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Budget 2021: Impact on Individual Taxpayers


The finance minister Nirmala Sitaraman introduced the Union Budget for FY 21-22 on February 1. The direct tax proposal’s theme was simplifying the tax administration, ease of compliance, and litigation reduction. The budget for the financial year beginning April made no changes in personal or corporate tax rates. Still, it raised customs duties on certain auto parts, mobile phone components and solar panels to provide impetus to domestic manufacturing. It also increased in expenditure on infrastructure, doubling healthcare spending and raising the cap on foreign investment in insurance for the next financial year to pull the economy out of the pandemic-induced trough.

While no charges have been proposed to the personal tax rates, the budget contains various relief measures and proposals to facilitate compliance ease. The budget also proposes taxing individual income such as interest accruing to Provident fund contributions exceeding the specified limit, which are not presently subject to tax.

Significant aspects of the direct tax proposals impacting individual taxpayers are:

  • Extension of home loan interest
    To encourage first-time homebuyers, deduction on account of home loan interest up to Rs. 1.5 lakh available on loans taken up to March 31, 2021, has now been extended by one year to March 31, 2022. It is a welcome amendment aimed at dual objectives boosting the real estate sector and financially supporting new homeowners.
  • Increase in safe harbour threshold between the purchase price of house and stamp value
    Homebuyers were taxed for the differential between the purchase price and stamp value if the latter was enormant. For this purpose, a difference of 10% was considered normal.This budget reduces real estate prices to increase the safe harbour threshold from 10% to 20%, thus avoiding uncalled taxation in the home buyers’ hands.
  • Introduction to section 89A
    Individuals who travelled abroad on assignments would have invested in overseas retirement funds for social security purposes. There was a dichotomy in the timing of taxation of income from such funds in the overseas jurisdiction and India, which led to tax credit mismatches and double taxation.
  • High premium ULIPS to lose tax margin
    Currently, amount received under an insurance policy, including bonus are exempt subject to certain conditions. It is proposed that unit-linked insurance policies with yearly premium aboveRs 2.5 lakh will not qualify for the above exemption.
  • Paying advance tax on dividends
    From April 1, 2020, dividends were taxable in the hands of the stakeholders. From an advance tax context, the taxpayer couldn’t pre-empt dividend distribution, which leads to interest under section 234C of the Income-tax Act, 1961.
  • ITR filing exemption for senior citizens
    In view of the challenges faced by elderly citizens in filing tax return year on year, an exemption from tax return filing is proposed if the person has income only like pension and bank interest on which taxes are appropriately deducted. This exemption is applicable for senior citizens of the age of 75 years or more, and the exemption can be claimed by filing a declaration to the bank.
  • Capital gains to be pre-filed by ITR
    Form tax return filing would be made more robust to include capital gains on listed securities, dividends, banks and post office interest.

While tax rates have remained stable, the taxpayer’s expectation of higher investment/medical expenditure has not been fully addressed. Moreover, restrictions imposed on exemptions for ULIP could lead to taxpayers moving away from such investment avenues. Government has also proposed positive measures such as relaxation in stamp duty based taxation, streamlining leave travel concession, an exemption in return filing in some instances, which could bring ease for a common man.

At AJSH, we assist our clients in dealing with various income tax compliances, including income tax assessments, TDS returns, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about recent updates about the budget 2021, kindly contact us.


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