Key changes in income tax rules for the new financial year 2021-22

These changes were announced by Finance Minister Nirmala Sitharaman, as she presented the Union Budget 2021-22 in February…

As the nation finally stepped into the new financial year 2021-22 (FY22), the income tax department tweaked a few rules which have been effective since April 1. These changes were announced by Finance Minister Nirmala Sitharaman, as she presented the Union Budget 2021-22 in February.

This is the first year when you have to exercise the option or to remain in the old tax regime or migrate to the new tax regime.

The new tax regime allows an individual taxpayer to opt for lower tax rates coupled with very few deductions available and fewer exempt allowances available.

Now, The salaried people have the right to choose between the old tax regime or the new tax regime every year. The salaried who have exercised a particular option with the employer can opt for another option while filing their ITR as the option exercised with the employer was only for the limited purpose of tax deduction.

On the other hand, the person with business income cannot go back to the old regime once he opts for a new one unless you discontinue your business. So one with business income has to make this choice between these two alternative tax regimes taking into account long-term implications.

If you have business income and do not wish to opt for a new tax regime this year, you can opt for a new tax regime in any subsequent year but once migrated to the new tax regime, you cannot go back to the old regime.

Let us take a look at the new rule effective from April 1, 2021:

Delayed filing of ITR or Revising your filed ITR

The time limit to file the belated and revised return has been further shortened by 3 months. Which means, a return that could be filed belated or revised by March 31 of next year will need to be done by December 31 only, according to Sehgal of AKM Global.

Inclusion of dividend income in ITR

The dividend received from Indian Companies as well as mutual fund schemes were tax-free in your hands as the tax was on the dividend or income distributed was paid by the Company or the mutual fund, till 31st March 2020.

However, the budget of 2020 had removed the exemption on dividend income and has made the same taxable in your hands.

In case any TDS is reflecting in your Form No. 26AS, you need to gross up your dividend income by adding the amount of tax deducted to the amount of dividend credited in your account for proper and correct disclosure of your taxable dividend income. This exercise has to be done well in advance for ensuring the timely filing of the ITR.

Rules for Employee Provident Fund (EPF)

In the 2021 budget, it has been proposed that the interest on employee contribution towards provident fund is exempt up to the maximum of Rs 2.5 lakh, and any interest income from the contribution above the said limit will be taxable in the hands of the employee.

Investments made in ULIP

The budget for 2021-2022 proposed to withdraw ULIP (Unit Linked Investment Plan) exemption in case of the aggregate annual premium for all the ULIP policies taken together by an individual exceeds 2.50 Lakh. This will impact only those ULIP policies which are bought after 1st February 2021.

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