What Budget 2021 had in store for individual taxpayers

Updated: February 02, 2021 3:03 PM

While no changes have been proposed to the individual tax rates, the Finance Minister accorded relief in the form of ease of compliance for the taxpayers.

Budget 2021, individual tax rates, taxpayers, senior citizens, Provident Fund,The government has always tried to make compliance easier for taxpayers by means of technology upgradations.

By Neha Malhotra

The Union Budget serves as an occasion for the government to introduce measures for simplifying the taxation framework and making compliance easier. Amidst the high expectations of a pandemic-struck India, FM treaded the tightrope successfully and made an honest attempt to fuel economic growth. While no changes have been proposed to the individual tax rates, the Finance Minister accorded relief in the form of ease of compliance for the taxpayers.

Senior citizens have contributed immeasurably towards nation-building and deserve comfort at their old age. In view of the hardships that they may face while complying to the requirement of filing return of income, the Finance Minister has proposed that such individuals, above 75 years of age, shall not be required to file a return of income if they draw income from pension.

In addition to such income, they may have also have interest income from the same bank in which they are receiving their pension income. The senior citizens shall be required to furnish a declaration to specified banks pursuant to which the bank would be required to compute the income of such persons after giving effect to deductions and rebates allowable and deduct income tax as per the rates in force.

Only last year, the Government had imposed an aggregate monetary cap of INR 7.5 lakhs on tax-free employers’ contributions to recognized Provident Fund, approved pension scheme or approved superannuation fund and corresponding annual accretion (being interest or dividend or any other similar amount) in respect of such employers’ contributions to these funds.

The reason behind such imposition was to prevent employees earning high salaries from parking their salary in such tax-free funds. In the current budget, the Government has proposed to restrict tax benefit on accretions arising from employee’s contribution, if such contribution exceeds INR 250,000 per annum, which was restricted to the employer’s contribution to Provident Fund and other specified funds and accretion pertaining to employers’ contribution only. Therefore, employees earning interest on Provident Fund on annual contribution exceeding INR 250,000 would be required to pay tax on such excess contribution, as per rules to be notified later.

The Government has worked tirelessly to provide a taxpayer- friendly administration system to the taxpayers. The government has attempted to lessen, if not eliminate the interface between the taxpayers and the department, thereby curtailing the powers of overzealous tax officials. A faceless dispute resolution committee for small individual taxpayers is now being set up in furtherance of the government’s objectives. Taxpayers having returned income of up to INR 50 lakh and disputed income of up to INR 10 lakh shall be entitled to approach the dispute resolution committee.

Notably, specified order based on search or survey or order based on DTAA shall not be eligible for consideration by the committee. The Committee shall have the power to reduce/ waive any penalty or grant immunity from prosecution for any offence under the Act. The scheme shall impart greater efficiency and transparency, eliminate interface as much as possible and help unclog the tax administration system, thereby creating an environment that is conducive to the taxpayers.

The government has always tried to make compliance easier for taxpayers by means of technology upgradations. Accordingly, a pre-filled XML file comprising details of employer, allowances, deductions, is made available to the taxpayers currently. A step further has been taken in this direction and ITRs would now have pre-filled information on dividend, interest & capital gains also. In addition to accuracy of data, it shall also ensure faster compliance by the taxpayers. Pre-filling taxpayers’ data also suggests that the government is observing all the taxpayers’ transactions and that the tax evaders must beware.

Another measure to boost the morale of the first-time home buyers and the real estate sector was the extension of time limit under section 80EEA of the Income Tax Act. Individual assesses, not owning any other property at the time of sanction of loan, can claim deduction for interest on home loan up to INR 150,000 subject to fulfilment of stipulated riders, one of which is the requirement that the loan shall be sanctioned from 1st April 2019 to 31st March 2021. This time limit is proposed to be extended for another year up to 31st March 2022. However, this move shall prove to be inconsequential for individuals opting for the reduced slab rates. Those opting for the concessional tax regime shall have to give up this deduction.

(The author is Director, Nangia Andersen LLP)

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