Budget2021: What’s in it for your personal finances?

The much-awaited Budget2021 has gone big on spending in a bid to boost economic revival and growth. But what does it mean for one’s personal finances?

Any talk of personal finances needs to focus on three broad areas: investments, taxation and consumption (buying/spending).

Investments

Bank deposits:

If you are worried that your bank deposits may get stuck in case the bank hits roadblocks and turns bankrupt, there’s good news. Thus far, the claim on deposit insurance, which was raised to Rs 5 lakh per individual from the earlier Rs 1 lakh last year, could be made only once the cancellation of a bank’s licence was done. Now, customers of banks whose accounts have been frozen can also expect to make such claims, ie, even before banks have declared bankruptcy.

ULIPs:

There will be no tax exemption on maturity of fresh unit-linked insurance plans (ULIPs) if the annual premium crosses Rs 2.5 lakh This is applicable to ULIPs bought on after February 1, 2021. This means that if you plan to invest in ULIPs only for tax-free maturity proceeds, you may no longer do that. With the roll-back of the tax-free maturity, the ULIPs achieve tax parity with mutual funds.

Provident funds:

The returns on investment of over Rs 2.5 lakh in provident funds will henceforth be taxed, according to the Budgetary announcement. Till now, returns on investment of any size in voluntary PF or EPF were tax-free upon maturity.

Investment charter:

The Finance Minister’s proposal to set up an investment charter to curb misselling of financial products will be a move to watch out for, as it can help protect your investments and address grievances effectively.

Gold and silver:

Planning to invest in gold or silver? They have become cheaper as custom duties have been reduced from 12.5 per cent to 7.5 per cent. However the Government will impose an Agriculture Infrastructure and Development Cess (AIDC) of 2.5% on Gold, Silver and dore bars. On a net basis total duties on Gold and silver imports will come down by 2.5%.

Zero coupon bonds:

Retail investors may have one more investment instrument in the form of zero coupon bonds that are also tax-efficient. The details of the tax efficiency of these bonds is yet to be made clear but this is one option investors may have in the future. Zero coupon bonds are those that don’t pay interest to bondholders; instead the bond holder gets a discount on the face value of the bond.

Taxation

This Budget has not made any changes to your income tax slabs or rates. So, you can go ahead with either the old tax regime or the new and optional one announced last year. Senior citizens who are over 75 no longer have to file their IT returns if their income comes from pension or interest.

Also, you would have to stick to the deadlines while filing your IT returns for assessment year 2021-22 (FY 2020-21). The revised or delayed returns can now be filed only until December 31, 2021 and cannot complete this process by March 31, 2022. Currently, belated or revised returns for FY 2019-2020 can be filed on or before March 31, 2021 or completion of assessment, depending on which is earlier.

Any dividends you may receive from real estate investment trusts and infrastructure investment trusts are exempt from tax deduction at source (TDS). Also, advance tax payments for dividend income can be payable only when dividend is paid or declared by the company. This will help you save interest payments.

If you were one of the tax-payers who lost their job because of the Covid-19 related distress and had to take up gigs or freelancing, there is good news in the form of social security benefits. These benefits will now be extended to platform or gig workers, who will now be covered under ESI and EPF schemes and minimum wages rules.

More time to avail extra tax benefits on affordable home loans

If you plan to buy an affordable home, you will be able to avail an additional tax benefit of up to Rs 1.5 lakh on interest paid under Section 80EEA of the IT Act, apart from the tax benefit you can seek of Rs 2 lakh on interest on housing loans. The timeframe for availing deduction on such loans has been extended to March 31, 2022. An affordable home is defined as a residential property whose carpet area does not exceed 645 sq. ft in metro cities of Bangalore, Chennai, Delhi NCR, Hyderabad, Kolkata and Mumbai (MMR). For other towns or cities, the carpet area should not exceed 968 sq.ft.

What’s costlier; what’s cheaper

Apart from investments and taxation, making allocations for certain purchases forms a key aspect of your personal finance and budget. This year’s Budget has meant that mobile phones, consumer durables such as refrigerators, ACs and imported toys get expensive while metals and stainless steel products may get cheaper.

In conclusion

The Budget has ensured a balancing act of protecting average investor and taxpayer needs while ensuring that high premium ULIP investors and high PF contributors are taxed.