Budget proposals will ease taxpayers' burden from April 1, say experts

But changes like taxation of EPF contributions above Rs 2.5 lakh will pinch the wallet

The Union Budget proposed a number of changes to income tax rules that will come into effect from April 1. Here’s a look at the impact these new provisions will have on taxpayers.   

PF tax rules: At present, the interest received by an employee from Employee Provident Fund (EPF) is entirely exempt. From April 1, any interest earned on contribution exceeding Rs 2.5 lakh will be taxable at the person’s slab rate. 

Archit Gupta, chief executive officer (CEO) of Cleartax, says: “Even though the government has made interest on contributions above Rs 2.5 lakh taxable, EPF continues to be an attractive investment.”

The employee’s contribution will continue to be eligible for deduction under Section 80C. Contributions up to Rs 2.5 lakh will continue to earn a tax-free interest rate of 8.5 per cent (or whatever rate is announced for financial year 2021-22). Even after taxation of contribution above Rs 2.5 lakh, the post-tax return will still be 5.85 per cent for a person in the highest tax bracket. Among government-backed fixed-income instruments open to everyone, only the Public Provident Fund (PPF) with a tax-free return of 7.1 per cent offers a better return.

Tax filing for senior citizens: The Budget also exempted those aged above 75 from filing returns. However, this applies only to those who have no other income except for pension and interest income from the bank hosting the pension account. The exemption will be available from assessment year (AY) 2022-23.

Naveen Wadhwa, deputy general manager, Taxmann, says: “If a senior citizen earns even a nominal interest income from any other bank, this exemption will not be available. It is also not clear whether a senior citizen earning tax-exempt income, such as interest from PPF, agriculture income, etc., will be eligible for this benefit.” Wadhwa feels since the intention of this provision is to make life easier for senior citizens, it should be read liberally and the benefit should be available even in such a case. 

Pre-filled ITR forms: Pre-filled Income-Tax Return (ITR) forms with details such as TDS, capital gains from listed securities and dividends, interest from bank and post office, salary income, tax payments, etc, will be available from the coming year, easing the returns filing process. Vivek Jalan of Tax Connect Advisory Services LLP, a multi-disciplinary consulting firm, says, “Taxpayers should reconcile their bank statements and other income sources before filing returns and not just file pre-filled ITR.” 

Penalty for not filing: To make more people file returns, the finance minister proposed to penalise those who pay high TDS (tax deducted at source) or TCS (tax collected at source) but do not file returns. If a person’s TDS/TCS was Rs 50,000 or more in the past two years, and has not filed returns, the TDS/TCS rate that will apply will be double the specified rate or 5 per cent, whichever is higher. However, this provision will not apply to transactions where the full amount of tax is required to be deducted, e.g., salary income, payment to a non-resident, lottery, etc.

Says Kapil Rana, founder and chairman of HostBooks: “This will discourage the practice of not filing returns among persons from whom substantial amount of tax has been deducted/collected.”

Leave travel allowance/concession (LTA/LTC): The LTC cash voucher scheme was introduced in October 2020. Incur the prescribed expenditure before March 31 as this provision will not apply from April 1.