Balwant Jain

The Finance Minister has presented his third budget in parliament toady containing various direct and indirect tax proposals. In this article I intend to discuss some of the proposals which are beneficial to individual tax payers. Please note that at present these are only proposal until are passed by the parliament.

Increase in tax rebate for small tax payers

Presently a tax payer whose taxable income does not exceed Rs. 5 lacs is entitled to a reduction in his tax liability upto Rs. 2,000/-. Since the government is under pressure to increase the tax base, it did not want to increase the exemption limit so in stead it has decided to give relief to small tax payers by increasing the present of tax rebate under section 87 A to Rs. 5,000/- thus resulting in a saving of Rs. 3,000/- per year for small tax payers.

Home loan borrowers

The law presently allows a tax payer to claim interest paid on money borrowed for purchase or construction of a house. For let out property the tax payer can claim full interest paid but for self occupied property the deduction is restricted to Rs. 2lacs. However in case construction of the house is not completed within a three years from the end of the year in which the money is borrowed the quantum of deduction available was substantially reduced to Rs. 30,000. In the present status of real estate sector where delay in completion of construction beyond three years is norm rather than an exception, the tax payers were penalised for no fault of theirs. The finance minister has proposed to extend the period for completion of construction from three years to five year.

In addition to extending the period for construction, the finance minister has also proposed an additional benefits of Rs. 50,000/- in respect of interest paid to financial institution for house costing whereof does not exceed Rs. 50 alcs and the money borrowed does not exceed Rs. 35 lacs provided the Individual does not own any house as on the date of the sanction of the home loan.

Benefit for NPS subscribers

Presently the money withdrawn from the NPS account is fully taxable which was at variance from the law applicable for accumulated balance in Employee Provident Fund or recognised porovident Fund withdrawal . An NPS subscriber is entitled to opt for lump sum withdrawal for upto 60% of the accumulated balance in the NPS account after reaching 60 years of age. The subscriber has to mandatorily purchase an annuity for minimum of 40% of the accumulated balance. The incidence of buying an annuity does not attract any tax liability but the annuity received is taxable in the hands of recipient. So with this proposal the NPS subscriber can enjoy 40 % of the accumulated corpus as tax free and just need to pay tax on 20% of the balance at the slab rate applicable.

It is interesting to note that the finance minister has also proposed to make balance accumulated in the provident fund account out of the contribution made by the employee after 1st April 2016 as taxable to the extent of 40%. Though the finance minister proposes to bring the provident fund provisions on line with those of NPS but the NPS subscriber is still at disadvantage as he has to mandatorily buy an annuity( which is taxable) to the extent of 40% of the accumulated balance which is not there for balance in provident fund account.

There is also a proposal to make the amount of accumulated balance in NPS account on death of the subscriber received by his nominee as exempt. So the nominee can claim the full amount of the corpus accumulated in the NPS account as exempt.

TDS Provisions

In case a person does not complete continuous service of five years and withdraws the balance in his provident funds account, the amount is taxable and the payer of the amount if required to deduct tax in case the amount of such payments exceeds Rs. 30,000/- presently. The amount is proposed to be increased to Rs. 50,000/-. There is also a proposal to reduce the rate on which tax will be deducted from maturity proceeds of life insurance policies which are taxable from 2% to 1%. Both these proposals will benefit individual tax payers.

Revising of income tax returns.

As per the present provisions you can not revise the income tax return, in case any error or omission is later on detected, where the income tax return is not filed by the original due date i.e. 31 July for individual tax payers in general. Now the Section 139 is proposed to be amended to provide for the opportunity to file the revised return to even the persons who have filed their returns after the original due date but within the time allowed to file the late return.

Hope this will help you in understanding the proposals which are beneficial for Individual tax payers.

(The Author is CA, CS and CFP and presently working as Company Secretary of Bombay Oxygen Corporation Limited. He can be reached at [email protected],.com)

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September 2021