Budget 2021: From new and old tax regime to interest on PF, 5 major announcements to impact your personal finance

The Finance Minister proposed to extend the eligibility period for claim of additional deduction for interest of Rs. 1.5 lakh paid for loan taken for purchase of an affordable house to 31st March, 2022.  In order to increase the supply of affordable houses, she also announced extension of eligibility period for claiming tax holiday for affordable housing projects by one more year to 31st March, 2022.  For promoting supply of affordable rental housing for the migrant workers, the Minister announced a new tax exemption for the notified affordable rental housing projects.

New tax regime to be optional. An individual may continue to pay tax as per the old regime and avail deductions and exemptions. Measures to pre-fill the income tax return initiated so that an individual who opts for the new regime gets pre-filled income tax returns and would need no assistance from an expert to pay income tax. Finance has proposed to reduce deadline for filing belated, revised ITR (Income Tax Returns) by three months from March 31 of the relevant assessment year to December 31 of the assessment year.

In order to reduce compliance burden, the Budget provides reduction in the time-limit for reopening of income tax proceeding for three years from the present six years.  In serious tax evasion cases, where there is evidence of concealment of income of Rs. 50 lakh or more in a year, the assessment can be reopened upto 10 years but only after the approval of the Principal Chief Commissioner.

FM has also proposed to tax interest earned on annual provident fund contribution of over Rs 2.5 lakh effective from April 1, 2021. This restriction shall be applicable only for the contribution made on or after April 1, 2021. At present there is no tax on interest earned on provident fund deposits. In the previous 2020 Budget, the finance minister had capped the tax exemption on employers contribution to PF, NPS and superannuation funds at an aggregate of Rs 7.5 lakh per annum.

FM Sitharaman said the employers who delay the deposit of workers' share of social security contributions like employees' provident fund will not be able to claim the amount as deduction from their income. An amendment in this regard has been proposed in the Finance Bill 2021, to ensure that firms deposit the social security contributions of their employees like Employees' State Insurance (ESI) well in time. These amendments will take effect from April 1, 2021 and will accordingly apply to the assessment year 2021-22, and subsequent assessment years as per the Finance Bill 2021.