Tax Breaks and Reforms in India: Budget 2021 Highlights
Introduction
Every year, during the budget season, debates over income tax slabs and reliefs are at the forefront of public discourse. In the 2021-22 budget, presented on February 1, 2021, the Finance Minister of India, Shrimati Nirmala Sitharaman, introduced several measures to ease the tax burden. These changes, while not drastic, offer significant relief to various groups, including senior citizens and real estate buyers. This article delves into the key tax reforms and announcements presented in the Budget 2021.
Preliminary Overview of the Digital Budget
The 2021-22 budget was the first digital budget in India, marking a significant milestone. Unlike past budgets, which were physically printed, this budget was presented digitally. Despite the absence of substantial changes on the direct tax front, the finance minister presented a series of announcements that were well-received by various stakeholders.
Key Income Tax Announcements
1. Senior Citizen Tax Relief
The first notable announcement pertained to senior citizens. The finance minister addressed the tax burden on senior citizens by exempting them from filing tax returns if their income is derived solely from pension and interest on deposits. Filers aged 75 years and above are no longer required to file returns, eliminating the compliance burden for the elderly. Paying banks will be responsible for deducting taxable amounts on behalf of the senior citizens.
2. Affordable Housing Initiative
The real estate sector received a significant boost with the extension of the tax relief for affordable housing loans. The financial relief, extending to Rs. 150,000 for home loans, was first introduced in the July 2019 budget. The extension of this scheme until March 31, 2022, offers a temporary relief for homebuyers, allowing them to benefit from additional tax exemptions on their home loans.
3. Reduced Timelines for Tax Litigation
A welcome move was the reduction in timelines for reopening tax cases. Previously, cases could be reopened up to six years; the new timeline has been reduced to three years. This change aims to reduce litigation and uncertainty for taxpayers, streamlining the process and reducing prolonged legal disputes.
4. High-Income Employee Tax Reforms
To rationalize tax exemptions for high-income salaried employees, the finance minister proposed limiting the tax exemption for interest income earned through provident fund contributions to Rs. 250,000 annually. This restriction applies only to contributions made on or after April 1, 2021. The minister assured that the Employee Pension Scheme (EPFO) would remain unaffected by this measure, assuring a minimum of eight returns for those who will be impacted.
5. Tax Evasion Measures
For serious tax evasion cases where tax evaders have concealed Rs. 50 Lakhs and above, the assessment may be reopened up to 10 years. However, such cases can only be reopened with the consent of the principal chief commissioner. This move aims to strengthen tax evasion measures while ensuring that personal privacy is respected.
6. Pre-Filled Tax Returns
The finance minister proposed the introduction of pre-filled tax returns. These returns will include details such as capital gains from listed securities, interest income from banks and post office deposits, as well as dividend income. Taxpayers can utilize these pre-filled forms, simplifying the tax filing process and reducing errors.
7. Tax Implications for NRIs
To provide relief to Non-Resident Indians (NRIs), the finance minister announced that NRIs would be exempt from paying taxes on their income accrued outside of India in their retirement accounts held in foreign countries where they reside. This measure aims to prevent double taxation for NRIs, providing them with a more favorable tax environment.
8. Digital Business Tax Reforms
To support businesses operating in the digital sector, the finance minister proposed to double the tax exemption limit for businesses with a turnover of up to Rs. 10 crore. This change will apply to companies conducting most of their business through digital modes. Additionally, the government plans to introduce faceless income tax appellate tribunals and set up a national income tax appellate tribunal center, improving the tax dispute resolution process.
Conclusion
The 2021-22 budget demonstrated a strategic approach to easing the tax burden on various sectors and demographics. By introducing measures to reduce compliance burdens and provide relief to specific groups, the government aimed to create a more favorable tax environment. The initiatives, while not extensive, were well-received by taxpayers, including senior citizens, real estate buyers, and businesses operating in the digital sector. As India continues to evolve, these reforms set the stage for sustained economic growth and enhanced tax compliance.