By Satish Singh
The new fiscal year has started from April 1, 2021. In this new financial year, many such changes have been made or are going to be made, which will affect the financial life of the common man. The salaries and allowances of employed people will be changed after implementation of new wage code shortly. An interest received on a fixed deposit of certain amount in a financial year in provident fund will be taxed from April 1. Many important changes in the income tax rules have been made from 1 April 2021. In the case, changes have also been made in the filing of Income Tax Returns. According to the provisions made in the budget, the elderly aged 75 years or more have been given relief in filing income tax returns from April 1, while those who do not deliberately file income tax returns, action has been proposed to be taken against them.
Investments up to Rs.2.5 lakh in a provident fund account have been exempted from April 1, 2021 from income tax, but interest on Rs.2.5 lakh or more will be taxed. The investor will have to pay tax on the amount of interest. This provision has been made by the government, so that as per Income Tax Act, investors cannot take advantage of excess amount as income tax exemption by investing more in the provident fund. However, there will be no loss to the those employed people who are earning salary up to Rs.2 lakh every month. To reduce the compliance burden on senior citizens, the finance minister has exempted the elderly aged 75 years or above from filing income tax returns in the budget presented for the financial year 2021-22. This exemption has been given to those elderly citizens, who are fully dependent on the income from pension or fixed deposits to earn their livelihood.
The central government has tightened TDS rules to promote the trend of filing ITR from 1 April. For this, the government has added section 206AB to the Income Tax Act. According to the new rule, double tax deducted at source (TDS) will have to be paid from April 1, 2021 for not filing ITR. TDS means deduction at source. It is a part of income tax and a way to measure income tax. For those who have not filed income tax returns, tax collection at source (TCS) will be higher. TCS means tax collection at source. TDS and TCS are two methods of tax collection. Under the new rules, with effect from July 1, 2021, the rates of TDS and TCL with penal charges will be 10 to 20 percent, which is usually 5 to 10 percent in normal circumstances.
For those not filing ITR, the rate of TDS and TCS will be 5 percent or double the fixed rate whichever is higher. The Finance Minister has added 206 AB and 206 CCA sections in the Income Tax Act to increase the scope of TDS and TCS. Till now, the higher TDS rate was applicable only when the income taxpayers had not registered their PAN number with the Income Tax Department. The government has come to understand that there has been an increase in cases of taking PAN cards due to the increased TDS rates on non-PAN card holders. For the convenience of employees and to make the process of filing income tax returns easy, the individual income taxpayer will now be provided with a pre-field ITR form from April 1, 2021, which will make it easier for them to file income tax returns.
Finance Bill 2021-22 states that premature withdrawal of provident funds, winnings in lotteries and horse racing, cash withdrawals of more than Rs 1 crore and securitization trusts will be exempted from higher rates of tax collection. The reason for this is that they already have very high tax rates. A fee will now be paid for withdrawing and depositing money from the post office. If you have an account with India Post Payment Bank (IPPB), you will have to pay a fee on Aadhaar-based Paymate System (AEPS) from April 1, in addition to depositing or withdrawing money. This fee will be charged after the free transaction limit is over.
The government may implement the New Wage Code bill in FY 2021-22, which will have a major impact on the financial lives of workers. Earlier this change was going to come into effect from April 1, 2021, but there may be some delay in implementing it. Under this, the government has created 4 new codes, combining 29 central labour laws, namely, Industrial Relations Code, Code on Occupational Safety, Health and Working Conditions Code, Social Security Code and Code on Wages.
After passing this bill, the basic salary of private employees will be at least 50 percent of the total salary and accordingly their salary will be deducted from their salary for provident fund. Currently, private companies pay a very small percentage of CTC as basic pay to their employees. A large part of the salary is given to them as allowances. Increase in basic salary will increase the contribution of private employees to provident fund and gratuity, which will benefit the employees on retirement. However, immediately their salaries will be reduced slightly, due to which they will have to cut their household budget.
For companies in which the basic salary is 40 percent of the overall salary, the expenditure on the salary of the employees is expected to increase by 3 to 4 percent. If the expenditure on the basic salary of a company is 20 to 30 percent, then the expenditure on the salary of its employees will increase by 6 to 10 percent. In addition, companies will have to pay gratuity to contractual or permanent employees, whether they have completed a 5-years job or not. After implementation of the new wage code bill, employees can also take advantage of leave encashment at the end of every year. According to the new labour law, if an employee works even more than 15 minutes, he or she will have to pay overtime.
The Pension Fund Regulatory and Development Authority (PFRDA) has allowed the Pension Fund Manager (PFM) to charge higher fees from its customers from 1 April, which will put a higher financial burden on the common people. However, this step taken by the government will attract more foreign investment in this area. Significantly, the pension regulator had proposed a higher fee structure for the proposals released in 2020, which the government has implemented.
At present, the passbook and cheque book for those whose accounts are in Dena Bank, Vijaya Bank, Corporation Bank, Andhra Bank, Oriental Bank of Commerce, United Bank of India, and Allahabad Bank have been changed from 1 April 2021. Their IFSC and branch codes have also been changed. This has happened due to the merger of the banks. For example, Dena Bank has been merged with Vijaya Bank and Bank of Baroda. Oriental Bank of Commerce and United Bank of India have been merged with Punjab National Bank, while Corporation Bank and Andhra Bank have been merged with Union Bank of India.
In the new financial year, the government has made several changes in the economic sector, which have a direct impact on the employed people, public and the elderly.
However, these changes have been made to improve the financial life of the people. The changes under the provident fund and income tax will increase the income of the government, which will enable the government to implement development-focused work. The new wage code has not been implemented since 1 April 2021, but it is expected to be implemented as soon as possible. After the implementation of this code, the employees of the private sector will benefit at the time of retirement as well as some other benefits they will also get. Not only this, from April 1, the elderly income taxpayers will also get relief from filing income tax returns. Even though the merger of public sector banks will pose some difficulty for the public, but it is expected that they will be benefited in the long term.
(Author is Chief Manager at State Bank of India, Mumbai and editor of “Aarthik Darpan” an in-house journal of SBI. Singh is also a freelance writer. The views expressed are personal opinion of the author. He can be reached at [email protected] and [email protected].)