The current fiscal year will shortly come to a close, and the next fiscal year will begin on April 1. Certain income tax regulations have been effective for transactions beginning in the current fiscal year, and taxpayers should be aware of them. Let’s take a look at some of the significant changes that will affect individual taxpayers in FY 21-22.
Unit Linked Insurance Policies have had their taxation laws changed
Money received from a life insurance policy, including ULIPs, is normally tax-free, provided the premium for the year does not exceed a particular percentage of the amount guaranteed, depending on the year the policy was purchased. People used to invest in ULIPs and enjoy tax-free income since long-term capital gains on equities mutual funds became taxable at 10% after an initial exemption of Rs 1 lakh. To create a fair playing field, the Finance Act of 2021 rendered money received in connection with some ULIPs issued after February 1, 2021 taxable in the hands of policyholders. Any money received on the death of the policyholder, on the other hand, will be tax-free in the hands of the beneficiaries.
If the premium paid for any year during its duration exceeds Rs 2.50 lakh, the modified regulation would apply. If the amount payable throughout the year exceeds Rs 1 lakh, insurance firms will deduct tax at a rate of 5% on the difference. The difference between the premiums paid and the money received will be taxed for ULIPs that have a minimum of 65 percent investments in equity products over their term. For other ULIPs, the difference between the premiums paid and the money received will be taxed.
Interest paid on contributions to a provident fund in excess of certain levels is subject to tax
Currently, the interest rate on your provident fund balance is roughly 8.50 percent each year. This is greater than any other loan instrument that is considered safe. Because of the increased returns and safety of investments, many high-paid employees, such as promoters and senior executives in large corporations, contributed much more to their provident fund than was necessary. To deter such misappropriation, the legislation was revised to stipulate that any interest generated on your provident fund contribution in a year, whether required or optional, that exceeds Rs 2.50 lakh would no longer be tax-free and will be taxed in your hands. You have a greater yearly limit of Rs 5 lakh if your employer does not pay to your EPF.
To give effect to this provision, provident fund offices would keep two distinct provident fund accounts for members, one where interest is tax-free and the other where full interest is taxable for all yearly contributions beyond Rs 2.50 lakh or Rs 5 lakh, whichever is higher.
Exclusive tax credit on house loans for affordable housing may be extended
You are eligible for a tax advantage of up to Rs 1.50 lakh per year on interest paid on a home loan sanctioned between April 1, 2019 and March 31, 2021 for a dwelling with a stamp duty value of not more than Rs 45 lakh, in addition to the deduction provided under Section 24. (b). The deadline for obtaining a house loan has been extended until March 31, 2022, from the previous deadline of March 31, 2021.
Senior people are exempt from filing ITRs if they meet specified criteria
To relieve senior citizens over the age of 70 of the burden of filing their income tax returns, the law has been amended to provide that senior citizens who receive pensions will not be required to file their ITRs if they provide a declaration to the bank from which the pension is disbursed regarding their interest earnings.
Non-filing of your ITR for two years will result in a higher TDS/TCS
If you do not file your income tax returns by the due date for two consecutive years immediately preceding the year of deduction, and the total tax deducted on your income in those two years is more than Rs 50,000, the payer will be required to deduct tax at a higher rate than what is applicable in your case.
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.