Major changes in Income Tax norms
New regime lowers tax rates, eliminates deductions
Hyderabad: The new financial year has begun and with it comes some changes in the Income Tax norms.
PAN and Aadhaar
Deadline for linking of pan card with Aadhaar has been extended till June 30. Not linking them will attract a penalty up to Rs 1,000. This change was notified in Finance Bill, 2021, passed on March 23. This apart, the PAN becomes inoperative. Once inoperative, people will not be able to make transactions higher than Rs 50,000, for which quoting the PAN number is mandatory. They will also be not able to file income tax returns or open a new bank account. They will also have to pay higher TDS.
TDS
Budget 2021 proposed higher TDS (tax deducted at source) or TCS (tax collected at source) to make more people file income tax returns (ITR). New Sections 206AB and 206CCA have been proposed in the Budget as a special provision for deduction of higher rates of TDS and TCS, respectively for the non-filers of an income tax return.
Pre-filled IT Forms
The Budget 2021 introduced Pre Filled IT forms. These will have information of capital gains from listed securities, dividend income, interest from banks/post offices. Earlier, only salaried class had this pref-filled form and income was reflected on basis of Form 16. Now, the scope has been widened.
Tax on PF interest
PF has been an exempt, exempt and exempt category. It means there is no tax at contribution, accumulation and withdrawal. However, the government has now proposed that any interest accrued in respect of employee’s contribution in excess of Rs 2.5 lakh every year shall become taxable at normal rate. The Rs 2.5 lakh annual threshold will be reached if a person contributes up to Rs 20,833 a month to PF. This implies his basic salary is around Rs 1.75 lakh a month (and not total monthly income). If employer does not contribute to the provident fund of the employee, then the tax-free limit is Rs 5 lakh.
Senior citizens
Budget had exempted individuals above 75 years from filing income tax returns (ITR) to ease the compliance burden on senior citizens. The exemption is available to only those who have no other income but depend on pension and interest income from the bank having the pension account.
Old tax regime and new tax regime
The Finance ministry introduced the ‘New Tax regime’ in Budget 2020 under section 115BAC. The new tax regime is applicable for income earned from 1st April 2020, which is from assessment year 2021-22.
Old regime
The existing tax regime has three slabs but has 70 plus deductions and exemptions available to reduce taxes. The major deductions that taxpayers enjoy are 80C deduction of Rs 1.5 lakhs, house rent allowance (HRA), leave travel allowance, Section 80D medical insurance deduction, standard deduction for salary and house property income etc, according to Archit Gupta, Founder and CEO, ClearTax. Apart from these, deduction against payment of interest on home loan to donations made to specified institutions is also available.
New tax regime
The new tax regime has lowered the tax rates but eliminated major deductions and exemptions. Income above Rs 5 lakh has been broken into five slab rates. The new tax regime allows only employers’ contribution towards NPS under section 80CCD (2), gratuity received from the employer, interest earned up to 9.5 per cent in PPF account, interest earned in post office accounts, life insurance maturity amount exemption under 10 (10D), maturity amount from NPS scheme, lump-sum amount of pension income, leave encashment on retirement and voluntary retirement amount, Gupta said.
Apart from the above, all the deductions and exemptions like deductions from 80C to 80U, standard deductions, LTA, HRA, special allowances, interest on housing loan, and others are not available in the new tax regime, he said.
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