15 Major changes in Income Tax Act from 1st April 2021

Finance Minister while presenting Budget 2021 has announced some key changes in Income Tax which will come into Effect From 1st April 2021. The major changes include Pre-filled ITR Forms, Tax on Interest on PF, Penalty for Non-Linking of Aadhaar & PAN, High TDS/TCS Rate for Income Tax Return (ITR) Non-Filers, Submission of bills under LTC Cash Voucher Scheme, No Tax Filing for Senior Citizens Above 75.

In this article we will have a look on the significant changes which are going to come into effect in Income Tax from 1st April 2021.

Major Changes in Income Tax are as below:

1. Introduction of Prefilled XML

A major change in ITR Form is expected as per Finance act 2021 i.e. Pre-Filed ITR xml will be introduced. Earlier Pre-filed   ITR form was available for salaried employees where Income was reflected on basis of Form 16, but from the coming assessment year the scope has been widened. To further ease filing of returns, details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. will also be pre-filled. The move is aimed at easing the filing of returns.

2. Employee Provident fund taxation rules

Under Finance act for 2021-22, Finance Minister has capped the tax-free interest earned on provident fund contribution by employees and employers together to a maximum of Rs. 2,50,000 in a year. Finance Minister also raised the limit for tax exemption on interest earned on provident fund contribution by employees to ₹5 lakh per annum in specified cases as against the proposed ₹2.5 lakh. The up to ₹5 lakh contribution does not include the employer’s contribution.

3. Penalty to be imposed for Non-Linking of Aadhaar & PAN

The last date for linking Aadhaar and Income Tax PAN was 31st March 2021 which was further increased to 30th June 2021. In case the assessee or PAN holder fails to Link his PAN to Aadhaar no than such PAN Card would become in-operative.

In case of Non-Linking then the Income tax department may impose a penalty of Rs. 1,000 as per Section 272B of the Income Tax Act

4. Option to choose ‘New tax regime’ instead of Old tax regime

The government had introduced the new tax regime last year in Finance act 2020. However, the assessee can choose one of the tax regimes for FY 2020-21 from 1st of April 2021. Taxpayers had time until 31st March 2021 to plan for tax-saving, however, they will be able to opt for a beneficial regime at the time of filing their tax returns for FY 2020-21.

5. Senior citizens above 75 years exempted from filing ITR: 

In order to ease the compliance burden on senior citizens, Finance Minister under the Finance act 2021, had exempted individuals above 75 years from filing income tax returns (ITR). The exemption will be available to senior citizens who have no other income other than pension and interest from fixed deposit should accrue in the same bank.

6. High TDS/TCS Rate for Income Tax Return (ITR) Non-Filers

Budget 2021 has introduced a new sec 206AB under the Income Tax Act as a special provision providing for higher rate for TDS for the non-filers of income tax return.

The Proposed flat on Non-Filer is higher of the following:

• 5%
• twice the rate specified in the relevant provision of the Act
• twice the rate or rates in force

Similarly, a new sec 206CCA has been inserted in Income Tax Act as a special provision providing for higher rate for TDS for the non-filers of income tax return.

The Proposed flat on Non-Filer is higher of the following:

• 5%
• twice the rate specified in the relevant provision of the Act

Download TDS Rate chart for Financial Year 2021-22 Assessment Year 2022-23

7. Submission of bills under LTC Cash Voucher Scheme

In order to avail the tax benefit under the LTC Cash Voucher Scheme, the assessee must ensure that required bills must be in correct format and must contain GST amount and GST number of the vendor have been submitted  to  your   employer  (provided the employer is offering the scheme) on or before March 31, 2021. As per the Leave Travel Cash Voucher scheme, an employee is required to spend three times the amount deemed as LTA fare on goods and services attracting GST of 12% or more.

8. Advance Tax on Dividend Income 

As per Finance Act 2021, for providing relief to small taxpayers from 1 April 2021, assessee is required to pay advance tax on dividend only after the payment or declaration of the dividend. The relevant amendment have been made with regards this under section 234C i.e. to make advance tax payment on dividend only when it is actually received i.e. on receipt basis.

9. Changes in Taxation of Unit Linked Insurance Product (ULIP):

Under the Finance Act 2021, the finance ministry announced that the maturity gains in Unit Linked Investment Plan (ULIPs) would be taxed where the annual premiums are Rs. 2,50,0000 or more. The maturity amount would be taxed accordingly i.e. at a rate of 10% in case of long-term Capital gain and at the rate of 15% in case of short-term capital gain. Earlier, the maturity proceeds of ULIP schemes were exempt under the Income tax act. This move will impact only for those ULIP policies which are bought after 1 February, 2021 and assessee who are paying annual premiums below Rs. 2,50,000 will still get the tax-exemption benefits.

10. Reduction in period for filing the belated ITR or Revised Income tax return

Earlier if assessee fails to file the ITR by due date i.e. 31^st July or any other due date than the assessee could still file belated return on or before 31^st March of the Financial year along with late fee, also where the assessee notices a omission or mistake in the return the same can be revised through filing a revised return on or before 31^st March of the Financial year. But the Finance Act, 2021 has to reduce this time limit by three months and therefore the assessee will have to file belated ITR or revise your ITR till 31 December of the same financial year.

11. Increase in Tax Audit Limit

Currently, under section 44AB of the Income Tax Act, every person carrying on business is required to get his accounts audited, if his total sales, turnover or gross receipts, in business exceed or exceeds one crore rupees in any previous year. In case of a person carrying on profession he is required to get his accounts audited, if his gross receipt in profession exceeds, 50 lakh rupees in any previous year.

In order to reduce compliance burden on small and medium enterprises, through Finance Act 2020, the threshold limit for a person carrying on business was increased from one crore rupees to five crore rupees in cases where,-

(i) aggregate of all receipts in cash during the previous year does not exceed five per cent of such receipt; and

(ii) aggregate of all payments in cash during the previous year does not exceed five per cent of such payment.

In order to incentivise non-cash transactions to promote digital economy and to further reduce compliance burden of small and medium enterprises, it has been proposed to increase the threshold from five crore rupees to ten crore rupees in cases as above the same shall be applicable from 1^st April 2021.

12. Re-registration of Trust under Section 12AB

The deadline for this re-registration has was extended to April 1, 2021. Previously, it was June 1, 2020 but was then extended to October 10, 2020. Under the Finance Act 2020, charitable trusts and tax-exempt institutions have been mandated to reapply for income tax registration.

The affected institutions, including NGOs, are those who are either registered or approved under Section 12, Section 12AA, Section 10 (23C), and Section 80G of the I-T Act. These institutions will have to re-register under Section 12AB. Section 12AA that established the procedure for registration of a charitable trust will cease to be applicable; instead, a new section 12AB has been inserted describing the procedure for new registration.

13. TDS/ TCS rates will be applicable at 100% of original rates

In May 2020, the government reduced TDS and TCS rates for interest income, dividend income, rent payments and other non-salary payments by 25%. The reduction in TDS and TCS rates on non-salary payments came into effect on May 14, 2021, and will be applicable till March 31, 2021. Thus, effective from April 1, 2021, the TDS and TCS rates on these non-salary payments will be back to their original (higher) levels.

This would mean that, for instance, if the interest paid on a bank fixed deposit exceeds Rs 40,000 between April 1, 2021, and March 31, 2022, then the bank would deduct tax on the interest paid at the rate of 10% instead of 7.5% in the previous financial year 2020-21.

14. Time limit for completion of assessment, reassessment and recomputation

In respect of an order of assessment relating to the assessment year commencing on or after the 1st April, 2021, the Time limit for completion of assessment, reassessment and recomputation shall change from “twenty-one months”, to “nine months”.

15. REIT and INVIT exempt from TDS deduction

For ease of compliance, the government proposed to make dividend payment to REIT/ InvIT exempt from TDS from 1^st April 2021. Further, as the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax, the government proposed that advance tax liability on dividend income shall arise only after the declaration/payment of dividend. In the previous budget, the government had abolished dividend distribution tax to incentivise investment and dividend was made taxable in the hands of shareholders.

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