The Indian Government presented the first-ever digital Union Budget in the Parliament via the Finance Bill 2021 on 1 February 2021. The Budget was designed to give an impetus to the COVID-hit economy by focusing on fostering resilience and aiming at recovery from the impact of the pandemic. It carved out a clear path by pursuing comprehensive reform measures, aiming for social inclusion and paving the way for a speedy economic recovery without imposing additional burdens on honest taxpayers and consumers at large.
Some of the key amendments are encapsulated below that could be relevant for globally mobile employees:
Tax return deadlines preponed
Deadlines for filing belated as well as revised/amended India income-tax return is to be preponed by 3 months to 31 December from tax year 2020-21 onwards.
Leave Travel Concession (LTC) Scheme introduced
Indian tax laws provide for exemption in respect of any value for leave travel to any place in India received/due to an employee/family from the employer/former employer. Owing to COVID, employees could not avail this benefit due to travel restrictions.
The Finance Bill proposes to include tax-free cash allowance in lieu of LTC subject to prescribed limits and fulfilment of conditions. However, the amendment shall be applicable to tax year 2020-21 only.
Taxation of income from notified overseas retirement fund
Returning Indians qualifying as residents in India may have to face double taxation on withdrawal from overseas retirement funds. Such double taxation may be due to a mismatch in the residential status as well as taxability of income in the year of opening the retirement account and the year of withdrawal. Therefore, such withdrawal may be taxed on ‘receipt’ basis in the foreign country and on ‘accrual’ basis in India.
Based on representations to address this mismatch and remove the genuine hardship, the Finance Bill proposes to provide for income of a specified person from a specified account in a notified country. From 1 April 2021, such income shall be taxed in the manner and in the year as prescribed by the Central Government.
Taxability of interest on Indian Provident Fund (PF) account
Instances have come to the attention of Government where some employees are contributing huge amounts to PF account and the entire interest accrued/received on such contributions is exempt from tax. Hence to tackle this issue, the Finance Bill proposes to tax the interest accrued on the PF balance if the employee’s PF contribution exceeds INR 250,000 in a tax year. This amendment shall be effective from 1st April 2021.
Once the Budget receives Hon’ble President of India’s assent, the above amendments would be part of the tax law. Individuals should take these into consideration to understand the tax implications and plan their compliance timeliness accordingly.