The Income Tax Act was changed last year to the benefit of the salariat and other steady earners. The past year was also marked as a period when income tax returns peaked. Though the economic engine has been sputtering, do not overlook the changes to the way you are supposed to pay taxes.
1. No tax up to Rs 5 lakh
Income tax assessees with less than Rs 5 lakh of taxable income have been exempted from tax liabilities. However, this is only applicable to those who file income tax returns. According to the Income Tax Act, those who earn more than the basic exemptions are bound to pay taxes. In case the income exceeds Rs 5 lakh, the assessee has to pay tax.
2. Exemption for two houses
The taxpayer can now claim exemptions on two houses, instead of the previous one, as long-term capital. There are some restrictions though. The capital that can be raised by selling the houses cannot exceed Rs 2 crore if the taxpayer were to avail of this benefit. One taxpayer can only take advantage of this provision once.
3. Standard deduction
The increase of the standard deduction from Rs 10,000 to Rs 50,000 will also benefit salaried employees. The exemption was first introduced in 2018 in place of medical reimbursement and conveyance allowance. This is also applicable to pensioners who file under salaries.
4. Tax-free NPS
The withdrawal of NPS savings at maturity has been exempted from income tax. Earlier, the offer was available only on Rs 40 per cent of the amount.
5. Tax on cash withdrawal
The government has introduced tax on cash withdrawal from banks as part of its design to discourage cash transactions. The new rule is applicable to commercial banks, cooperative banks and post offices. Someone withdrawing Rs 1 crore from an account in a given year will have to pay 2 percent as tax.
6. Push for affordable house
This one is meant to be a boost for the housing sector. The benefit is available in the case of affordable houses that come under the Prime Minister’s Awas Yojna. Of the repayment of loans under the central scheme, Rs 1.5 lakh has been exempted from tax liability. This comes with riders though. The house should be valued below Rs 45 lakh. The loan should have been taken in 2020. You should not possess a house until the day the loan is sanctioned.
7. Aadhaar instead of PAN
The Union finance ministry has given its approval to use Aadhaar instead of PAN in financial transactions. In case you are not carrying PAN or have misplaced the card, you can use Aadhaar instead.
8. Filing returns a must
Filing of income tax returns has been made compulsory as part of the efforts to widen the tax net. Those who spent more than Rs 2 lakh on foreign travel, those who pay more than Rs 1 lakh as electricity bill, those who seek exemption on capital gain tax and those with investment of more than Rs 1 crore have to file income tax returns. Earlier, the requirement was limited to those who earned above basic exemptions.
9. Benefit on second house
This provision has been introduced to give a boost to the realty sector. The Income Tax Act has been amended to exempt a house owner from paying taxes on rent on the second house he owned even if he had not rented it out.
10. Club membership
The money paid to buy membership in a club and the money paid to get parking spaces and other facilities along with house or apartment purchases have also been brought under the ambit of tax.