Finance Minister Nirmala Sitharaman presented the budget to parliament: while there were no changes to India’s income tax slabs, there were measures to make tax compliance easier for individual taxpayers along with moves to integrate the country’s digital tax system.
The key tax highlights from India’s 2021 budget are as follows:
Income tax slabs: Under the 2021 budget, income tax slabs (bands) in India will remain the same – unless individual taxpayers choose to pay optional tax bands. The standard and optional tax slabs in India are as follows:
The 2021 tax surcharge on certain income levels is as follows:
- The existing income tax exemption for senior citizens, set at 3 Lakh (Rs300,000) and 5 Lakh (Rs500,000) will remain the same.
- The 4% Health and Education cess (tax) will also remain in place.
- The existing tax rebate of Rs12,500 for individual taxpayers that earn up to Rs 5 Lakh will remain in place.
Relaxed measures for senior citizens: The budget includes measures to help senior citizens file their income tax returns. Specifically, senior citizens resident in India and over 75 years of age will not be required to file an income tax return if their income is sourced from pensions or interest only. Qualifying senior citizen taxpayers must make an income declaration via their bank in order to benefit from the relaxed rules.
Residential house deduction: India has a sanction period for loans that are taken out for the purchase of a residential property. The 2021 Budget includes an extension in sanction periods for tax deductions made in respect of that loan until 31 March 2022.
Employee fund contributions: Under budget measures, employers that fail to deposit their contribution to a relevant fund such, as the EPF or ESIC, before the respective due dates, will have their contribution disallowed as business expense.
Taxable interest: Interest that is accrued on contributions to India’s EPF scheme will be taxable under new budget measures if the contributions exceeded Rs2.5 Lakh in the previous year of assessment.
Tax evasion cases: In cases where taxable income escapes tax assessment, the budget includes a proposal to reduce the time limit for reopening cases to 3 years (from the existing 6). In serious tax evasion cases, involving Rs50 Lakh (and over), cases may be reopened for up to 10 years (with official approval).
Dividend income: Under budget measures, no tax interest will be charged on income derived from dividends if tax has been paid in full on subsequent dividend tax instalments. Essentially, dividend income will be treated in the same manner as capital gains with the application of advance tax liability.
Belated or revised tax returns: With effect from YA 2021-22, the budget proposes that the deadline for filing belated or revised tax returns be reduced by 3 months, bringing it forward to December 31 of the assessment year from March 31 of the assessment year. The move is motivated by the enhanced technology available to help taxpayers submit their returns on time.
Tax on insurance policies: The budget includes measures to remove the tax exemption on high premium unit-linked insurance plans (ULIP) if the premium paid during the previous year exceeds Rs2.5 Lakh. The new tax measure will not apply to life insurance paid on the death of a policyholder.
The budget also contains provisions to tax profit and gains on the redemption of ULIP in the same manner as capital gains and proposes to define ULIP as equity-oriented funds in order to extend the relevant tax treatment on their sale or redemption.
Notice of scrutiny assessment: The budget includes a proposal to reduce the time for issuing ‘notice of scrutiny’ assessments after tax returns have been filed. Under the new rules, the time limit for notice would be reduced to 3 months (from the previous 6 months limit) after the date on which the return is made.