April marks the beginning of a new financial year. Are you ready to make the new financial year better than the last? Here are three ways to get it done
- Start tax planning now and avoid last-minute hassles.
- Assess your insurance needs and pick the right policies.
- Become aware of the important tax changes that come into effect.
- Avoiding Penalties.
And this is exactly what we’re going to do in this blog!
Tax Planning In 2021
Choosing A Tax Regime – New Regime Vs Old Regime
Every taxpayer must choose a tax regime. The new tax regime was introduced in Budget 2020. The new regime has lower tax rates and slabs but doesn’t allow you to reduce your income through deductions or exemptions. The old regime has higher tax slabs and rates, but you can reduce your taxable income through exemptions and deductions. Download your investment options for the old regime. When the new regime came out, we published a blog addressing the question: Should you opt for the new regime?
Optimize Your Pay Slip
We firmly believe that payslips have the power to help you become a smarter saver, spender, and taxpayer. Here’s a photo from a session we conducted on decoding payslips to save tax at Pick Your Trail! If you are a salaried person and are wondering how to decode your payslip, tune into our podcast here. Contact us to organise a personal finance workshop!
Taxability of contribution to Provident Funds
Many high net worth individuals relied on the EPF/VPF route to make tax-efficient conservative investments. However, there is a proposal to restrict tax exemption for the Interest income earned on the Employee’s share of contribution to provident funds to 2.5 Lakhs per annum. If the employer doesn’t contribute to the provident fund, the deposit threshold limit is Rs. 5 Lakhs per annum. This restriction applies to contributions made on or after 01.04.2021.
Insurance Planning in 2021
Taxability of ULIP Proceeds
Unit linked Insurance Policies, popularly referred to as ULIPs has been a one-stop solution because investors got insurance, investments, and tax benefits in one bundle. Tax exemption of ULIP proceeds was the cherry on top.
S.10 (10 D) of the Income Tax Act exempts proceeds from life insurance policies from taxability if the premium doesn’t exceed 10% of the sum assured. In Budget 2021, the finance minister withdrew this benefit for all ULIPs issued after 1st February 2021 whose premiums exceed 2.5 Lakhs. ULIP proceeds will be taxed in the same way that mutual funds are. However, the amount received on death shall continue to remain exempt without any limit on the annual premium.
We’ve analysed why mixing insurance and investments is a bad idea here. Withdrawing the tax exemption leaves no good reason to purchase ULIPs.
Tax Changes In 2021 For Better Compliance
For ease of compliance, the government has introduced pre-filled Income-Tax Return (ITR) forms for taxpayers. This will contain data on their capital gains from mutual funds, shares, dividend, and interest income.
Higher TDS for non-filers of income tax returns
It’s not a great time to skip tax filing, even if you don’t have to pay tax! Those who don’t file IT returns could pay up to 2x the TDS applicable or 5%, depending on which is higher.
Time limit for filing delayed ITR reduced
Missed the deadline to file returns or want to revise your filing? The last date is advanced from March 31st 2022 to December 31st 2021.
Income tax filing exemption for Sr. citizens
Senior citizens above the age of 75 who receive pension and interest income from the same bank are exempt from filing ITR. This benefit does not apply if there is any other form of income (say, for example, rent).
Avoid Unnecessary Penalties
PAN Aadhar Linking Deadline
Last but not least, don’t forget to link your PAN and Aadhaar. The deadline is June 30th 2021. Failing to link your PAN and Aadhar could leave you with a hefty fine of Rs.1,000 and a deactivated PAN card. By having an inoperative PAN, you will not be able to file your IT Return. You could be charged a penalty of Rs.10,000 if PAN is not furnished/quoted when required by law.
As part of our financial planning service, we help our clients
- Choose the Right Tax Regime.
- Make Wise Tax-saving Decisions.
- Stay Informed of the Latest Changes in the Tax Laws.