December 9, 2023

Union Budget 2021: All the personal tax benefits explained

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The FM sought to stay away from popular measures and chose to ease operational challenges in line with one of the pillars which is “Minimum government with maximum governance”.

Written by Aarti Raote and Vijay Bharech

The Finance Minister tabled the first Union Budget of the decade earlier on Monday. The Budget was expected to stimulate the economy marred by the Covid pandemic while the tax proposals for individual taxpayers were expected to reduce tax impact. The FM sought to stay away from popular measures and chose to ease operational challenges in line with one of the pillars which is “Minimum government with maximum governance”.

Tax savings measures

While the tax savings avenues were minimal, the Finance Minister still deemed it important to extend the benefit of “Affordable housing” for another year. The existing deduction of Rs 1.5 lakh available under section 80EEA has been extended for loans taken till March 31, 2022. The benefit is available in addition to Rs 2 lakh deduction if the stamp duty value of the residential house does not exceed Rs 45 lakh and the individual does not own residential property at time of availing the loan.

The Budget has provided relief to home buyers in case of variance between stamp duty value and agreement value. Currently, where the individual buys any immovable property and the stamp duty value exceeds the agreement value by 10%, the difference needs to be offered to tax by the buyer. The safe harbour threshold has been increased from 10% to 20%. So, an individual buying a residential house property will not be subject to tax unless the stamp duty value of the unit exceeds 120% of the agreement value. However, there are certain conditions to be met such as:

  • The transfer of a residential unit takes place between November 12, 2020, to June 30, 2021

  • The transfer is by way of first time allotment of the residential unit to any person

  • The agreement value does not exceed Rs 2 crore.

Taxing avenues

Currently, an exemption is available for sum received under a life insurance policy, if the annual premium payable on such policy does not exceed 10% of the actual capital sum assured. However, this exemption will not be available in respect of Unit-Linked Insurance Policies issued on or after 1 day of February 2021, if the aggregate amount of premium payable in respect of the policy for any year exceeds Rs 250,000. In such a case, these ULIPs shall be treated on par with the equity-oriented fund and proceeds received on maturity would be taxed as income from capital gains.

Budget 2021 has also proposed that the tax exemption to interest on employee contributions to the provident fund shall be limited to the extent the contributions by the employee do not exceed Rs 250,000 in aggregate, during the year.

Ease of compliance

To reduce the litigation uncertainty, the time limit for reopening of tax assessments have been reduced to three years from the current threshold of six years. Further, tax audit limits have been increased from Rs 5 crore to Rs 10 crore if a digital transaction exceeds 95% of total revenue in order to promote a digital economy. For filing of belated and revised tax returns, the timeline shall be nine months from the end of the financial year while the time limit for completion of assessment proceedings will be 21 months from the end of the financial year. A faceless dispute resolution committee shall be set up to ensure early resolution for taxpayers with taxable income up to Rs 50 Lakh and disputed tax up to INR 10 lakhs.

All these changes will go a long way in providing some sense of relief and stability to the taxpayers.

A relief has been provided to senior citizens of 75 years and above age from the filing of tax return if the individual has only pension income and interest income from the same bank, in which he is receiving a pension. The last Budget had introduced taxes in the hands of the shareholder for dividend income. In order to ease compliance, the advance tax liability on dividend shall arise only upon declaration of dividend similarly on lines of capital gains. With an increased focus on ease of compliance, the pre-filled information in the tax return shall be available now in case of dividend, capital gain from listed company and interest from banks/ Post office. This will ensure that reporting of such incomes is not missed while reporting in the tax return.

These provisions would help reduce the margin of error which results in inadvertent demands of taxpayers.

The Budget 2021 expectations, through the lens of an individual, had centred around leaving more cash in the hand, enabling higher savings. However, with tight fiscal situation in hand, the Budget should be hailed as a well-balanced budget with a focus on increasing expenses on infrastructure and creation of job opportunities.

Aarti Raote is Partner, Deloitte India and Vijay Bharech is Senior Manager with Deloitte Haskins and Sells LLP. Views expressed here are that of the authors.

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