Union Budget 2021: What’s in it for taxpayers?

The first budget after the pandemic seeks improvement in tax assessment and GST regime, while maintaining the status quo in income tax slabs.

The COVID-19 pandemic loomed large in the days leading up to the presentation of Union Budget 2021. Taxpayers have been hoping for tax reliefs but fear of a COVID cess was palpable. Coming out of a ‘once-in-a-century’ crisis, Finance Minister Nirmala Sitharaman promised ‘a budget like no other’. 

However, what the common taxpayer most looks forward to is the Budget’s impact on their tax liability. Here are the key features:

Income tax-related changes

'No changes have been proposed in the income tax slabs. This means that the standard deduction limit or 80C will remain as is, and neither will there be any COVID cess imposed on taxpayers.

However, senior citizens above the age of 75 years are no longer required to file income tax returns, if they only have a pension and interest income.

To safeguard NRIs from double taxation, a new set of rules are being proposed in the budget.

Tax audit compliance has been eased, with the threshold of relaxation being raised from Rs 5 crore to Rs 10 crore. This is applicable to companies who carry out 95% of their transactions through digital mode.

The budget has also extended the tax holiday on affordable housing by a year, which will now end on 31 March 2022. Tax exemption will also be provided on notified housings to migrant workers.

There are no changes in TDS rates. However, dividend payments to real estate investment trusts and infrastructure investment funds have been made exempt from TDS.

As a post-retirement benefit, the definition of wages for the calculation of gratuity will be widened. Accordingly, the maximum exemption limit on gratuity can also be increased from Rs 20 lakhs to Rs 25 lakhs.

The budget tries to reduce delays in PF deposit by targeting defaulting employers. Late deposit of employee’s contribution to PF by employers will lead to disallowance of deduction in the hands of the employer. 

Despite the lack of any major changes, taxpayers will frown upon the addition of agriculture infrastructure cess of Rs 2.5 on petrol and Rs 4 on diesel. The Finance Minister assured that it will not impact consumers as duties have been reduced to compensate for the addition of the cess. This cess has been added to a host of other goods.  

Tax administration

Continuing the Government’s effort to simplify tax filing, tax forms will now have pre-filled capital gains, dividend income, and interest income details. Besides, a Dispute Resolution Committee will be set up for small taxpayers.

Reopening of serious tax offences has been made possible beyond 10 years, but only with the approval of the Principal Chief Commissioner. This will involves cases with an income of over Rs 50 lakh only. However, the time frame for reopening of income tax assessment cases have been reduced from 6 to 3 years.

Indirect taxes

Changes in indirect taxes have an eventual impact on households. In this budget, customs duty has been increased for cotton to 10% and silk to 15%. Duty has been reduced for naphtha to 2.5%, solar lanterns to 5%, and steel scrap has been exempted for the next financial year. 

Rationalisation of gold and silver customs duty has also been proposed, from 12.5% to 7.5% in basic customs duty.

The FM also announced that removal of anomalies will be initiated in the GST regime. Inverted duty structures will be reduced in GST, while over 400 old exemptions in indirect taxes will be placed under scrutiny.

Small businesses
In a welcome news to taxpayers engaged in small businesses, the definition of ‘small business’ has been relaxed. The threshold of paid-up share capital for small companies has been increased from Rs 50 lakh to Rs 2 crore, while the turnover threshold has also been raised from Rs 2 crore to Rs 20 crore. 

The FM proposed that one-person companies can now be incorporated without any paid-up capital or turnover limits. Tax holidays for startups, including capital gains on investments, has been extended by a year.

Notably, income tax return filing has almost doubled in the last seven years, from 3.31 crore in 2014 to 6.48 crore in 2020. After the presentation of the budget, the share market has shown an initial rise. Precious metals are, however, expected to fall in the wake of the duty reduction.