The new financial year begins on April 1. And with it, the changes announced in the Union Budget in February for income tax, as well as other rules that impact your wallet, take effect.
Here are the rules that will start applying with the new financial year:
1. Pre-filled ITR forms: Transaction details of individual tax filers with respect to capital gains, dividend income and interest income will soon become a standard of the pre-filled Income Tax return (ITR) form. Taxpayers will have to verify records of income accruing to them from such investments without having to source it individually before filling up the ITR form.
The details of an individual's capital gains on the transfer of listed securities or units of mutual funds will be provided by the recognised stock exchange, depository, recognised clearing corporation, or registrar to an issue and share transfer agent. Similarly, details of dividend income will have to be provided by the company that has given dividend to an individual while details of interest income will be provided for pre-filled ITR forms by banking companies and cooperative banks, the Postmaster General and Non-banking financial institutions (NBFCs).
Currently, ITR Forms come pre-filled with details of salary income, tax deducted at source, tax payments, etc.
“The income tax department has further extended pre-filled sections in ITRs from 1st April 2021 containing details of salary, TDS, interest and dividend income, capital gains from listed securities auto-populated from different authorized sources. Taxpayers need to make sure this data is accurate,” says Archit Gupta, Founder and CEO of Cleartax.
2. TDS: The finance minister proposed higher TDS (tax deducted at source) or TCS (tax collected at source) rates in Budget 2021. The insertion of new Sections 206AB and 206CCA in the Income Tax Act has been recommended as a special provision for the deduction of higher rates of TDS and TCS respectively, for the non-filers of an income tax return.
“Individuals who have not filed the income tax returns, however, and have a TDS or TCS deduction of more than Rs 50,000 in the last 2 years, will have to pay TDS or TCS subject to a minimum of 5%. Here the deductor will now become responsible for collecting the ITR proof from the individuals for compliance,” says Archit.
It is important to note that the new Wage Code, for now, is expected to start applying from April 1 as well. It mandates that basic pay will have to be at least 50% of salary, and other exemptions and allowance cannot exceed 50%. If it does, the extra amount will be deemed to be a part of your wages.
3. Senior citizens above 75 exempted from filing ITR: To ease the compliance burden, individuals above 75 years have been given exemption from filing income tax returns. This applies to senior citizens whose only income is from pension and interest income from the bank holding the pension account. Senior citizens with any other type of income (other than pension and interest income) will not be eligible, Archit adds.
4. Provident fund: In the Budget for 2021-22, FM Nirmala Sitharaman capped the tax-free interest earned on provident fund contribution by employees and employers together to a maximum of Rs 2.5 lakh in a year in an attempt to dissuade high earners from parking their surplus.
She then raised the limit for tax exemption on interest earned on provident fund contribution by employees to Rs 5 lakh per annum in specified cases as against the proposed Rs 2.5 lakh. The exemption, however, is conditional. The up to Rs 5 lakh contribution does not include the employer's contribution beyond the statutory limit of up to 12% basic pay.
5. LTC: For the year FY2021, the Budget notified tax exemption to an employee receiving a cash allowance in lieu of Leave Travel Concession (LTC). Announced by the government in 2020 for employees who were not able to claim their benefits due to COVID restrictions.
“Under this scheme, an employee can claim an exemption under LTC allowance against the purchase of specified goods/services. This scheme is only available till 31st March 2021, i.e. money must be spent by this date to avail the scheme,” says Archit.
6. Option to choose 'New tax regime' instead of Old tax regime: The government had implemented the new tax regime last year in Budget 2020. “However, the exercise of choosing one of the tax regimes for FY 2020-21 will be required to be made starting from 1st of April 2021. Taxpayers still have time until 31st March 2021 to make tax-saving deductions, however, they will be able to opt for a beneficial regime at the time of filing their tax returns for FY 2020-21,” Archit added.