Budget Provisions in the Sphere of Personal Taxation

Against the high expectation of individual tax payers about increase in the limits of basic exemption, standard deduction and deduction under Section 80C, nothing has materialised and which in a way has disappointed individual taxpayers. However, some minor changes under the income tax laws which affect individual tax payer have been proposed in the budget by the finance minister. Let us discuss these minor changes.

Rationalisation of surcharge on long term capital gains

An Individual and an HUF have to pay surcharge calculated on your tax liability and which is over and above their base tax liability if the taxable income exceeds fifty lakh rupees. The rate at which surcharge is payable is based on slab of your income. Higher the income slab higher is the rate of surcharge. Presently the surcharge on long term capital on listed shares and equity oriented units included in your income is capped at maximum of 15% even if otherwise you are liable to pay surcharge at higher rate on other income.  This cap of 15% is applied only for one category of long term capital gains but for rest of long term capital gains, you have to pay surcharge at applicable rates. The finance minister has proposed the cap of 15% surcharge on long term capital gains of all nature.

Benefit for parents/ guardian of physically handicapped person

Presently Section 80 DD provides deduction to an HUF and an Individual toward insurance premium paid for policy taken for the benefit of a physically disabled person in addition to allowing deduction for expenses incurred for maintenance and training of such person. The tax benefits were reversed if any amount was paid while the parent/guardian was alive or the physically handicapped person dies before the guardian or paren. The Section is proposed amended to allow the deduction for an insurance policy which provides payment of annuity or lump sum payment either after death of the parent/guardian or after he turns 60 years of age.

Covid-19 related relief

The government had announced on  25-06-2021  certain benefits in respect of monetary help received towards expenses incurred for treatment of Covid-19 as well as ex gratia received by family members on death of a person due to covid-19. This has been formalised by amending the law. So any money received including an employer is fully tax free in your hands to the extent expenses actually incurred for treatment of Covid-19 for yourself and your family members. Likewise, any money received by family members from the employer as ex-gratia on death of an employee is fully tax free. In case the money is received from other persons, it is exempt upto 10 lakhs in the hands of the family members. The money received on death from employer as well as from other is exempt only if it is received within 12 months from the death of the person.

Facility to file an updated ITR to offer income not included in the ITR

Presently a person can either file a belated ITR or revise it by 31^st December of the year following the financial year. This leaves a very small window for people to come clear who either have not filed their ITR or have not included their full income in the ITR. Introduction of Annul Information Return (AIS) has instilled a sense of fear in the mind of taxpayers who have been evading paying full tax. Since the government does not have the requisite bandwidth to track and chase the tax payers who have not fully declared their income or have not filed their ITR where the tax impact is not very significant, it has come out with a novel idea to offer the taxpayer the chance to come clean on their own but with certain additional cost by uploading an updated ITR by paying the tax within two years from end of the assessment year before the income tax departments finds it out. This offer does not come cheap. Those who wish to come clean have to pay an extra amount expressed in percentage term of tax and interest payable at the time of furnishing the ITR if the updated ITR is furnished within 12 months (25%) or after 12 months but within 24 months (50%).

Higher deduction for employer’s contribution to NPS  of state government employees.

Presently central government employees are entitled to claim deduction in respect of employer’s contribution towards their NPS account upto 14% of their salary whereas employees of state government and private sector are entitled to deduction for upto 10% of contribution. Now the benefit of higher employer contribution is proposed to be made available to state government employees leaving rest of the employees eligible for only 10% eligibility. Such discrimination is not justified in my opinion.

One more area it taxation of digital assets for which I am planning a full fledged article.

Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant on twitter.