Budget 2021: Impact on Your Money, Investment & Savings

After pandemic ridden 2020, Budget 2021 is a shot in the arm to immunize the health of Indian economy. Let’s review union budget for financial year 2021-2022 and find out how it will impact your money, savings & investments.

MyMoneyMantra has compiled a 10 point guide to underline the impact of union budget on your money and personal finance portfolio. We have also analysed and reviewed investment options that will be most beneficial this year.

The Finance Minister N Sitharaman has a clear message in her budget speech: Earn, spend, pay tax & invest!

Highlights of Union Budget 2020-21 for saving, investments & taxation:

REFORM IN SYSTEMS

1. Formation of Investment Charter

A new Investment Charter will be opened just like a Tax Charter. The Investment Charter will check the mis-selling of financial products. This charter will clearly list down the rights of investors, grievance mechanism and thus ease the investors’ journey.

2. Easier & better compliance of tax rules

Faceless assessment:

In the budget 2021 speech, FM proposed constitution of a Faceless Income Tax Appellate Tribunal (ITAT). So, you will soon be talking to an income tax officer via video conferencing for any routine/ procedural assessments. Personal hearings will be conducted only after the need for further investigation is sought post the faceless assessment. This will make IT hearings more seamless and efficient.

Reduction in timeframe for reopening of IT files:

Further to ease the tax payers’ concerns FM has reduced the time frame to reopen an assessment under income tax to three years from existing six years. Reassessment is allowed for 10 years only for serious tax fraud cases where enough evidence about concealment of income of Rs 50 lakh or more is available. However, due permission from the Principal Chief Commissioner will be required for the same.

Pre-filling Income-Tax Forms:

The government this year batted for easier compliance for assesses. To make ITR filling seamless the FM has announced that income-tax forms will now be pre-filled for capital gains, interest income from various sources, so that you can file your ITR more conveniently. This will also make the process more transparent and swifter.

3. Security to depositors: Immediate access to deposit insurance amount

The FM has announced amendment in Deposit Insurance and Credit Guarantee Corporation Act, 1961′ (DICGC Act) and assurance for immediate access to deposit insurance of Rs 5 Lakh to all depositors, in case the bank goes under. This is a welcome step and rightly protects interests of depositors.

TAX RELATED CHANGES

Though FM did not change the tax rates and did not impose Covid-19 Cess as was anticipated by many, there are few changes that are worth attention.

4. EPF contribution will attract tax

Now Employee Provident Fund (EPF) contribution ceases to be ‘Exempt, Exempt & Exempt.’ From now on, interest earned on EPF / VPF contribution above Rs 2.5 lakh will be liable for tax in a FY. The tax will be applicable as per your tax slab. Thus if you fall in high salary bracket, you may need to reset your investment strategy.

5. ULIPs to be taxed at par with Equity Mutual Funds

Now interest earned on Unit-Linked Insurance Policies (ULIPs) are not tax free. Just like mutual fund investments, annual premium exceeding Rs 2.5 lakh on ULIPs will attract capital gains tax at maturity or on redemption.

6. Higher TDS for those who do not file tax returns

The government has tightened noose around those who miss paying tax returns. The FM said that not only those who do not have a PAN card but also the ones who have PAN but miss ITR filing are supposed to pay a higher TDS (tax deduction at source) on bank interest, rental income, property transactions etc.

Save, Plan & Invest

7. Senior Citizens over 75 are exempted from filing tax returns

Big relief for senior citizens above the age of 75! From the financial year 2021-22, senior citizens dependent on pension income or interest income are not liable to file their Income Tax Returns. This is an essential step in the direction of imparting social security to the honest tax payer in their old age.

8. Tax efficient zero coupon bonds for infra debt funds

FM announced issuance of tax-efficient zero-coupon bonds for infra debt funds so as to fund infrastructure projects. The discount coupons are attractive for retail investors and will infuse debt investments in the infra sector.

9. Gold and Silver

Taking note of escalated gold prices, the FM has announced rationalisation of Customs duty on gold and silver. The duty on Gold & Silver is reduced to 7.5 % from the existing 12.5 %. The move should encourage retail buyers. It will also make investments in gold ETFs (exchange-traded funds) more attractive.

10. Extension of tax deduction for affordable housing

The FM has extended additional tax benefit under Section 80EEA for 1 more year. The new homebuyers of residential units up to Rs 45 lakh are entitled to get tax deduction on additional Rs 1.5 lakh on payment of Home Loan interest. This benefit is over and above the existing Rs 2 lakh interest deduction available under Section 24 (b). So, the first time home buyers of affordable units can avail total tax exemption on payment of Home Loan interest up to Rs 3.5 lakh.

Taking note of all these points, reset your savings and investments wisely.

Also Read: 6 Pillars of Union Budget 2021 and Their Inclusions