With the start of the new financial year on April 1, various tax and money rules come into effect. Here is a look at 11 rules that will impact your money.
New tax and financial rules, laws come into effect from April 1, 2021 – the start of the new financial year. Here is a look at all the changes that will impact your money in FY 2021-22.
As announced in the Budget 2021, if deposits in Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF) by an employee exceed Rs 2.5 lakh in a financial year, then the interest earned on the contributions exceeding Rs 2.5 lakh will be taxable in the hands of an employee.
Further, in case there is no contribution by the employer to the EPF account (usually in case of government employees), then interest will be tax-exempt for the deposits up to Rs 5 lakh in a financial year.
Thus, in the new financial year to avoid tax on the PF interest, ensure that the deposits in your EPF account do not exceed the specified limits mentioned above.
Also Read: Should you stop investing in VPF?
- Reduction in the time limit for filing belated, revised ITR
Another Budget 2021 announcement was the reduction of the time allowed for filing belated and revised income tax return (ITR) by three months. The new rule is effective for the income tax return (ITR) filing for FY 2020-21. How does this impact you? As per the earlier rule, if you had missed the deadline for filing ITR for FY 2020-21, you would have had time till March 31, 2022, to file the belated ITR, albeit by paying a maximum penalty of Rs 10,000. However, with the reduction in the time-limit for filing, now you have time till December 31, 2021, to file a belated ITR, thus three months less to file it.
December 31, 2021, will also be the last date now to file revised ITR in case mistakes have been made at the time of filing of original ITR, instead of March 31, 2022, under the old law.
- Penalty for belated ITR filing
Along with a reduction in time limit for filing belated ITR, the government has amended section 234F of the Income-tax Act, 1961, to clarify the penalty that will be levied on the filing of belated ITR.
As per the amended section 234F, if an ITR is filed after the expiry of the deadline (usually, July 31, 2020) but on or before December 31, 2021, then the filer is liable to pay a late filing fee of Rs 5,000. Earlier, belated ITRs could be filed up till March 31 of the relevant assessment year but this deadline has now been advanced to December 31. Earlier, the penalty payable for filing belated ITR was Rs 5000 if filed by December 31 and Rs 10,000 if filed between January 1 to March 31. However, as the deadline for filing belated ITR has itself been advanced to December 31 so the penalty for belated filing is now only Rs 5000.
However, the late filing fee will not exceed Rs 1,000 if the total income does not exceed Rs 5 lakh in a financial year
- Taxation of Unit linked insurance policy (Ulip)
To bring parity in taxation of long-term gains between equity shares/equity-oriented mutual funds and Ulips, Budget 2021 has made taxable the maturity amount of Ulips bought by a person if their aggregate annual premium is more than Rs 2.5 lakh. Thus, if the sum of the annual premium of say two Ulips exceeds Rs 2.5 lakh in a year, then their maturity amounts will be taxable in the hands of the policyholder. The new law will be applicable only to those Ulips issued on or after February 1, 2021. Thus, existing Ulips having an annual premium of more than Rs 2.5 lakh will not be impacted by this amendment.
Chartered Accountant Naveen Wadhwa, DGM, Taxmann.com says, “Do keep in mind that the new rule of taxation on Ulip will be applicable on an aggregate basis as well. This would mean that if the total annual premium on all the Ulips held by you exceeds Rs 2.5 lakh in a financial year, then you are liable to pay tax at the time of maturity on the Ulip proceed.”
Suppose you have two Ulips each having an annual premium of Rs 2 lakh. The total annual premium paid by you exceeds Rs 2.5 lakh (i.e., Rs 4 lakh) in a financial year, thus, at the time of maturity, the proceeds of any one of the policies of your choice, will be taxable.
- Penalty for not linking PAN with Aadhaar by March 31
The government has decided to levy a penalty if an individual does not link his/her PAN with Aadhaar before the expiry of the due date. A new section 234H has been inserted in the Income-tax Act to levy a fee if the Aadhaar is linked with PAN after the expiry of the due date. Though the government is yet to prescribe the exact amount of penalty that will be levied, however, the maximum amount cannot exceed Rs 1,000. The deadline for linking PAN with Aadhaar was March 31, 2021.
- No advance tax penalty on dividend income
Budget 2021 has changed the rules such that if there is a shortfall in advance tax instalment or failure to pay the same on time due to dividend income, then no penal interest shall be charged under section 234C of the Income-tax Act subject to certain conditions. This comes as a relief for tax payers. This relief is available from FY 2020-21, as the dividends became taxable in the hands of individual from April 1, 2020. Previously, dividend income was not taxable in the hands of an individual.
As per the Budget memorandum: The first proviso of the sub section (1) provides for the relaxation that if the shortfall in the advance tax instalment or the failure to pay the same on time is on account of the income listed therein, no interest under section 234C shall be charged provided the assessee has paid full tax in subsequent advance tax instalments. These exclusions are: –
(a) the amount of capital gains; or
(b) income of the nature referred to in sub-clause (ix) of clause (24) of section 2; or
(c) income under the head “Profits and gains of business or profession” in cases where the income accrues or arises under the said head for the first time; or
(d) income of the nature referred to in sub-section (1) of section 115BBDA.
Aforesaid relaxation is to insulate the taxpayers from payment of interest under section 234C of the Act in cases where an accurate determination of advance tax liability is not possible due to the intrinsic nature of the income. Therefore, after considering various representations favourably, it is proposed to include dividend income in the above exclusion but not deemed dividend as per sub-clause (e) of clause (22) of section 2 of the Act.
This amendment will be effective from April 1, 2021, and will be applicable for FY 2020-21 and subsequent financial years.
- Reduction in the time limit for reopening of ITRs
In a relief to taxpayers, the tax department will not be able to re-open ITR after three years of filing it except for certain specified cases. As announced in the Budget, the time allowed for re-opening of income tax assessment has been reduced to 3 years from the date of filing the return. Previously, the time allowed for this was 6 years from the date of filing ITR.
However, ITR assessments can be re-opened even up to 10 years from the date of filing ITR in case of serious tax evasion where the income tax authorities have evidence of tax evasion of Rs50 lakh or more. However, in this case, approval from the relevant chief commissioner of the tax department will have to be obtained before re-opening of the case.
- Exemption for certain category of senior citizen from ITR filing
In a much-needed relief to the senior citizens aged 75 years and above, the government has exempted them from filing income tax return, provided certain conditions are met. The bank paying interest income to them will deduct the necessary tax from their bank account and senior citizen will not be required to file the ITR.
However, the benefit will be available only if the following conditions are met:
a) The senior citizen is resident individual of aged 75 years and above
b) He/she has only pension as source of his/her income and no other income accrues to him/her during the financial year. However, he/she may have interest income from the same bank in which he/she is receiving his/her pension income
c) He/she is required to file a declaration to the bank (as specified by the central government) containing the information as required.
Sudhakar Sethuraman, Partner, Deloitte India says, “The Budget 2021 relaxed filing requirement for senior citizen aged 75 years and above provided the senior citizen has only pension income and any interest thereof from a specified bank. This change has been introduced by way of proposed section 194P where the specified bank is instructed to deduct the applicable taxes thereby exempting the senior citizen from filing his return of income. While the memorandum has specified the applicable date from April 1, 2021, there is no such mention of the effective date under the Finance Bill, 2021. Therefore, given that the withholding tax provision becomes effective from April 1, 2021 onwards only, the interpretation here would be that the relaxation should be applicable for the Assessment Year 2022-23 (corresponding to Financial Year 2021-22) at the time when filing of tax return becomes due to an individual i.e., July 2022.”
- Timely payment of employer contribution to EPF account
If your employer does not make its own contribution to your EPF account on time, then the employer will not be eligible to claim deduction available on this contribution. The aim is to provide more security to employees by ensuring that the employer makes the contribution on time.
The new rule comes into effect from April 1, 2021, and will be applicable to companies and other employers filing ITR for FY 2020-21 . Thus, while filing ITR now, companies will not be able to claim the benefit, if the contribution has not been made on time to the EPF account.
- Extension of section 80EEA tax break for affordable housing
Budget 2021 has extended the availability of additional deduction allowed under section 80EEA (of the Income Tax Act) for interest paid on affordable housing loan by one year to March 31, 2022. This additional deduction of Rs 1.5 lakh was available under section 80EEA only up till March 31, 2021, prior to the extension announced in Budget 2021. This is deduction is available over and above the Rs 2 lakh deduction available under section 24. Thus, the total deduction available to an individual taxpayer on the interest payment on a housing loan taken to buy an affordable house is Rs 3.5 lakh in a financial year.
- Additional form to opt for a new tax regime
If you are planning to opt for a new tax regime at the time of filing ITR for FY2020-21, do keep in mind that you will need to fill out an additional form, called Form 10-IE. The new form was notified by the Central Board of Direct Taxes (CBDT) via a notification dated October 1, 2020. If you forget to fill this form, the tax department will calculate your income tax liability based on the tax rates and slabs of the existing/old tax regime.
The new tax regime offers lower, concessional tax rates without most common tax-exemptions and deductions such as Section 80C, Section 80D, house rent allowance (HRA) etc.