Budget 2021: What are the implications for salaried class

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The first budget of this decade proposes to strengthen reforms, disinvestment, infrastructure, good governance, opportunities for youth, among others. From tax angle, this budget has primarily focussed on administrative reforms such as faceless assessment at tribunal level, reduction in time-period for re-opening of tax assessments, issuing tax notices, completion of assessment, etc.

This budget has maintained status quo on tax rates for individual and corporate taxpayers alike, which means the government is committed to tax certainty. Further, against popular expectations for salaried class, no amendment has been made in standard deduction or any other investment-linked deductions eligible under Section 80C, 80D etc. of the Income-tax Act.

This article seeks to provide a snapshot of key Budget 2021 proposals announced by the government impacting salaried class/ employees.

Taxability on Retiral benefits for high earners

The government has kept a keen eye on the benefits accrued on contributions made to various retrial funds which enjoys “EEE” status at various stages of its lifecycle. Instances have come to the notice that higher income group employees have an edge to make sizeable contributions to such retiral fund accounts and go tax free on withdrawal. Hence, in the previous Budget, annual aggregate contributions by employer in superannuation fund, provident fund and national pension scheme exceeding ₹7,50,000 was brought to tax, along with interest income accrued thereon. On similar lines, Budget 2021 proposes a step further to tax interest earned on employee’s annual provident fund contribution exceeding ₹2,50,000, subject to further guidance to be issued on computation mechanism by the government in this regard. Interestingly, income would be taxed even without any inflow of income in the hands of the employee during a particular year.

Affordable housing benefit extended for one more year

“Housing for All” and “Affordable Housing” has been the mantra of the Government. An amendment was brought in the previous Budget for the first-time home buyers to provide with an enhanced deduction of ₹150,000 in respect of interest on loan taken after April 1, 2019 for a residential property having a stamp duty value less than ₹45 lakh. Now, it has been proposed to extend the benefit for an additional year which means loan sanctions up to March 31, 2022 would be eligible to claim the enhanced deduction of ₹150,000 towards interest on housing loan.

Relief to NRIs

NRIs from countries like USA have significant income in their IRA account / 401K account (retiral accounts in US). This retiral account further fetches income by way of interest, capital gains, dividend etc. earned year on year. Generally, these incomes are subject to tax in overseas country at the time of retirement. However, there has been instances wherein such employees are taxed in India on such income on accrual basis without actual benefit flowing to them. To remove disparity of mismatch in taxation of income during a particular tax year, the government has proposed to prescribe appropriate mechanism to bring such income to tax and also the year in which to be taxed.

Pre-filling of Returns

It has been a continuous effort from the Government to ease compliance burden so that salaried employees can file their returns with least assistance from consultants. Accordingly, pre-filled forms were made available in their income-tax returns for salary income, tax payments, TDS, etc. To further ease the filing of returns, it has been proposed to pre-fill details of capital gains from listed securities, dividend income, and interest from banks, etc.

Conclusion

To conclude, while overall there may not be much to look at for salaried employees besides the extension of the claim of interest benefit against affordable housing for one more year. This measure has been particularly introduced to help the ailing real estate sector. It is to be acknowledged that the Government did not had much leeway to offer incentives in this post-pandemic era where the economy is getting back on its feet. Reduction or ease in tax compliance is a welcome step for salaried taxpayers.

With inputs from Sudeep Das

The writer is National Managing Partner (Tax) Grant Thornton Bharat. Views are personal