Every year, on February 1, the finance minister announces the budget for the next fiscal year, that is April to March. 

Many have called this year’s budget a Bold Budget. Mainly because the focus is on spending more to revive the economy. A well-known news publication’s headline the day after the budget, said “Spend it like Sitharaman”, since the government is spending tremendously on infrastructure, agriculture and healthcare this year. They are doing so by borrowing money and selling a few PSUs (Public Sector Undertakings).

While there are a number of changes, there are only a handful of announcements that will directly impact individuals like you and me. Here they are: 

Tax on EPF interest

If you are a salaried employee, a part of your salary is invested in the Employer’s Provident Fund. If this amount exceeds ₹2.5 lacs in a year, the interest on the additional amount will now be taxable. Say, you invest ₹3 lacs in a year, interest on the additional ₹50,000 will now be taxed. Earlier, the entire amount was tax-free.

This will only affect high-earning individuals though. So, let’s say you have an annual salary of ₹30 lacs. Typically, about 50% of it would be your basic salary. And your contribution to PF would be 12% of this basic salary, which is ₹1.8 lacs. In such a case, your entire interest will be tax-free, since your contribution is below the threshold limit. It is only those earning much higher, with PF contributions exceeding ₹2.5 lacs, that this will apply.

Tax on ULIP returns

There has been a similar change in ULIPs (Unit Linked Insurance Plans). If your investment in ULIPs exceed ₹2.5 lacs in a year, the entire return will be charged to tax. Earlier, this was exempt.

Suppose your premium amount is ₹3 lacs, the returns earned on it will be fully taxable. A change like this will catalyse people to re-think their investment choices. Investing in avenues like ULIPs are not as favourable as their alternatives, such as mutual funds, anyway.

Due date for belated return

Due dates are always confusing. So let’s clear them once and for all. For the year April 2020 to March 2021, the due date to file your income tax return is July 31, 2021. If you file your return after this date, it is known as a belated return (which attracts an additional penalty).

Further, a belated return can be filed only upto a certain period, post which it is not possible to file your return at all. This due date was earlier March 31, 2022, which has now been brought forward to December 31, 2021. 

Deposit insurance

Deposit insurance is the insurance provided by the Reserve Bank of India (RBI), in case a bank goes belly-up. The amount that is insured is ₹5 lacs. This will now immediately be available in case any bank fails or is temporarily unable to meet obligations. This has come about after YES Bank and PMC Bank faced similar situations in the recent past.

Senior citizens above 75

Senior citizens above 75 will not have to file an income tax return if their only source of income is from pension and interest, and if they have only one bank account. That said, TDS will still be applicable to them. 

These were some of the major highlights applicable to individuals. While experts anticipated increase in certain tax rates, or imposition of a COVID-19 cess, none of that happened – which is good news for us. Over the last couple of days, the markets have also reacted positively. The cue to take from all this is for us to make the most of this “bold budget” and plan our investments and overall finances wisely, and also look forward to the new financial year being better for us all.

Rushina Thacker

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