This was 3rd Budget of the current finance minister. The overall reaction has been positive. This is because most of the things have been taken care for. The others which disturbs the pace have been left for now. Here is how Budget 2021 will impact your Savings, Taxation & Investments.
Budget 2021 Impact on Taxation & Budget 2021 Impact on Investing
- Tax audit turnover limit doubled from Rs 5 crore to Rs 10 crore for people who undertake 95% of their transactions digitally.
- Customs duty on gold and silver reduced from 12.5% to 7.5%.
- Relief for advance tax liability as dividend income will arise only after the declaration/payment of dividends.
- Exemption of tax deduction at source (TDS) on dividend payment to real estate investment trusts (REITs) and
infrastructure investment trusts (InvITs). - Removal of double taxation for non-resident Indians (NRIs) on income arising from foreign retirement benefit account.
- Eligibility period of claiming capital gains exemption for investment made in start-ups extended by one year to March 31, 2022.
- Investment opportunities in InvITs issued by the National Highways Authority of India and Power Grid Corporation of India and tax-efficient zero coupon bonds.
- Proposal to introduce an investor charter across all financial products to protect investors.
- Ease in filing of returns – details of capital gains, dividend income, interest from banks, post office, etc. will be
pre-filled. - Interest earned on annual provident fund contribution exceeding Rs 2.5 lakh from April 2021 will be taxable.
- For any Unit Linked Insurance Plan (ULIP) issued on or after February 1, 2021, tax exemption will not be provided for maturity proceeds with annual premium above Rs 2.5 lakh.
- The responsibility of TDS of 0.1% on a purchase transaction exceeding Rs 50 lakh in a year will be on the person whose turnover exceeds Rs 10 crore.
- Double of the specified rate or 5% of the TDS/TCS will be levied in case of non-filing of returns by deductee/collectee having TDS/TCS of Rs 50,000 or more for the past two years.
- Relief for advance tax liability as dividend income will arise only after the declaration/ payment of dividend.
- Proposal to introduce an investor charter across all financial products to protect investors.
- Policy framework by the government and the Reserve Bank of India (RBI) for bank depositors to claim deposit insurance cover, if their banks get into trouble.
- Retraction of expense apportioning in case of delay will incentivise timely payment of employers’ contribution to the provident fund corpus.
- Deadline for an additional interest deduction on affordable housing to be extended by a year to March 31, 2022.
- Women to be allowed to work in all categories in night shifts, too.
- No IT filing required for senior citizens above 75 years of age and those with income only from pension and interest
income. (This will be limit to certain banks. Details Awaited) - Customs duty on gold and silver reduced from 12.5% to 7.5%.
- Margin money requirement for loans under Stand-Up India to women reduced from 25% to 15%. Activities allied to
agriculture brought under its ambit as well. - Consumers will get to choose their electricity supplier.
What Can You Do to Benefit?
- Cap contribution to Rs 2.5 lakh in ULIP and voluntary contribution to the provident fund.
- Evaluate investment opportunities in InvITs and tax-efficient zero coupon bonds.
- Timely filing of income tax (IT) returns to avoid higher TDS/TCS (tax collected by seller).
- Timely filing of IT returns to avoid higher TDS/TCS.
- Domestic products should be preferred.
Budget 2021 Impact on NRI (Non Residents)
- Reduction of residency days limit from 182 days to 120 days
NRIs can form One Person Company (OPC)
The Annual Budget 2021 has proposed to allow the NRIs to form One Person Company (OPC).
Earlier the NRIs were exempted from forming One Person Company. However, they were allowed to become directors of an Indian company. It is a company that has only one shareholder as its member. Companies Act provides certain benefits to the one person companies like – No need to hold annual meetings, no independent directors required, more remunerations to directors compared to other companies.
Relief to NRIs on Retirement Income
Another key announcement was a relief to NRIs on transferring retirement income to India. Currently, NRIs returning to India have to pay taxes on income accrued in their foreign retirement accounts. This is due to the mismatch in the periods of taxation. Besides, such individuals face difficulties in getting tax credits of taxed paid in India in foreign countries.
Keeping this in mind, the government has proposed to align taxation on income on foreign retirement benefits account. The NRI will pay the lowest rates as determined by the treaty. Details are awaited on calculation.
My Reaction to the Budget 2021-22
This is definitely a good budget – focused on the short-term growth in the right areas without any disruptive taxation in these extraordinary times. Imagine if Government had proposed cess on your tax outgo for Covid? Or they could have raised 1% in long term capital gains??
Hence I call it a good budget.
However, execution of the same becomes critical now.
Major things I have liked
- No new major direct taxes including wealth tax, surcharge and LTCG.
- IT return forms to be pre-filled with interest income & capital gains. Senior citizen, over 75 years of age, exempted from filing returns if only pension & interest income.
- Disinvestment of 10% in LIC itself can take care of all the extra spending by the Government. 2 PSU 1 Insurance general Insurance company privatized will lead to good inflow.
- Companies having turnover of up to Rs.10 crore and receive at least 95% digitally are no longer required to get their accounts audited.
- Affordable housing incentive extended by one more year and No change in definition of affordable housing.
- Reduction in reopening of income tax assessment from 6 years to 3 years will save time & litigation expenses.
The biggest positive is that there are no negatives like taxes on the ultra-rich, no Covid cess or any tinkering with long term capital gains tax. So, you got a budget with no bad news, creating ease of doing business and a focus on growth.
