Written by Aarti Raote and Vijay Bharech
The finance minister presented the first Union budget of the decade on Monday. The budget was expected to boost the economy-torn economy from the Covid pandemic, while the tax proposals for individual taxpayers should reduce the tax impact. Trying to steer clear of popular policies, the FM chose to resolve the operational challenges in line with one of the pillars, namely “Minimum Government with Maximum Governance”.
Even though the opportunities for tax savings were minimal, the finance minister felt it was important to extend the benefits of “affordable housing” for another year. The existing deduction of Rs 1.5 lakh available under Section 80EEA has been extended for loans raised through March 31, 2022. The benefit is available in addition to the deduction of Rs 2 lakh if the stamp duty value of a residential building does not exceed Rs 45 lakh and which The person does not own a home at the time of drawing on the loan.
The budget has given home buyers relief in the event of discrepancies between the stamp duty value and the contract value. If the person buys immovable property and the stamp duty value exceeds the contract value by 10%, the difference must currently be offered taxable by the buyer. The safe harbor threshold has been increased from 10% to 20%. So a person buying a residential property is not subject to tax unless the unit’s stamp duty value exceeds 120% of the contract value. However, certain conditions must be met, such as:
The residential unit will be relocated between November 12, 2020 and June 30, 2021
The transfer takes place through the initial allocation of the residential unit to any person
The match value does not exceed Rs 2 crore.
An exemption is currently available for the amount received under a life insurance policy if the annual premium payable for that policy does not exceed 10% of the principal insured. However, this exemption does not apply to unit-linked policies issued on or after February 1, 2021 if the total amount of the annual premium payable for the policy exceeds Rs 250,000. In this case, these ULIPs would be treated as equity funds and any proceeds received when due would be taxed as income from capital gains.
The 2021 budget also proposed to limit the tax exemption for interest on employee contributions to the provident fund so that the employee’s contributions do not exceed Rs 250,000 in total over the course of the year.
In order to reduce uncertainty in legal disputes, the period for reopening tax assessments has been shortened from the current six years to three years. In addition, the tax audit thresholds have been increased from Rs 5 billion to Rs 10 billion if the digital transaction exceeds 95% of total sales to boost the digital economy. The deadline for filing late and revised tax returns is nine months from the end of the financial year, while the deadline for completing the assessment process is 21 months from the end of the financial year. A faceless dispute settlement committee is set up to ensure early resolution for taxpayers with taxable income up to Rs 50 lakh and a controversial tax of up to INR 10 lakh.
All of these changes will go a long way towards making taxpayers easier and more stable.
Seniors aged 75 and over receive relief from filing their tax return if the person only has pension and interest income from the same bank with which they receive a pension. The last budget had put taxes in the hands of the shareholder on dividend income. In order to facilitate compliance, input tax liability on dividends only arises if the dividend is declared in a similar way on capital profit lines. With an increased focus on easy compliance, the pre-filled information in the tax return should be available immediately for dividends, capital gains from listed companies, and interest from banks / post offices. This ensures that the reporting of such income is not overlooked when reporting in the tax return.
These provisions would help reduce the error rate that leads to unintended taxpayers’ claims.
From an individual’s point of view, expectations for the 2021 budget had focused on leaving more money in hand to enable greater savings. However, given the tight budgetary situation, the budget should be described as a balanced budget, with an emphasis on increasing spending on infrastructure and creating jobs.
Aarti Raote is a partner at Deloitte India and Vijay Bharech is a senior manager at Deloitte Haskins and Sells LLP. The views expressed here are those of the authors.