Here's how income tax rules will change from April 1

Union Finance Minister Nirmala Sitharaman, while presenting the Union Budget 2021, had announced a slew of income tax changes. These new rules are set to come into effect from April 1, 2021.

As Sandeep Sehgal, Director -Taxes and Regulatory, AKM Global, says, it must be noted that these are the proposed changes and they still have to be approved by the Parliament and will be considered passed once asserted by the President; though generally the bills get passed in original forms with some minor changes.

In Budget 2021, 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.

This provision will be applicable to the contribution made by the employee on or after April 1, 2021.

In order to make more people file income tax returns (ITR), the Finance Minister has proposed higher TDS (tax deducted at source) or TCS (tax collected at source) rates in Budget 2021.

According to Kapil Rana, Founder and Chairman, HostBooks Limited, to give effect to this, a new section of 206AB will be inserted in the Income Tax Act. As per the said section, if TDS/TCS of Rs 50,000 or more has been deducted/collected in case of any person for the past two years and such person has not filed return of income, the rate of TDS/TCS will be higher than the double of the specified rate or 5 percent.

Although this provision will not be applicable for the transactions where the full amount of tax is required to be deducted e.g. salary income, payment to a non-resident, lottery, etc.

"This provision will discourage the practice of not filing returns of income by the persons in whose case the substantial amount of tax has been deducted/collected. Although the implementation at the deductor level may be a challenge," Rana opines.

In order to reduce the compliance burden of senior citizen, it has been proposed in the Budget 2021 that an individual being a resident in India who is of the age of 75 years or above at any time during the previous year having income from pension and interest from any account maintained in the same specified bank in which he/she is receiving pension income are exempt from filing ITR.

Pre-filled data means some of the required information is auto-populated from external sources in the ITR.

Currently, the information which is pre-filled in the ITR form are - personal information, bank details, details of allowable donation u/s 80G, details of salary income as per form 16, details of TDS, TCS and taxes paid as advance tax and self-assessment tax from Form 26AS.

In this Budget 2021, some more information is notified which will be pre-filled in income tax return i.e. details of capital gain arising from the sale of listed securities, details of dividend income and details of Interest income received from the bank or post office.

"This is a great move taken by the government in order to make tax system fast, hassle-free and accurate," Rana stresses.

For the FY 2020-21, it is proposed to provide tax exemption to an employee receiving a cash allowance in lieu of Leave Travel Concession (LTC) subject to incurring the specified expenditure.

Advance tax liability on dividend income will arise only after the declaration or payment of the dividend.

The time limit to file the belated and revised return has been further shortened by 3 months. Hence, 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.