Against the high expectation of individual tax payers about the increase in the limits of a basic exemption, standard deduction, and deduction under Section 80C, nothing has materialized and which in a way has disappointed individual taxpayers. However, some minor changes under the income tax laws which affect individual taxpayers have been proposed in the budget by the finance minister. Let us discuss these minor changes.
Rationalization of surcharge on long term capital gains
An Individual and a HUF have to pay a 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 the surcharge is payable is based on a slab of your income. The 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 a maximum of 15% even if otherwise you are liable to pay a surcharge at a higher rate on other income. This cap of 15% is applied only for one category of long-term capital gains but for the rest of long-term capital gains, you have to pay a surcharge at applicable rates. The finance minister has proposed a cap of 15% surcharge on long-term capital gains of all nature.
Benefit for parents/guardians of a physically handicapped person
Presently Section 80 DD provides deduction to a HUF and an Individual toward insurance premium paid for a policy taken for the benefit of a physically disabled person in addition to allowing a 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 parent. The Section is proposed amended to allow the deduction for an insurance policy that provides payment of the annuity or lump sum payment either after the 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 the death of a person due to covid-19. This has been formalized 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 the death of an employee is fully tax-free. In case the money is received from other persons, it is exempt up to 10 lakhs in the hands of the family members. The money received on death from the employer as well as from others 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 31st 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. The introduction of Annual 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 taxpayers 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 the end of the assessment year before the income tax departments find it out. This offer does not come cheap. Those who wish to come clean have to pay an extra amount expressed in percentage terms 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 a deduction in respect of employer’s contribution towards their NPS account up to 14% of their salary whereas employees of state government and private sector are entitled to a deduction for up to 10% of the contribution. Now the benefit of higher employer contribution is proposed to be made available to state government employees leaving the rest of the employees eligible for only 10% eligibility. Such discrimination is not justified in my opinion.
Balwant Jain is a tax and investment expert and can be reached on firstname.lastname@example.org and @jainbalwant on twitter.