The new fiscal year has already been started, and certain new income tax provisions are in effect from April 1. The following changes were declared by Union Finance Minister Nirmala Sitharaman while introducing the Union Budget 2021 in February and went into force for individual taxpayers on April 1st:
Two tax regimes to opt from
The budget for 2020-21 also introduced a new tax system, where an individual taxpayer can select, with lower tax rates along with relatively few deductions available and fewer exempt allowances available, rather than the regular tax regime, where you must pay tax at higher rates but have the right to claim numerous benefits and deductions. This is the first year in which you must choose whether to stay in the old tax system or move to the new tax regime.
The lowered time window for filing a late ITR or a revised ITR
Previously, if you could not file your ITR by the due date of July 31st, you could also file it by March 31st with a late penalty. You can also revise the ITR by March 31st of the same year. That being said, the finance bill for 2021-2022 proposes to shorten this time period by three months, allowing you until December 31st of the same fiscal year to file your belated ITR or revise your ITR. It ultimately shortens the time you have to submit a belated or revised ITR by three months.
Addition of dividend income in ITR
Dividends obtained from Indian corporations and mutual fund schemes were tax-free in your hands until March 31, 2020, because the tax on the dividend or income distributed was paid by the corporation or mutual fund. That being said, in Budget 2020, the deduction for dividend income was eliminated, making it taxable in your hands. If the dividend provided to you surpassed Rs 5,000, the Company or the fund houses would have withheld tax before crediting the dividend to your bank account. If any TDS appears on your form No. 26AS, you must gross up your dividend income by adding the amount of tax withheld to the amount of dividend credited in your account for complete and accurate declaration of your taxable dividend income.
New tax rules on EPF contribution
From April 1, 2021, interest on employee contributions to EPF will be taxable at the time of withdrawal if it reaches 2.5 lakh in any year. This will result in increased tax responsibility, especially for HNIs that contribute more, which will prevent voluntary provident fund (VPF) contributions. If a taxpayer's employer does not contribute to the employee's provident fund, the tax-free cap is Rs 5 lakh.
Changes apply to ULIP investments made after February 1st, 2021
The maturity proceeds from any life insurance scheme, even a ULIP (Unit Linked Investment Plan), are tax-free if the premium charged on the policy does not exceed 10% of the sum assured. The budget for 2021-2022 introduced eliminating this exception if an individual's gross annual premium for all ULIP policies together surpasses Rs. 2.5 lakhs. This will only apply to ULIP policies purchased after February 1st, 2021. Furthermore, all gains received on such ULIP at maturity will be regarded as equity products, subject to a taxation of 10% without indexation. This ten per cent tax rule will extend only to ULIPs who meet a minimum percentage of contributions in listed companies.