Union Budget 2021: A guide to saving your taxes

Interest on an employee’s contribution to his/her EPF account April 1, 2021 onwards will be taxable upon withdrawal if it exceeds Rs 2.5 lakh in a given year. This will up the tax liability especially for HNIs and high-income earners, many of whom make higher PF contributions. The proposal will also discourage voluntary EPF contributions or voluntary provident fund (VPF) contributions.

Budget 2021 has brought the gains made from ULIPs with premium over Rs 2.5 lakh on par with equity mutual funds. This means that gains from such ULIPs will be treated as capital gains just like in equity MFs and will be taxed accordingly. This applies to proceeds from ULIPs issued on or after February 1, 2021. The only exception is when the sum is received on death of the policyholder, in which case the tax exemption will still apply.

Besides salary income, bank accounts, tax payments and TDS details, pre-filled income-tax returns will now also include details of capital gains from listed securities, dividend income, interest from banks, post office etc., as announced in Union Budget 2021.

The time limit for filing delayed i.e. belated and revised income tax returns has been lowered by 3 months. The last date to file these tax returns now stands at December 31 after the close of tax year, as opposed to the earlier date of March 31 of the next calendar year. Similarly, timeline for completion of assessment has been reduced by 3 months too.

A Dispute Resolution Committee (DRC) is to be set up to provide assistance to taxpayers with taxable income of up to Rs 50 lakh and disputed income of up to Rs 10 lakh. All proceedings before the DRC will not only be faceless but also jurisdiction-less. This will reduce litigation for small taxpayers who wish to settle their tax matters at initial stages, without going through the appellate process.

One need not pay any tax on incomes enjoying 'exempt' status. Interest income on PPF and REC tax-free bonds is fully exempt from tax.

Those with taxable income at 30% can save Rs 45,000 by claiming Rs 1.5 lakh as deduction under Section 80C and not opting for the new ‘simplified’ personal income tax regime. Investments under 80C up to Rs 1.5 lakh, mediclaim for self/parents under 80D, interest on loan for higher education of self/relative under 80E, donations made under 80G are deductible from the taxable income.

After total income tax is computed, the actual tax payable can be reduced if a rebate is allowed on account of a specific investment that was made by you.

Paid in addition to salary, to meet specific expenses. Common allowances include dearness allowance (DA), house rent allowance (HRA), leave travel allowance (LTA), education, medical, transport etc. The most common one is HRA. If your CTC doesn’t contain HRA, deduction for rent paid is available from gross taxable income, subject to various limits (maximum deduction Rs 5,000 per month). If you live in a house you own, the HRA component is fully taxable.

If you are working from home fulltime and your employer is reimbursing certain expenses such as telephone, internet, printing and stationery expenses you need not pay tax on these reimbursements.

Used as a measure to adjust the purchase price of an investment in order to reflect the impact of inflation on it, indexation helps to lower long-term capital gains, which in turn brings down the taxable income.