Income Tax: Important changes you must know
The new fiscal year, 2021-22, has begun. Several financial regulations have also been altered. In FY 2021-22, these developments are expected to have an effect on money and your wallet. The government has made the reforms in order to make life simpler for both the general public and taxpaying organisations.
1.The first year for the opportunity to choose between two tax regimes:
The budget for 2020-21 has implemented a new tax system, which an individual tax payer can opt for, with lower tax rates, less deductions, and less exempt allowances available, rather than the current tax regime, under which you must pay higher rates of tax but have the right to demand different exemptions and deductions.
This is the first year in which you must choose whether to continue in the old tax system or move to the new one.
Salaried citizens have the right to choose between the old and new tax regimes per year, but those with business profits cannot go back to the old regime after they have chosen the new one unless they close their business.
Salaried workers who have exercised a special choice with their employer may select another option when filing their ITR since the option was only for a limited purpose of tax deduction.
If you have business profits and do not wish to opt for the new tax regime this year, you can do so in the following year; however, after you have converted to the new tax regime, you cannot return to the old one.
2. Deadline for filing the FY 2020-2021 Belated and Revised ITR to December 31, 2021:
The deadline for filing a late or amended tax return has been shortened by three months. This can be seen in the following example: If the previous rule applies, the deadline is: March 31, 2022 is the deadline for filing a belated and amended ITR for the fiscal year 2020-21.
Application of a New Rule: The deadline for filing belated and amended ITRs for FY 2020-21 is December 31, 2021, with a maximum penalty of Rs 10,000. The time period for filing has been shortened by 3 months.
3.Modification of Provident Fund Interest Rate:
Interest received on your provident fund account in respect of your own contribution was fully exempt even for the contributions made beyond the mandatory 12% of you basic salary. In the budget of 2021-22, the Finance minister has proposed that this exemption on interest credited in your EPF account will no longer be available for annual contribution made beyond 2.50 lakhs every year for contributions made after 1st April 2021.
However in case the employer does not contribute to your provident fund account, the budget has proposed a higher threshold limit for contribution of Rs. 5 lakhs beyond which the interest on such contribution will attract tax year after year.
4. Increasing TDS Filings:
The finance ministry is considering some steps to increase the number of income tax returns filed per year, which will be accomplished by increasing the TCS (tax collected at source) or TDS (tax deducted at source) (tax deducted at source). Sections 206AB and 206CCA of the IT Act would be used to do this, and they would be considered special clauses.
Non-filing entities of income tax may be subject to higher TDS or TCS rates. “The non-filing organisations will now be paying a minimum 5% of TDS or TCS and have an INR 50,000 or more TCS/TDS deduction in the previous two years,”A deductor’s duties would also include obtaining income tax refunds.
5. ITR Forms Now Come Pre-Filled:
The government has agreed to provide taxpayers with a pre-filled form in order to expedite the filing of income tax returns. Information of wage revenue, tax payments, TDS, and other fields are also set to be pre-filled. Information such as capital gains from listed shares, dividend profits, and interest from banks, post offices, and other sources are also expected to be pre-filled according to the sources.
6. No Income Tax Filing for Senior Citizens Over 75 Years:
The finance minister was worried about senior citizens over 75 years old, and as a result, Nirmala Sitharaman reduced the income tax filing process to exemption. This exemption, however, would apply to a pension and the interest earned on that pension when there is no other source of income.
7. Leave Travel Concession (LTC) Exemption:
Since the scheme was only valid until March 31, 2021, and the availment was focused solely on money spent up to that date, the government gave a substantial advantage to all applicants who were unable to receive tax benefits on LTC. The actual scheme was to exclude the cash allowance on the leave travel concession from taxes.
8. Changes in place for ULIP investments made after February 1, 2021:
If the premium charged on the policy does not exceed 10% of the amount insured, the maturity proceeds earned from any life insurance scheme, including a ULIP (Unit Related Investment Plan), are tax-free. In the budget for 2021-2022, it was proposed to remove this exemption if an individual’s total annual premium for all ULIP policies combined exceeded Rs. 2.5 lakh .
Only those ULIP policies purchased after February 1, 2021 will be affected. So exercise caution when purchasing a new ULIP policy. Furthermore, any gains realised on such ULIPs at maturity would be classified as equity products, subject to a flat tax rate of 10% without indexation. Only those ULIPs that comply with a minimum percentage of investments in Indian listed companies will be eligible for the 10% tax break.
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