Budget 2021: Here's how it impacts your personal finance

FM Nirmala Sitharaman did not change the tax rate but proposed a few changes that may require you to review your investments

Updated: Feb 2, 2021 05:35:26 PM UTC
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The budget, as announced on Monday, didn’t have the shocks that were expected, like the Covid-19 cess or an increase in other taxes. It lifted the spirits of investors. Let’s understand what it has in store for you with respect to your personal finance:

On the Tax front:

Faceless assessment to seamless assessment
Soon you will be talking to a income tax official via video conferencing, when necessary, with a proposal to constitute a Faceless Income Tax Appellate Tribunal (ITAT) announced by Finance Minister Nirmala Sitharaman. Here, after faceless assessment, personal hearings will be conducted with your income tax official via video conferencing, if there is a need for further investigation. It's a good step to make the whole faceless assessment process more seamless.

Senior citizens exempted from filing tax returns
Senior citizens above the age of 75 are not supposed to file their tax returns from the financial year 2021-22 if their income sources are limited to either a pension income or an interest income.

Quicker tax resolutions
The timeline to reopen an assessment under income tax will be reduced to three years from the current six years. Reassessment can be done only in the cases of serious tax frauds—where enough evidence regarding a concealment of income of Rs 50 lakh or more is available—for the next 10 years. These assessments can be reopened only after the permission of the Principal Chief Commissioner.

Advance tax on the dividends
Unlike current provision, the advance tax with respect to your dividend income would be payable only after the declaration or payment of dividend.

Pre-filled income-tax forms
Pre-filled income-tax forms will now provide the details of your capital gains or interest income from various sources in order to help you save time while filing your income tax returns. It also helps the government to further ensure that taxpayers do not hide income and avoid paying taxes.

Pay higher TDS if you do not file your tax return
Until now, only those who do not have a PAN card are supposed to pay a higher TDS (tax deduction at source)—whether it is their bank interest or rental income or a high value transaction like property transactions. But now, if you have a PAN but do not file your tax return, you are liable for a higher tax deduction, collected at source.

On the investment front:

Investment charter
Like the tax charter there will be now an investment charter to help reduce the prevalent mis-selling of financial products. This charter will list down the rights of investors, grievance mechanism and so on.

Gold and Silver
Customs duty on gold and silver is reduced to 7.5 percent from the existing 12.5 percent. This should work in favour of gold buyers. This reduction should benefit investors planning to invest in gold ETFs (exchange-traded funds).

EPF contribution will attract tax
From now on, interest earned on your Provident Fund (PF) contribution above Rs 2.5 lakh annually will be liable for tax. For example, if your salary income is Rs 60 lakh then your basic salary would be around Rs 30 lakh. Your PF contribution would be 12 percent of your basic salary which would be Rs 3.60 lakh in this case. Now, you will need to pay the tax on interest earned above Rs 2.5 lakh, that is on Rs 1.10 lakh in this case. With the current PF interest rate at 8.5 percent, you will be liable to pay a tax on Rs 9,350 interest amount. This tax will depend on your tax slabs. Therefore to avoid paying this, your monthly PF contribution should not exceed Rs 21,000. With this change, you will need to redefine your investment strategy.

ULIPs would be taxed at par with the equity mutual funds
Those investing in the ULIPs (unit-linked insurance policies) to get tax-free returns need to rethink their strategy. Because all the ULIPs will attract capital gains tax at maturity or on redemption, if the annual premium exceeds Rs 2.5 lakh.

The writer is a chartered accountant and founder and chief gardener of Money Plant Consultancy

The thoughts and opinions shared here are of the author.

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