Finance Minister Nirmala Sitharaman has stayed in tune with the Narendra Modi government’s commitment towards making India’s tax regime taxpayer friendly. Importantly, tax slabs were left untouched and the widely anticipated ‘Covid cess’ was not levied, which is a huge relief.
Most crucially, the changes are not for any specific segment alone. Some of the noteworthy changes are listed as under.
Relief for senior citizens
In order to reduce compliance burden, senior citizens aged 75 years and above earning only pension and interest income have been exempted from filing tax returns. This is subject to the condition that such a person will submit the required details to the bank, which will calculate the tax applicable on their income.
Relaxation for housing loan
In Budget 2020, additional deduction of interest up to Rs 1,50,000 had been provided under Section 80EEA on loans taken to purchase residential house property, subject to satisfaction of specified conditions. This has been extended to 31 March 2022.
Leave travel concession
Recognising the situation brought by the Covid-19 pandemic, the Budget provides for availing leave travel concession. This will cover expenditure made by such employees or family members on goods and services on which a GST rate of 12% or more is applicable and payment is made by way of electronic mode. This is for FY 2020-21 only. However, the exemption shall not exceed Rs 36,000 or one-third of the expenditure, whichever is lower.
New dispute resolution mechanism
In order to settle disputes of small and medium taxpayers having returned income of Rs 50 lakh (or less) where the aggregate variation is Rs 10 lakh (or less), a Dispute Resolution Committee (DRC) will be formed. The scheme will authorise reduction and/or waiver of penalty and immunity from prosecution.
Abolishment of settlement commission
Income tax settlement commission has been abolished, which means that there is no avenue now to seek immunity for evasion, a move that indirectly respects honest taxpayers.
Plugging abuse of welfare schemes
Currently, exemption is available for sums received under a life insurance policy where the premium payable for any of the years does not exceed 10 per cent of the actual sum assured. Such exemption shall not apply to a unit-linked insurance plan (ULIP) issued on or after 1 February 2021, if the amount of premium payable exceeds Rs 2,50,000. Such income would be subject to tax as capital gains.
In order to discourage tax planning by high-net-worth individuals, interest on provident fund (PF), which was otherwise tax free, shall be taxable in case the employee contribution to PF is more than Rs 2,50,000 in a year. Further, in case of maturity of life insurance policy, wherein a premium of more than Rs 2,50,000 is paid for a policy entered on or after 1 February 2021 shall be taxable as capital gains.
Reduction in time limit for belated returns and assessments
The time limit for reassessment has been reduced from 6 years to 3 years and for undisclosed assets, it has been reduced from 16 years to 10 years.
The time limit for belated returns has been reduced from March 31 to December 31.
The time limit for completion of assessments has also been reduced by three months.
This is likely to significantly save the individuals from the earlier wide discretionary powers available with tax officers.
Extension of social security coverage schemes
In a welcome move by the government, gig workers will now be able to avail the benefit of social security schemes.
Further, e-commerce workers will now be covered under Employees’ State Insurance Scheme (ESI), Employees’ Provident Fund (EPF) and the minimum wage rule.
The Modi government has provided that in order to claim deduction for contribution to various employee welfare funds, the employer will have to deposit the amount within the specified due date.
Interest shall not be chargeable on a taxpayer earning dividend income for failure to comply with advance tax provisions if tax is paid in subsequent advance tax instalments after the declaration or payment of dividend.
Investing in gold and silver shall be beneficial because they will become cheaper as a result of rationalisation in customs duty on imports of these precious metals.
Exemptions on parts of chargers and mobiles have been removed and customs duties have been increased on some parts of mobiles from ‘nil’ rate to 2.5 per cent.
Further, customs duties on auto parts have been increased as well.
For the textile sector, which significantly contributes to the Indian economy, customs duties on certain inputs and man-made textiles have been rationalised, which will boost local manufacturing and exports.
Exemptions on imports have been withdrawn on certain kinds of leather as they are domestically produced in good quantity, thereby widening consumer preferences.
The Budget also provides for imposition of an Agriculture Infrastructure and Development Cess (AIDC) on certain products including petrol, diesel, alcoholic beverages, and coal, etc. However, the customs duty rates on these products have been proportionately reduced. Thus, the taxpayer will not be affected by the imposition of the AIDC.
There is another indirect way of looking at the wide-ranging proposals regarding investment in infrastructure, heath and other sectors. Each of these proposals, being capital intensive and requiring heavy outlay, will usher significant funds in the Indian economy, which shall propel economic opportunities and interactions of economic actors and consumers. This, in turn, shall lead to significant economic buoyancy in the markets. Separately, the number of new projects shall create employment opportunities for both blue and white collar jobs, thereby pushing the consumption markets.
In her Budget speech, finance minister Sitharaman quoted Tamil poet Thiruvalluvar’s Thirukkural 385: “A king/ruler is the one who creates and acquires wealth, protects and distributes it for common good.” Budget 2021 is indeed majestic.
Seema Kejriwal is partner, BMR Legal Advocates, and was assisted by Surabhi Chandra and Divyasha Mathur. Views are personal.