The key thing about financial year 2020-21 from the taxation angle is there is no change in the income tax slab rate. There are some changes, however, that you must know. Interest on EPF contribution, taxation of ULIP policies and relief for senior citizens are some of them. We have compiled it for you:
1) Contribution to employee provident fund
The interest that you earn from employee's provident fund (EPF) is exempt from tax under the existing tax provisions. However, from FY21, if your EPF contribution goes above Rs 2.5 lakh in a financial year, the interest earned on the excess amount will be taxable. The government employees have a cap of Rs 5 lakh on tax-exempt EPF contribution.
2) ULIP policies to be taxed as MFs
The ULIPs no longer have the benefit that they enjoyed over mutual funds on the maturity amount. As per existing income tax laws, maturity proceeds of life insurance policies are exempt from tax under section 10 (10D). But now, if annual premium for a ULIP crosses Rs 2.5 lakh in a year, the gains incurred will be treated as capital gains and be taxed like mutual funds -10 per cent long-term capital gains and 15 per cent short-term capital gains. If you pay premium for more than one ULIP in a year, the Rs 2.5 lakh ceiling will apply to the aggregate premium for all ULIPs held by you. This rule had come into effect from the Budget day itself.
3) Timeline to file revised/late returns reduced
Earlier you could have filed a revised or late return by March 31 of the financial year. This year onwards, you will have to do this by December 31 of the financial year. For example, if you don't file ITR by July 31, the maximum you may delay by December 31. The FM has also reduced the time limit for reopening of income tax assessment from six years to three years. So, you no longer have to maintain tax proofs for a longer period.
"The real challenge for people going abroad was the ITR filing timelines were not aligned. For example, the US follows the calendar year, but India follows April-March. The advancement of filing belated/revised ITR has been done to keep them in mind," says Sudhakar Sethuraman, Partner, Deloitte India.
4) Relief for senior citizens
Senior citizens above 75 years of age have one less reason to worry about. Resident senior citizens of 75 years or more having pension and interest income from the specified bank is not required to file the tax return. The specified bank would be notified by the government and the bank would be required to deduct tax on such interest income.
5) Overseas social security
The government has clarified on the taxability of the contribution made to overseas social security. "If someone goes to the US, he or she has to contribute to the overseas social security. The employer may also contribute to the same. There used to be dilemma on its taxation. The assesses needed to be careful otherwise it could have led to the double taxation or double non-taxation. Now the government has clarified that income from such overseas retirement fund will be taxable in India and assesses will give credit for taxes paid in the overseas jurisdiction," says Sethuraman.
"This is more of a clarificatory amendment because tax treaties are already there, but the government clarification means it will be more visible to people," he adds.
6) Pre-filled ITR forms
After salary and interest income, now Details of Capital Gains, Dividend Income and Interest income will be pre-filled in the ITR forms, making it easier for you to file ITR. "In order to ease compliance for the taxpayer, details of salary income, tax payments, TDS, etc. already come pre-filled in income tax returns. To further ease filing of returns, details of capital gains from listed securities, dividend income, and interest from banks, post offices, etc. will also be pre-filled," says Finance Minister Nirmala Sitharaman in her budget speech.