans taken up till March 2022 for purchase of affordable housing are all steps in the right direction. Additionally, the proposal to extend the eligibility for claiming tax holiday for start-ups by one more year and incentivising the incorporation of a one-person company to enable them to grow will give a further fillip to the burgeoning start-up culture in the country,” he adds. 

Nandita Tripathi, Partner, M&A Tax and PE, KPMG in India, says Union Budget 2021 was presented today amidst lot of expectations at the back of Covid 19 stress in the economy, need for more public spending and high unemployment rates. With there being no increase in tax rates or tax incidence on either individual or corporate taxpayers, the FM has attempted to meet the requirement of increased public spending through proposed monetization/ disinvestment plan.

‘To address revenue sources, the government laid particular emphasis on asset monetization through REITs / InvITs, highlighting the process that has already been initiated for some of the road and transmission assets held by NHAI and PGCIL respectively. Similar monetization efforts are expected in future for oil & gas, petroleum, airports, warehousing space, sports stadiums, etc. In a big move, the Government also announced setting up of an entity to address the stressed assets of banks. The same will allow banks and financial institutions to clean its balance sheet and enhance the lending capacity of such institutions. The details of the proposal is though awaited,’ said Tripathi.

Divya Baweja, Partner, Deloitte India on Budget 2021, says 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. 
 
The focus of the Finance Minister has been to make the 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. The efficacy of the same would need to be seen in the times to come, said Baweja. 

Shashi Mathews, Partner, IndusLaw, says: “The dispute resolution scheme for small taxpayers should reduce the burden of compliance and adjudication on them, especially since it is expected to be technology driven. Waiver of penalty and immunity from prosecution will incentivize taxpayers to adopt the scheme, the modalities of which is yet to be announced.“

Interest earned on Provident Fund contribution above Rs 2.5 lakh in a year to become taxable, according to Budget 2021. Read full details here

“In order to rationalise taxation of ULIP, it is proposed to allow tax exemption for maturity proceed of the ULIP having annual premium up to Rs 2.5 lakh. However, the amount received on death shall continue to remain exempt without any limit on the annual premium. The cap of Rs 2.5 lakh on the annual premium of ULIP shall be applicable only for the policies taken on or after 01.02.2021. 

“Further, in order to provide parity, the nonexempt ULIP shall be provided same concessional capital gains taxation regime as available to the mutual fund,” Sitharaman said. 

“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,” SItharaman said in Budget speech

Giving a fillip to the buyers of affordable houses, Finance Minister Nirmala Sitharaman has extended the time period of taking loans to buy such houses by one year – i.e. from March 31, 2021 to March 31, 2022 – to avail additional tax benefits of Rs 1.5 lakh u/s 80EEA of the Income Tax Act. Section 80EEA provides tax benefits up to Rs 1.5 lakh on the interest paid on loans taken for Residential House Property for affordable housing. The benefit is over and above the tax benefit of Rs 2 lakh available u/s 24(B) of the Income Tax Act on interest on Housing Loan on both self-occupied and rented properties. Read Full Details

Dividend payment to REIT/InvIT to be exempted from TDS, FM Sitharaman announced in Budget speech

1. No tax burden on senior citizens above 75

2. Tax assessment can be re-opened only up to 3 years

3. Dispute Resolution Committee for small taxpayers

4. Additional deduction of Rs 1.5 lakh for purchasing affordable house.

5. Relief from double taxation for NRIs

Finance Minister Nirmala Sitharaman, while presenting the Budget 2021, has proposed no filing of Income Tax Return (ITR) by senior citizens who are above 75 years of age and have only pension and interest income. Pension from the ex-employer is taxed under the income tax head of Salary while family pension is taxed as ‘income from other sources’. Interest income received from SCSS, bank fixed deposit etc is taxed as per one’s income slab under the head ‘income from other sources’. Read Full Details

Aarti Raote, Partner, Deloitte India on Budget 2021, says while we need to see the details in the fine print, the FM has chosen to provide tax payers with operational ease in compliance like prefilling tax returns and faceless assessments over any direct tax relief to the tax payers. While this may disappoint many tax payers, the positives are that the FM maintains a status quo and stability and avoided the much dreaded COVID cess levy..

“This is indeed a bold growth-oriented budget. Absence of the much-feared Covid tax and the surcharges on Income Tax is a great relief. Privatization of 2 nationalised banks and proposal of monetization of assets like land are clear positives. Raising FDI in insurance from 49% to 74% is welcome. Market response to the budget reflects growth optimism. In brief, the FM has presented a pragmatic, bold and visionary budget in these difficult times,” says  VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Budget for startups: Finance Minister Nirmala Sitharaman today proposed extension of the eligibility for claiming tax holiday and capital gains exemption for investment in startups till March 31, 2022. “In order to incentivise startups in the country, I propose to extend the eligibility for claiming tax holiday for startups by one more year to March 31, 2022,” Finance Minister Nirmala Sitharaman said. (PTI)

Govt to take steps to reduce inverted duty structures in GST,  FM Nirmala Sitharaman said.

The Government proposed to review over 400 old exemptions in indirect taxes and it will begin extensive consultation from October 2021, said the FM. 

Govt to take steps to reduce inverted duty structures in GST,  FM Nirmala Sitharaman said.

The Government proposed to review over 400 old exemptions in indirect taxes and it will begin extensive consultation from October 2021, said the FM. 

Budget 2021: 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 on NRI taxation

Welcome relief granted to Senior citizens above 75 years and having only pension and interest income from filing tax returns, says Shailesh Kumar, Partner, Nangia & Co LLP. Significant increase in number of tax return filers is a good indicator of increasing the tax base in India, he adds. 

Sitharaman said that in ITR, details of capital gains, income from list securities, dividend income, income from interest on bank deposits tom come pre-filled in ITR, said Nirmala Sitharaman in Budget Speech 2021. 

Sitharaman said that the tax system should put minimum burden on the taxpayers.  A faceless dispute redressal platform to be set up for small taxpayers. 

Hence, reduction of time in income tax proceedings proposed. Time limit to reopen the assessment case proposed to be reduced to 3 years from the current 6 years limit. 

Tapati Ghose, Partner, Deloitte India on Budget 2021, says: “Non-resident individuals with entrepreneurial potential are now enabled to set up One Person Companies (OPC) with no paid up capital and turnover restrictions, reducing registration  timeline from 182 days to120 days. Earlier only Indian resident citizens were permitted to set up OPCs. This would be attractive to the Indian Diaspora”

Debt financing of InvITs and REITs will be enabled by making a suitable amendment to attract more investment in the real estate and infrastructure sector. Rapid development in infrastructure requires a strong inflow of capital. FM’s announcement to set up a new development financial institution, capitalized with 20,000 crores and the DFI lending 5 lakh crores in the next 3 years will bring in a big boost to the infra, says Honeyy Katiyal, Founder of Investors Clinic 

Two Public Sector Banks and one general insurance company to be divested, legislations amendments to be introduced in this session, says FM Sitharaman.

Modi Government has proposed investor charter across financial products in Budget 2021. 

The LIC IPO will be introduced in 2021, announces Finance Minister Nirmala Sitharaman.  She also a proposal to increase FDI in insurance.

Commenting on the announcement, Russell Gaitonde, Partner, Deloitte India on banking and finance sector, said: “‘The Government’s decision to increase the FDI limit in the insurance sector from 49% to 74% is a welcome move as it was a long standing industry request and will help attract greater foreign investment and strengthen the insurance sector. The measures to clean up the NPAs in the banking sector by creation of an ARC and Asset Management Company that will take over the stressed assets and sell to AIFs is also welcomed as it will help improve the health of the banking sector.”

Depositors insurance limit to be increased. Govt to introduce an amendment in this Session of Parliament, says FM Sitharaman. 

Insurance Act amendment proposed. FDI limit to be increased from 49 to 74% with safeguards. 

Budget 2021: Sithraman announces Investor Charter to protest interest of all investors.