Absence of covid cess, no increase in income tax slabs come as a huge relief

The finance minister had the onerous task of igniting growth in the economy and get India back to 8-9% growth levels. Her task was to increase demand, make it viable for SMEs to carry on business, attract foreign direct investment and generate significant economic activity. The slowdown in the first quarter of FY21 has been, to some extent, offset by better performance in the next two quarters and it is anticipated that the trend of growth would continue. However, to fast-track growth, to provide a stimulus to the industry and to trigger a mindset change for demand creation, a focused initiative was needed. All this had to be done within the limitations of fiscal deficit, while keeping inflation in a reasonable range.

The budget is transformational in its own way. The industry and the taxpayer community in general are very optimistic that the initiatives and concessions offered would help the economy to come back to a high-growth territory. Indian and multinational businesses would be able to invest more and create more jobs locally. These transformational policy changes have come with some minor changes to personal tax rules.

Taxpayers are relieved that there are no new taxes and the FM has not tinkered with the tax rates or surcharges. Additional burdens such as covid cess, wealth tax or estate duty were not introduced.

Further, relief has been provided by proposing that advance tax liability on dividend income shall arise only after the declaration or payment of dividend. The FM has continued on her commitment of earlier years of making the life of a taxpayer easy and focus on efficiency and transparency in tax administration and tax laws. There are several measures that are steps in the right direction. One, no tax return filing requirement for senior citizens (who are 75 years and above and are Indian residents and whose income comprises of pension only apart from interest received from the bank in which the pension is received). Two, pre-filled tax returns setting out capital gains from listed securities, interest income from banks and post office, dividend income in addition to salary income and TDS details for all taxpayers. Three, extension of the time period to 31 March 2022 for availing loan to get additional tax deduction up to ₹1.5 lakh on interest for first-time home buyers.

Further, the proposals for extension of faceless assessments to include tax tribunals, dispute resolution committee for reduction in disputes for small taxpayers, reduction in the time limit for reopening of tax assessments keep up with the spirit of the Taxpayers’ Charter introduced earlier.

Individuals will also benefit from the finance minister’s proposals for greater investment protection such as introduction of the Investor Charter, access up to ₹5 lakh (through deposit insurance cover) for depositors holding deposits in banks under stress and consolidation of securities markets regulations (( such as SEBI Act, Depositories Act, Securities Contracts (Regulation) Act and Government Securities Act, 2007) into a rationalized single Securities Markets Code.

There is some pain for taxpayers as redemption of unit-linked insurance plans (Ulips), purchased on or after 1 February 2021, will now be taxable as capital gains if the annual premium on these Ulips exceeds ₹2.5 lakh. Further, securities transaction tax will also be applicable on redemption of Ulips. The FM has kept the taxation of Ulips on a par with equity-oriented mutual funds. The FM has proposed to collect some additional tax from high income earners by proposing to tax interest income earned on the employee’s contribution exceeding ₹2.5 lakh to various provident funds. As I understand, Public Provident Fund (PPF) is not included in this proposal as the total contribution to the instrument cannot exceed ₹1.5 lakh in any financial year. There will be also some impact of the agricultural infrastructure development cess on individuals when purchasing certain food items, cotton, alcohol, silver and gold items, among others.

Some may call it a budget contributing to inflation and disturbing macroeconomics but I believe that under these circumstances, the FM could not have done any better.

Sonu Iyer is Tax Partner and Leader, People Advisory Services, EY