The boldness of Budget 2021 is being celebrated for the last 24 hours or more.
- Honesty in declaring full deficit openly, even if a budget deficit of 6.8% sounds shocking (Anything more than 5% is considered unhealthy)
- Infrastructure development is given priority
- There is no pandering to lobbies or movements
- It looks like a largely macro-level budget to boost the economy
Yet, queries are jumping up, and clarifications been sought on several issues in social media, on certain points.
CELEBRATIONS ON BUDGET 2021
- The much-feared Covid Cess to tax the rich has not been introduced. Instead, Rs.35000 crores has been released for vaccine administration, with a promise to release more if needed.
2. No increase on fuel prices is expected, as the new agri cess is balanced out by a decrease in excise duties. The central Government coffers are being filled up at the cost of states, but any increase in fuel prices would have caused a furore.
3. Custom duty on gold is slashed from 12.5% to 7.5%, bringing down gold prices today, while silver spiked up slightly. Gold prices will drop, giving a much needed boost to jewellery industry. Investment in sovereign gold bonds is likely to go south.
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NO DECLARATION ON CRYPTOCURRENCY
A few days back, news rocked the investors’ world that Reserve Bank of India proposes a ban on cryptocurrency trading, before launching its own digital currency.
Reactions vary from one extreme to another, and many opine that it is difficult to keep cryptocurrency out of the country for more than 5 years. Freedom from government regulations is the strength of cryptocurrency, so what is the big idea of a digital currency floated by the apex bank? Please bear in mind that many governments across the world are in process of launching their own digital currency.
Budget 2021 has strangely remained silent on the subject. We need to watch if the bill is introduced for voting in the Budget session till 13th February, 2021.
ELIGIBILITY OF NON-RESIDENT INDIANS FOR INCOME TAX EXEMPTION
Many NRIs have been stranded in India for more than the stipulated period of 182 days, due to Covid-19 travel restrictions. The budget is silent if the number of days condition will be relaxed, or they will be liable to pay taxes in India.
DEPOSIT INSURANCE
Bank depositors will receive Rs. 5 lakhs under insurance cover, as soon as a bank fails.
So far, DICGC has been paying the Liquidator appointed on failure of a bank, or the acquiring bank in case of a merger/acquisition.
It is not clear at what point will DICGC step in, under the changed policy guidelines, to reimburse the depositor directly and how?
INCREASED TDS CUTS FOR THOSE NOT FILING INCOME TAX RETURNS
TDS deducted was higher, if the depositor does not submit a PAN. This condition had led to an increase in issue of PAN cards.
As per new guidelines, a depositor pays a higher rate of TDS, if income tax returns have not been filed.
The mechanism of making data on return filing available to banks has not been disclosed. Do the investors need to provide a copy of tax returns, or data will be shared by CBDT.
BAD BANK
The bad bank will finally come into existence in the form of an asset management company, where banks will park their non-performing assets to clean up balance sheets.
The asset management will liquidate the ‘repossessed assets’ to recover money. The banks will bear the cost, and the government will not be funding the bad bank.
Further details are awaited.
CLARIFICATIONS TO COMMON QUERIES ON BUDGET 2021
TAX LIABILITY ON INTEREST EARNED ON EPF/VPF, IF ANNUAL EMPLOYEE CONTRIBUTION IS MORE THAN INR 2,50,000
If an employee contributes Rs. 3,00,000 annually to EPF and VPF, interest earned on the employers’ contribution and employee’s contribution of Rs. 5,00,000/- is not taxable. However, the interest earned on the remaining Rs. 50,000/- is taxable.
This is not applicable to Public Provident Fund.
So, this becomes the methodology to tax the high income-earners, instead of Covid Cess.
TAX LIABILITY ON MATURITY PROCEEDS OF ULIPS, IF ANNUAL PREMIUM IS MORE THAN Rs. 2,50,000/-
This brings Unit-Linked Insurance Plans more at par with mutual funds. If the total annual premium paid on ULIPs exceeds Rs. 2,50,000/-, maturity proceeds will be taxable.
This takes away the privilege held by insurance-linked products over mutual funds.
Entry of more companies with increase in foreign direct investment limit to 74% will heat up competition, offering the consumer a better choice of products.
EXEMPTION FROM FILING TAX RETURNS FOR SENIOR CITIZENS ABOVE 75 YEARS OF AGE
This is applicable only to those whose source of income is pension and interest. They need to file returns if there is an income from house property, dividends or other sources.
In case there is an income from interest from other banks, or any other source, details need to be made available to the ‘paying bank’, which deducts TDS and deposits it with Income Tax Department.
Please note that there is no relief on taxation, just on the procedures of filing tax returns.
DIRECTORSHIP ON LIC BOARD
Insurance brokers, corporate agents, insurance marketing firm owners cannot be appointed directors on the LIC Board.
There is no restriction of appointment as directors on other boards.
VOLUNTARY SCRAPPAGE POLICY FOR OLD VEHICLES
Owners of personal vehicles more than 15 years old, and commercial vehicles more than 20 years old will need to renew registration after a fitness test. They will also pay a ‘green tax’, which is likely to be 50% higher than road tax.
The high cost of operating old vehicles will encourage voluntary surrender of old vehicles.
TAX PLANNING FOR INDIVIDUALS POST BUDGET 2021
The parameters are changing. In case one opts for the new tax scheme from April 2021, the methodology needs to shift from making investments which are exempt from income tax.
If you remember Budget 2020, those opting for the new tax regime are liable to be taxed at lower rates, but there are no 80C exemptions available for investment in certain products/ schemes.
| New slab rates | Existing slab rates | ||
| Income from Rs 2.5 lakh to Rs 5 lakh | 5% | Income from Rs 2.5 lakh to Rs 5 lakh | 5% |
| Income from Rs 5 lakh to Rs 7.5 lakh | 10% | Income from Rs 5 lakh to Rs 10 lakh | 20% |
| Income from Rs 7.5 lakh to Rs 10 lakh | 15% | Income above Rs 10 lakh | 30% |
| Income from Rs 10 lakh to Rs 12.5 lakh | 20% | ||
| Income from Rs 12.5 lakh to Rs 15 lakh | 25% | ||
| Income above Rs 15 lakh | 30% |
The only tax exemptions available under the new regime are
You can claim tax exemption for:
- Transport allowances for differently abled persons
- Conveyance allowance received for conveyance expenditure incurred on duty
- Compensation for travel cost on tour or transfer.
- Daily allowance received to meet the r charges or expenditure incurred on account of absence from regular place of duty.
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