Changes to Income Tax rules for FY 2021-22

Our Union Finance Minister Nirmala Sitharaman presented Union Budget 2021 and had announced some changes in Income Tax rules which will come in effect from 1st April 2021.

· 3 min read
Changes to Income Tax rules for FY 2021-22

let's take a quick view of the changes announced.

New Tax Regime and Income Tax Slab Rate

There is no change in the Income Tax slab rate and New Tax Regime (old as well as new). Moreover, If you are planning to opt for a new tax regime at the time of filing ITR for FY 2020-21, do keep in mind that you will need to fill out an additional new form, called Form 10-IE.

Click here to know more details regarding the tax rates:

Exemption from filing ITR

The government has given a relief of exemption to a certain category of Senior citizens from filing ITR. The benefit of exemption will be available after fulfilling certain conditions such as:

  1. The senior citizen shall be the resident individual aged 75 years and above.
  2. He/ She has only pension and interest as a source of income and no other accrues to him/her during the relevant financial year. The bank paying interest income to them will deduct the necessary amount of tax from their bank account and senior citizens will not be required to file the ITR.
  3. He/She is required to file a declaration to the bank as prescribed by the central government.

Timely payment of contribution to EPF account

If the employer does not make its contribution to the EPF account of an employee on time, then the employer will not be eligible to claim the deduction available on this contribution. The aim is to provide more security to employees by ensuring that the employer contributes on time.

The new rule comes into effect from April 1, 2021, and will apply to companies and other employers filing ITR for FY 2020-21. Now if the companies do not make contributions on time they will not be able to claim the benefit.

Extension of section 80EEA

Budget 2021 has extended the availability of additional deduction allowed under section 80EEA (of the Income Tax Act) for interest paid on affordable housing loans by one year to March 31, 2022. This additional deduction of Rs 1.5 lakh was available under section 80EEA only up till March 31, 2021, before the extension announced in Budget 2021. This deduction is available under section 24 over and above Rs.2 lakh. Deduction of Rs.3.5 lakh in a financial year is available to an individual taxpayer.

Tax on Provident Fund interest

If deposit in an Voluntary Provident Fund and Employee Provident Fund by an employee exceeds Rs. 2.5 Lakh, then this will be taxable in the hands of an employee.

The benefit of Leave Travel Concession

The central government in Budget 2021 has proposed to provide tax exemption to cash allowance in place of Leave Travel Concession (LTC). The scheme was announced for individuals by the government who were not able to claim their LTC tax benefit due to covid related restrictions.

Pre-filled ITR forms

Individual taxpayers will be given the facility of pre-filled Income Tax Returns (ITR). This facility will be given to ease compliance for the taxpayer, in this details of salary income, tax payments, TDS, etc. will come in a pre-filled manner in income tax returns. Moreover  details of capital gains from listed securities, dividend income, and interest from banks, post offices, etc. will also come in pre pre-filled manner.  The move is aimed at expediting the filing of returns

Penalty for not linking PAN with AADHAR.

The government has taken a major decision to levy a penalty if an individual does not link his/her PAN with Aadhaar before the expiry of the due date. A new section 234H has been inserted in the Income-tax Act to levy a penalty if the Aadhaar is linked with PAN after the expiry of the due date. Though the exact amount of penalty that will be charged is not finalized yet but, the maximum amount cannot exceed Rs 1,000. The deadline for linking PAN with Aadhaar has been extended to June 30, 2021.

Reduction in the time limit for reopening of ITR

The time allowed for Income Tax Assessment has been reduced to 3 years from the date of filing of return. Earlier the time allowed for this was 6 years from the date of filing of ITR.

In the case of serious Tax Evasion of Rs 50 lakh or more where the income tax authorities have full evidence then ITR assessments can be reopened even up to 10 years from the date of filing ITR.

Penalty for belated ITR filing

The government has amended section 234F of the Income Tax Act 1961 to clarify that the penalty shall be levied on the belated filing of ITR.

Higher TDS or TCS rates

The budget has proposed the insertion of new Sections 206AB and 206CCA in the Income Tax Act 1961. This proposal is made in order to make more and more people file income tax returns(ITR).. "The individuals who have not filed the income tax returns, and have a TDS or TCS deduction of more than ₹50,000 in the last 2 years, then he will have to pay TDS or TCS at the rate of minimum 5%

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