Tax Relief

Revenue tax guidelines: Price range had marginal earnings tax relief, compliance streamlined

Paris Sirwalla

As every year, the common man had high expectations of the Union budget for income tax sops, and it was also expected that the government could impose an additional levy in the form of a Covid levy or a surcharge. Neither of them did the fine print of the budget.

However, the Finance Minister granted some relief to certain taxpayers in the form of the following proposals and others as follows:

Extension of the affordable housing allowance
An additional deduction of up to 1.5 lakh per year was introduced in 2019 for loan interest for the purchase of an affordable house (stamped no more than 45 lakh) by first-time buyers. Such a deduction was tied to the condition that the loan should be sanctioned on or before March 31, 2020, which was extended to March 31, 2021 last year. It has now been proposed to extend it further until March 31, 2022.

No ITR filing for seniors
In order to reduce the compliance burden for taxpayers aged 75 and over, it is proposed to exempt them from filing the income tax return, provided they have no income other than retirement income and interest credited from the same specified bank that is the retirement income. The bank is obliged to deduct the taxes required at the time of payment at the source, giving certain details of the taxpayer.

Relaxation for non-resident Indians
The Treasury Secretary acknowledged that a non-resident Indian returning to India would generally have problems with their accrued income on their overseas retirement accounts. This is usually due to a timing mismatch in taxing such income abroad and in India. You may also have difficulty recovering Indian taxes in foreign jurisdictions. To remove this harshness of double taxation, the budget provides for the government to shortly announce regulations on tax liability in the hands of such NRIs in relation to their withdrawal / redemption proceeds from their overseas retirement accounts opened during their stay in India gives.

Small and medium-sized taxpayer dispute settlement committee
In an effort to reduce litigation for small and medium-sized taxpayers and to ensure tax security, it was proposed to set up a dispute settlement committee. This would help prevent new disputes and resolve the problem in the early stages, which will be faceless to ensure efficiency, transparency and accountability. Any taxpayer with a taxable income of up to Rs 50 lakh and a controversial income of up to Rs 10 lakh can appeal to the committee.

Relaxation from paying input tax on dividend income
Since the amount of the dividend income cannot be precisely estimated by the shareholders for the payment of the necessary input tax in certain installments, it has now been proposed that the input tax liability on dividend income only arise after the declaration / payment of the dividend by the company.

The tax exemption for Ulip proceeds is limited
Interestingly, it has been suggested that for ULIPs entered into on or after February 1, 2021, the maturity proceeds of the policy with an annual premium greater than Rs 2.5 lakh would be taxable at the level of an equity mutual fund. In the case of a person holding multiple Ulips, the exemption is only available in relation to the total premium of those policies whose Rs does not exceed 2.5 lakh for any of the previous years during the term of any of the policies. In other words, this exemption cap brings parity between Ulips and long-term equity fund investments.

Tax liability on the interest earned on the PF contribution
According to the existing tax regulations, interest received / accrued from contributions to the employee pension fund (EPF) and from contributions to the public pension fund (PPF) is tax-free. In order to streamline the tax exemption for the income of high income taxpayers, it is proposed that the interest earned through the retirement fund contributions (both EPF and PPF) over Rs 2.5 lakh separately for EPF and PPF per year, are now taxable. This only applies to the employee’s contribution and not to that of the employer in relation to EPF.

In conclusion, it is encouraging to see that there are no surprises in personal tax rates and deductions, and that the obligation to resolve disputes and streamline compliance limits is possible in this year’s budget.

(Parizad Sirwalla is Partner and Head of Global Mobility Services – Tax, KPMG in India. Views are their own.)

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