▶ PF interest taxable beyond a limit: Reduced time limit for reopening assessment to allay fear of taxman
Reduced time limit for reopening assessment to allay fears of taxman
In the ‘pandemic Budget’, presented in a year that saw many losing jobs or facing a pay cut, there was widespread hope that the Finance Minister (FM) would offer some relief to the middle class by way of tax rebate. That did not happen. At the same time, the wealthy were fearful that the government might impose additional taxes on capital market gains, increase the surcharge on taxpayers in the higher-income brackets, or even reintroduce the wealth tax. Those fears proved to be unfounded as well.
However, there are many changes in the Budget that will affect your financial planning. Business Standard explains:
Employees’ Provident Fund (EPF): Until now, EPF enjoyed exempt-exempt-exempt (EEE) treatment (besides Public Provident Fund). In this Budget, the FM has restricted the tax exemption on interest income earned from this scheme to employee’s contribution of ~2.5 lakh.
Earlier, the only limit was that a person could contribute 12 per cent of his basic income. In addition, he could contribute more to Voluntary Provident Fund (VPF). So, the sum total of a person’s contribution to EPF and VPF could go up to 100 per cent of his basic salary.
Deepesh Raghaw, founder, Personal finance plan, a Se bi-registered investment advisor, says ,“Now, if you contribute more than ~2.5 lakh a year, the interest earned on the excess amount will be taxable.”
Suppose that you invest ~3.6 lakh in a year. The interest you earn on ~2.5 lakh will not be taxable. But the interest earned on the balance ~1.1 lakh will be taxed at your slab rate.
Unit-linked insurance plans (ULIPS): Maturity proceeds from ULIPS will be tax-free only if the annual premium does not exceed ~2.5 lakh. Vivek Jalan, partner, Tax Connect Advisory, says, “Section 10(10D) of the Income-tax Act has been amended to prevent certain high-net-worth individuals (HNIS) from investing large amounts of premium and claiming exemption.”
Those ULIPS where the annual premium exceeds ~2.5 lakh will be taxed at the rate of 10 per cent on capital gains. Their tax treatment will now be on a par with equity mutual funds.
Relief for senior citizens: The FM has proposed to ease the compliance burden on senior citizens aged above 75 years. Those who only have pension and interest income will not have to file income-tax return.
Ashok Shah, partner, NA Shah Associates, says, “Many senior citizens have only pension and interest income. This move will make life easier for them.” The paying bank will deduct the necessary tax on their income.
Pre-filled forms: Currently, inputs like salary, tax payments, and tax deduction at source come pre-filled in tax return forms. Now, information like capital gains, dividend income, and interest income from bank and post office will also be pre-filled. Kapil Rana, founder & chairman, Hostbooks, says, “This will ease tax compliance and reduce the possibility of errors at the time of filing returns.”
No reopening after 3 years: The time limit for reopening assessments under the Income-tax Act has been reduced from six to three years.
Shah says, “Earlier there was always a sword hanging over taxpayers’ heads that an assessment could be reopened after a few years.” That fear will not be there now once three years have elapsed.