Union Budget 2021: Take Away for the Salaried People Beyond Tax Rebate

Salaried people have only two expectations from the budget – employment opportunity and tax rebate. Union Budget 2021 addresses the employment concerns in multiple ways by boosting development across various sectors in the country. The budget, however, leaves the tax slabs largely untouched. Barring making the taxing processes electronic, there is very little that the budget has to offer to the salaried people in terms of income tax in India. Hence, the only take away for the salaried class is more job opportunities across government as well as private sectors.

So, let’s see what exactly Union Budget 2021 has to offer to a salaried person.

Interest on EPF to come under Taxable Income in India

Employees Provident Fund is the most trusted and dependable saving option for the salaried class. But the current Union Budget of the country has put a restriction on that as well. The new taxation rule will substantially affect the retirement corpus of Indian salaried class. As per the new rule, contribution exceeding Rs.2.5 lakhs per annum in the EPF accounts will be taxable. The taxable amount will be deducted at the time of the withdrawal. Prior to this there was no cap on the tax-free EPF amount and hence, salaried people from the middle class always opted for putting their money into EPF.

Newly Launched Wage Code

In compliance to the Code on Wages 2019 that was passed last year, Government has put a cap on  the allowances at 50% of the total compensation which implies a higher cost for the employer and lower in-hand salary for the employees. Employers will now have to increase proportion of the basic pay, which will result in a higher contribution towards the Provident Fund on the part of the employer as well as the employee. Code on Wages 2019 will be implemented from April 2021.

Under the new wage code, gratuity has been made compulsory irrespective of whether the employee has completed five years of service or not. Besides, leave encashment for the employees serving for longer tenure has also been made mandatory.

So how does the new wage code impact people from different income groups?

Higher-income group will the gratuity amount and leave encashment added to the salary. In addition to this, they will also be paying taxes for their contribution to EPF.

For the middle-income group, the impact of the Union Budget 2021 will get reflected in the gratuity, annual bonus and contribution to the retirement fund.

For the lower income group, the company would be liable to fix the base floor wage to include the basis and the dearness allowance. Going forward, the salary breakup will include the basic salary, DA and HRA. The contribution towards ESI, PF, gratuity and bonus be hiked.

Ease of Filing Tax Return

Finance Minister, Nirmala Sitharaman announced that the entire process of filing income tax return will be made faceless. And hence, all details on Capital gains on listed securities, dividend incomes, interest from post office and savings bank accounts, will now be pre-filled. This will make the process easier, less error prone. Government is investing on digital platforms and automated services to make it easy for taxpayers to comply to the tax reforms.

Taxation on ULIPS

Yet another investment scheme – ULIP - that had been a go-to for most Indians across different income groups will now come under taxation. ULIP plans with annual premium amount exceeding 2.5 lakh with have the maturity proceeds taxed as per the new reforms implemented by Union Budget 2021. Plans with holding period of over one year will be taxed at 10%. However, in case of death of the policy holder, tax will not be deducted. ULIPs are market linked schemes with a lock-in period of five years. Currently, under Section 10 (10D), the maturity proceeds of life insurance policy are non-taxable. With the proposed amendment, ULIPs will be at par with equity mutual funds.

Increasing Employment of Women

The Union Budget 2021 makes provision for allowing women to work on all shift. This would increase women’s participation in the work force by 1-2%.  

Increase in Job Opportunities

As mentioned earlier, the real takeaway for the salaried class from the Union Budget 2021 is employment opportunities. The six pillars that the budget is set on, include – healthcare, infrastructure, human capital for research and development, financial capital, inclusive growth and less government and more governance. That indicates towards increase of employment opportunities for the youth.  

The pandemic year has seen unprecedented job losses, pay cuts and financial hardship. The government has taken several initiatives to boost entrepreneurial ventures across the sectors. Special emphasis is being given on making government processes electronic. Upgraded technologies such as Artificial Intelligence are being deployed in business processes in government as well as private sectors. Research and Development, Telecom, Edtech and Fintech are being seen as the sunshine sectors for the next financial year and beyond. This along with the government’s plan for construction of roads and highways, electronic rail and other infrastructural developments, promises to boost employment and job opportunities across the sectors.

Opportunities

1. Healthcare

Healthcare segment has received a raise of 137% in its budget allocation. Rs. 2,83,846 lakh crores for the overall healthcare and wellness sector, Rs. 35000 crores for the indigenous vaccines, Rs. 64,180 crores for preventive, diagnostic and curative centres, 17000 rural and 11000 urban healthcare centres have been proposed.

2. FDI in Insurance

FDI in insurance sector has been raised to 74 percent. This implies foreign investment, new companies and new employment opportunities. India has a young population and offers mammoth opportunities for growth for new companies with more flexible insurance policies with new and innovative features.

3. Rail and Road Constructions

Investment in the country’s infrastructure essentially boosts employment at different income levels. Finance Minister has proposed a budget of 1.10 lakh crore for electrification of the railways by 2023. All poll-bound states such as West Bengal, Tamil Nadi, Kerala and Assam have budget for construction of roads and railways.

4. Fintech

First, demonetisation in 2016 and then the 2020 pandemic – both the factors boosted the usage of electronic transfer of money. Digital payments have experienced 80 percent rise in the past one year. Realising the high potential in this segment, the government has planned to incentivise growth for the Fintech segment. New Fintech park has been proposed to be set up in the GIFT city of Gujrat.

Agriculture, fisheries, hospitality, real-estate – Union Budget 2021 aims to boost growth across the sectors to provide enough impetus for the economy to be back on its feet.

Are you ready to experience the V-shaped recovery?

Industry experts say that the current approach of the Indian government aims for a V-shaped recovery. It happens when the economy undergoes a drastic downfall followed by a steep recovery. The outbreak of Covid-19 pandemic has had a devastating impact on Indian economy. The budget 2021 promises to get back the country’s GDP to 11 percent by the year 2022.

The current financial budget does not give money directly in the hands of the people through tax rebate or other allowances because this is not the time for free meals. Rather, this is the time to roll up the sleeves and get down to work. Hence, the Union Budget 2021 creates opportunity to work and contribute towards the country’s economy and grow along with it.

Also Read:

1) All About Union Budget 2021
2) Tax system: India vs. Other Countries
3) What is Digital Tax in India?
4) How To Reduce Your Taxable Income?
5) OkCredit: Simple, Paperless & Secure solution for businesses

FAQs

Q. How should the senior citizens avail tax relaxation?

Ans. Tax relaxation is provided to senior citizens who are above 75 years of age. This facility is available to the account holders of few specific banks. The names of these banks are yet to be disclosed. The account holder should not have any other source of income apart from the pension and the interest earned from the same. The income proof has to be furnished to the bank in order to avail the tax relaxation. Further to this, the senior citizens do not have to claim the refund of the TDS on the pension or the interest earned from the bank. From now on, banks will credit the amount after making necessary tax deductions.

Q. When was Code on Wages 2019 launched?

Ans. Code on Wages 2019 was launched on July 23, 2019.

Q. What is the cap for an employer’s contribution to EPF? When was this implemented?

Ans. In the Union Budget 2020, a cap of 7.5 lakh was declared on employer’s provident fund.

Q. What budget allocation has been proposed to boost digital payments in India?

Ans. An amount of Rs.1,500 crores have been proposed by the Finance Minister to promote digital payments in India.