From EPF, LTC to ITR, Here’s A Glance at How New Tax Rules Will Impact Your Finances

Among other notable changes are the proposed higher tax deducted at source (TDS) for those who are not filing their ITR and investment in EPF account to come under the ambit of income tax

Finance Minister Nirmala Sitharaman had announced a couple of changes in the income tax rules during Union Budget 2021. These rules have come into effect from 1 April 2021, and some of these changes include exemption for filing ITR returns for senior citizens of the age 75 and above with income from pension and interest from fixed deposit in the same bank.

Among other key changes are the proposed higher tax deducted at source (TDS) for those who are not filing their ITR and investment in EPF account to come under the ambit of income tax.

PF tax rules: The government’s decision to tax the high-value depositors in the Employee Provident Fund (EPF) has surprised many investors. One of the many changes is that the interest on annual employee contributions to provident fund over Rs 2.5 lakh would be taxed from 1 April 2021. While announcing the change, the FM said it is aimed at the welfare of workers, and any person earning less than ₹2 lakh per month will not be affected by the proposal. On the other hand, the finance ministry raised the deposit threshold limit to Rs 5 lakh per annum in provident fund for which interest would continue to be tax-exempt, if there is no employer contribution.

Option to choose new tax regime: The new tax regime announced in Budget 2020 will kick in for the financial year 2020-21(FY21). Taxpayers will have an option to choose new tax regime instead of old tax regime at the time of filing their tax returns.

Senior citizens above 75 years exempted from filing ITR: In tune with other measures taken to ease compliance burden on common man during Covid times, the government has announced relief measures for senior citizens above 75 years. The Budget 2021 has exempted filing ITR returns for those above 75 years from filing income tax returns (ITR). Remember, senior citizens who have no other income but depend on pension and interest income from the bank hosting the pension account.

TDS: In an attempt to ensure that more people file income tax returns (ITR), the finance minister has proposed higher TDS (tax deducted at source) or TCS (tax collected at source) rates. The Union Budget 2021 has proposed the incorporation of new Sections 206AB and 206CCA in the Income Tax Act as a special provision for the deduction of higher rates of TDS and TCS, respectively for the non-filers of an income tax return.

LTC: The government has proposed a tax exemption to cash allowance against Leave Travel Concession (LTC). This particular scheme was announced by the government in 2020 to augur spending in the economy by allowing individuals who were unable to claim their LTC tax benefit due to covid-related restrictions on travelling.

Pre-filled ITR forms: Making the process of tax payment easier, the government has proposed pre-filled Income Tax Returns (ITR) including details of salary income, tax payments, TDS, etc. including in income tax returns. In fact, details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. will also be pre-filled.