11 changes in Income Tax Law for the Financial Year FY 2021-22

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11 changes in Income Tax Law for the Financial Year FY 2021-22

Every year when the budget is about to be out taxpayers like us are mostly concerned about the changes in the taxes. Since the pandemic affected the economy immensely, the growing cases and government expenditure, people expected an increase in tax, or introduction of any new tax like covid cess or something but fortunately the budget 2021 was a relief and there was no new tax just that the choice between the two slab rate that was given in previous budget will be available this FY too and few other minor changes in the income tax are introduced.

The few changes that will be effective from April 2021 are as follows:

1. Tax on interest on PF:

Earlier the interest on PF used to be exempt from income tax but with the recent budget 2021 if a person deposits more than 250000 in provident fund, then the interest on the amount over and above 250000 will be taxable

2. High TDS and TCS rates for ITR non-filers

New section 206 AB and section 206CCA has been inserted in income tax act that will be providing for higher rates of TDS and TCS for the non-filers of ITR. This has been done to put off the practice of not filing the returns by tax payers in whose case a considerable sum of tax has been deducted or collected.

The new applicable rate will be higher of

  • 5%
  • Twice the specified rate in the provision
3. Exemption for ITR filing for senior citizens above 75 years

With the new budget there is an exemption provided to the senior citizens above 75 years old Indian citizens to file it if the income includes only pension and interest income. One more condition to avail this examination is that the individual should have only one bank account.

4.Increase in the tax audit limit

The tax audit limit in the current budget 2021 has been increased to 10cr turnover. The individual will be able to avail this exemption only if 95% of the turnover receipt is through digital mode, while for the others it remains 1cr.

5.Dividend payments to REITs, InvITs exempted from TDS

The government has decided to exempt dividend payments to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) from tax deduction at source (TDS).

If advance tax liability arises on account of dividend income then advance tax should be computed and paid when the dividend is received.

6.Tax on ULIP gains

With effect from 1 April 2021 if an investment in ULIP is more than 2.5 lakh then the gain on amount above 2.5 lakh will be taxable. The long-term gain on the exceeded amount will be taxable at the rate of 10% while the short-term gain will be taxable at the rate of 15%.

7.Reduction in the time limit for reopening of tax return

With effect from 1 April 2021 the time limit for reopening of tax returns has been reduced to 3 years, while earlier it used to be 6 years.

While for serious tax fraud cases involving income tax concealment of 50 lakh and above, 10 yr. old cases can be reopened.

8. Pre filled ITR forms

Earlier pre-filled forms used to contain information about TDS and salary, but from now onwards the pre-filled form will contain information about the capital gains, dividend and interest received from Bank or post offices. This will reduce the chances of missing out any information. Statement of Financial Transactions (SFT) Rule has also been amended so as to get this information for pre-filled income tax return forms.

9. Penalty for non-linking of Aadhaar and PAN

The due date for linking Aadhaar and income tax PAN is now fixed to 31st March 2021. In case of non-linking the PAN card would become in operative and you may be charged a fine of rupees 10000 as per section 272 b of income tax act.

10. Time limit for completion of assessment, reassessment and re computation

With respect to the orders of assessment relating to the assessment year commencing on or after the 1st April 2021, nine months has been substituted for twenty-one months in the provision.

11. Provisions related to Sovereign Wealth Fund (SWF) and Pension Fund (PF)

At Present, Sovereign Wealth Fund (SWF) and Pension Fund (PF) can’t be invested through a holding company. It is proposed to allow the same, after complying with the various conditions. Following are the conditions-

  • The holding company should be a domestic company; it should be set up and registered on or after 1st April 2021.
  • Minimum 75% investments should be made in one or more infrastructure companies and exemption under this clause shall be calculated proportionately, in case if the aggregate investment of holding company in Infrastructure Company or companies is less than 100%.

 

{ Ku. Archita Nathani is in CA (Final) & undergoing her article-ship  at SSRPN & CO. She can be reached at taxtalknew@gmail.com }

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