As against expectations of tax breaks to boost spending and consumption, the Finance Minister made only minor tweaks in the Budget to help tax payers breathe easy. Here are three of the major relief measures:

Advantage seniors?

Nirmala Sitharaman announced that senior citizens aged 75 and above having only pension and interest income will be exempt from filing income-tax returns. The paying bank will deduct the necessary tax on their income.

The banks will take into account the applicable deductions under Chapter VIA — such as relief on investments eligible under Section 80C (PPF, NPS, etc) — while computing the tax liability for such seniors. The bank shall also consider the rebate under Section 87A, where relief is provided to those taxpayers whose total annual income does not exceed ₹ 5 lakh, on their tax liability, up to a maximum of ₹12,500.

However, the break announced for seniors seems to be applicable for a limited audience, thanks to the strings attached.

Firstly, while the FM announced that even those seniors who earn interest income need not file their tax returns, the fine print says that the exemption is only available to those who earn interest income from the same bank in which their pension income is credited.

If senior citizens have their pension funds parked in in any other bank and earn interest on the same, it looks like they will have to continue to file their I-T returns.

Secondly, the Centre will be notifying a few banks for this purpose. So, one is not sure if seniors who have pension and interest income across all banks will be covered. Thirdly, the seniors get this exemption only if they furnish a deceleration to the specified bank.

Pre-filled returns

In the past few years, personal details and other details of salary income, tax payment, TDS (tax deducted at source), etc come pre-filled in the tax return forms.

Taking this further, the FM has now proposed that details on capital gains from listed securities, dividend income and interest from banks, post office, etc, will also be pre-filled.

In the last ITR forms notified by the I-T department, taxpayers were required to enter details of each and every transaction that attract long-term capital gains (LTCG), instead of just entering the total LTCG earned in the year. This detailed information was particularly required for LTCG on listed equity shares (in Schedule 112A in ITR 2, 3 and 4), where the gains earned up to January 31, 2018, were grandfathered.

Besides, the LTCG on such shares is taxable only if it exceeds ₹ 1 lakh. However, the forms required details such as ISIN code, name of the shares sold, sale price, cost of acquisition, fair market value as on January 31, 2018, etc, for every share sold in that year that attracted LTCG. This made the process very time-consuming.

Dividend taxation

The Budget has also proposed that the tax liability on dividend income shall arise only after declaration or payment of dividend. Investors can now heave a sigh on relief for not having to meet advance tax obligations on such unknown incomes.

The Income Tax Act requires taxpayers to estimate their annual income in advance and pay the required tax in a year, in instalments, within the year itself. Failure to estimate the right amount of income and pay tax thereon, within the said deadline, attracts interest on the differential, under Section 234C.

However, since certain incomes cannot be estimated in advance, the I-T Act exempts them for the purposes of calculating interest under Section 234C.

For instance, interest is not applicable if the taxpayer fails or under-estimates the amount of capital gains. As long as dividend income from domestic companies was under the purview of Dividend Distribution Tax (DDT), the same was excluded while calculating interest under Section 234C as well.

However, on abolition of DDT in the last Budget, this aspect was not taken care of, resulting in advance tax obligations for dividend payments receivable.

Hence, any differential in total tax liability, versus the amount paid as advance tax in a year, shall not attract interest (under Section 234C), if it is due to dividend income.

Published on February 1, 2021