Budget FY21-22 & Your Personal Finances

The Union Budget presented on the 1st of February 2021 was one cheered by analysts, economists and capital markets alike. While there is a lot to talk about, in this piece we will focus on the top five announcements that matter to the common investor.

1. Tax filing exemption to 75 years+ age investor
For senior citizens who only have pension and interest income, government proposed an exemption from filing their income tax returns. The paying bank will deduct the necessary tax on their income.
No other change in the income tax slab and income tax exemptions applicable for senior citizens.

Key clause:
If an investor earns any revenue other than the pension and interest income i.e. dividend income or any other, then they have to file income tax returns

Impact:
This will reduce the compliance burden on senior citizens and make their life easy.

2. Positive restructuring in deposit insurance cover for bank investors
Government has made amendments to the DIGC act,1961. As per the revised amendments, depositors of the stressed banks that are temporarily unable to fulfill their obligations can get easy and time-bound access to their deposits up to INR.5 lakhs.
Earlier, the deposit insurance cover limit of INR.5 lakh was not applicable to stressed banks. It was only applicable if the bank’s license got canceled and liquidation proceedings were started.

Impact:
The move is expected to reinstate depositor confidence in banks.

3. Taxation changes for Unit Linked Insurance Policies (ULIPs)
The government had made changes to taxation for ULIPs in the latest budget. As per the finance bill, for ULIPs taken on or after February 1, 2021, the maturity proceeds with an annual premium of more than INR.2.5 lakh will be taxable. Even individuals holding multiple ULIPs with an aggregate premium in excess of INR.2.5 lakh will have to pay tax on maturity proceeds.

Key clause:
The amounts received under such ULIP policies on the death of the policyholder will be exempt from tax.

Impact:
This move will impact investors investing in ULIPs to avail tax-free returns. This will not affect investors holding policies other than ULIPs or ULIPs with annual premia not exceeding INR 2.5L.

4. No changes in tax slabs
No changes have been proposed to existing personal income tax rates.

5. Changes in provident fund contribution above INR.2.5 lakh
In order to rationalize tax exemption for the income earned by high-income employees, it is proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of INR 2.5 lakh.

Key clause:
It will be only applicable to the employee’s share of the provident fund and not the employer’s.

Impact:
This move is expected to impact a small category of high-net-worth individuals.

While there is a lot more to explore in the budget, these were the most important from a personal finance standpoint.

restructuring construct or form anew or provide with a new structure More (Definitions, Synonyms, Translation)