Budget 2021 made some noteworthy reforms and changes in various sectors of the economy. The motive was one – boost economic growth. For achieving this motive, the Finance Minister, Mrs. Nirmala Sitharaman, made various provisions for different sectors. In the personal finance domain, there weren’t major changes. However, the changes proposed would change the face of the insurance industry. Here’s what the budget has propositioned for you and your clients when it comes to taxation and personal finance –
- Benefit to senior citizens
Once again, the focus was on senior citizens as the FM removed the requirement of filing taxes for individuals aged 75 years and above provided the income consisted on only pension and interest. This gives benefits to your senior citizen clients who can say goodbye to the hassles of filing taxes every year.
- Simplification of taxation norms
Various tax norms have been simplified. The time limit for reopening of old assessments has been reduced to 3 years from the previous 6 years. This has reduced uncertainty for taxpayers regarding disputes in previous tax files. Moreover, dispute resolution has been made virtual and faceless so that disputes can be settled easily and efficiently. The faceless dispute resolution committee is available for taxpayers with taxable incomes up to INR 50 lakhs and a disputed income of up to INR 10 lakhs. For taxpayers, tax forms would now come pre-filled with details of capital gains, interest income, etc. This would make tax-filing an easy affair.
- Extension of tax benefit under Section 80EEA
Section 80EEA, which was introduced for providing additional tax deductions for affordable housing schemes, has been extended till 31st March 2022. Now, first-time home buyers who avail loans up to 31st March 2022 can claim deduction on interest payable for the loan. The deduction is allowed up to INR 1.5 lakhs which is in addition to the INR 2 lakh deduction available under Section 24b.
- Relaxation on dividend income
The advance tax liability on dividend income has been done away with. Dividend income would be taxed in the hands of the taxpayer after it has been declared. No advance tax would be payable before declaration. Moreover, TDS would not be deducted on dividend paid to REIT and InvIT.
- Benefit for NRIs
Your NRI clients can also rejoice since they have been given relaxation from double taxation on their Indian income. Moreover, NRIs are now allowed to open and operate a One Person Company (OPC) in India.
- Change in EPF rules
The budget also made two major charges in the EPF rules. The first change was aimed at ensuring timely deposits to the EPF account by the employer. The budget has stated that if employers do not deposit employee’s contribution to the EPF account timely, they would not be able to avail the benefit of tax deduction. Moreover, for employees, there has been an additional tax implication. If an employee contributes more than INR 2.5 lakhs towards the provident fund scheme, the interest earned on the excess contribution would be taxed in the hands of the employee. This rule would be applicable for contributions made on or after 1st April 2021 and is expected to impact the VPF (Voluntary Provident Fund) contributions made by employees to enjoy tax benefits.
- Tax implication on ULIPs
Till before the budget was presented, ULIPs enjoyed tax benefits on the premium as well as on the maturity proceeds. However, to bring parity in ULIPs and mutual funds, the concept of capital gains tax has been implemented in ULIPs. Now, for ULIPs sold on or after 1st February 2021, if the aggregate premium paid in a year exceeds Rs.2.5 lakhs, capital gains tax would apply on the maturity proceeds earned from the unit linked plan. This capital gain would be calculated in the same manner as in the case of equity mutual funds. Since ULIPs have a lock-in period of 5 years, the maturity proceeds would attract long term capital gains. If the gains exceed Rs.1 lakh, the excess would be taxed @10%.
This is a major change in the insurance segment which would apply to your high net worth clients who invest considerable sums in a unit linked plan for its inherent tax benefits.
- Relaxation in the insurance sector
Another major change in the insurance sector was the hike in the FDI limit. Earlier, foreign investment in Indian insurance companies was allowed up to 49%. However, in the latest budget, the limit has been revised to 74% to promote more capital inflow from abroad. This would result in capital infusion which would make insurance companies better placed to settle their claims and also offer better and developed products. The hike in FDI would also contribute to the growth and development of insurance companies.
Furthermore, the LIC IPO is slated to be launched this year making LIC a listed company. The IPO would bring in fresh equity capital into the company, boost its competitiveness and allow it to grow and offer better products.
Besides these changes, the Finance Minister also proposed a major allocation towards the healthcare sector and COVID-19 vaccine. The PM Aatmanirbhar Swasth Bharat Yojana has been introduced for better healthcare facilities. There has been a major impetus given to infrastructure, roadways and highways, start-ups, industries and manufacturing units. A major fintech hub would be created in GIFT city, Gujarat, to boost the fintech industry of India. Moreover, a general insurance company, PSU banks and other PSUs would be disinvested strategically to bring in fresh revenue for the Government.
The customs duty on gold and silver would also be rationalized which would push the price of the metals down making them an attractive choice of investment for many of your clients.
So, understand what the budget has proposed for the year to come so that you can educate your clients about the same. The budget would impact you and your clients in terms of tax filing and tax planning and so you should be updated about the changes so that you can also help your clients.