What Changes For Your Personal Finances? – Forbes Advisor INDIA

India’s Finance Minister Nirmala Sitharaman announced the Union Budget 2021-22, which she said was prepared in “circumstances like never before,” as the world is facing a serious challenge of the pandemic and its aftershocks.

The Budget proposed changes that would make your personal finance checklist look different. For instance, an investor charter will now protect your rights as a consumer when choosing a financial product. This is interesting at a time when Indians are increasingly concerned about their financial health amid a raging global pandemic.

Here’s all you should know. 


The government has allocated INR 1500 cr for a proposed scheme that will provide financial incentive for digital modes of payment. 

How It Affects You

This move is expected to enable digitization in banking and promote digital payments, two areas of the government’s Digital India programme that is aimed at developing digital infrastructure and enabling cashless financial transactions. 


The government has proposed to amend the Insurance Act, 1938 to increase the permissible foreign direct investment (FDI) limit to 74% from 49% in insurance companies.

How It Affects You

This move will help expand insurance penetration in the country at a time when Indian citizens are realizing the need for insurance more than before. 

  • Penetration of insurance, both life and non-life, in India is as low as 2.74% and 0.97% respectively. 
  • Increasing the FDI limit for insurance companies will help in bringing innovation, better products, and help citizens access to wider choices. 


The government has introduced an investor charter as a right of all financial investors across all financial products. 

How It Affects You

The charter will outline the rights of financial investors and will help cut down mis-selling of financial products.

  • The Jan Dhan, Aadhaar and Mobile (JAM) ecosystem has helped to expedite the national mission of financial inclusion in India. 
  • With greater financial inclusion, there is a need to enhance customer protection and financial education so that people continue to access the formal financial services without hesitation, the Reserve Bank of India (RBI) believes
  • As more Indians consume financial products and services, investor charter will enable wider education and provide a safety net. 

Bond Market

The government has proposed to create a permanent institutional framework. The proposed body would purchase investment grade debt securities both in stressed and normal times and help in the development of the bond market. 

How It Affects You

The problem of liquidity faced by debt funds will reduce bringing down issues such as cash crunch and credit premiums and consequently, the cost of capital for borrowers. It will instill confidence among participants in the corporate bond market during times of stress. 

  • A report on “liquidity management in the time of Covid-19” by the RBI details how risk aversion impeded participation in secondary markets, which refers to the market in which previously issued financial instruments such as securities, bonds among others are purchased and sold. 
  • It said yields on better-rated corporate bonds, which were on a downtrend after the taper tantrum of 2013 till the end of 2017, started to inch up from the beginning of 2018 as financial conditions tightened. 
  • The corporate bond market suffered a major setback after the IL&FS event of 2018, in which one of the subsidiaries of the IL&FS Group was unable to repay a short-term loan of INR 1,000 crore to Small Industries Development Bank of India (SIDBI).
  • An increase in yield not only impedes the ability of issuers to access the market; it also affects existing investors as the prices of bonds fall, says the RBI. Therefore, a pervasive risk aversion prevailed among investors, even though corporate bond yields were on a downward trajectory during 2019.
  • With the spread of COVID-19 and the consequent nation-wide lockdown, liquidity and credit risk premiums in the corporate bond market surged as investors feared defaults due to loss of revenue streams. 


The government had announced its intent to establish a system of regulated gold exchanges in the country. For this purpose, the Securities and Exchange Board of India (SEBI) will be notified as the regulator, Sitharaman said. 

How It Affects You

Consumers will be able to purchase and sell gold more freely and will enjoy the safety net of a regulator.

  • The Covid-19 crisis prompted a record-breaking year for gold investing. 
  • Inflows into Indian gold exchange traded funds (ETFs) almost doubled, from 14.8 tonne at the end of 2019 to 28.3 tonne at the end of 2020 according to the World Gold Council
  • The rising gold prices, increased stock market volatility and the challenging economic environment created by COVID-19 fuelled the growth. 
  • With increased interest in gold, a regulated gold exchange will protect investors. 


The government extended the eligibility of additional deduction of interest, amounting to INR 1.5 lakh for loan taken to purchase an affordable house by one more year to March 31, 2022. 

To keep up the supply of affordable houses, the government said affordable housing projects can avail a tax holiday for one more year till March 31, 2022. 

Affordable rental housing projects would be exempt from tax. 

How It Affects You

The tax exemption would enable individuals an additional deduction of INR 1.5 lakh on loans taken up till March 31, 2022, for the purchase of an affordable house. 

The affordable rental housing tax exemption would promote supply for migrant workers. 


Rationalisation of Tax-free Income on Provident Funds

The Budget proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of INR 2.5 lakh. This restriction shall be applicable only for the contribution made on or after April 1, 2021. 

How It Affects You

  • Those salaried employees who contribute more than INR 2.5 lakh per year to their employee provident fund (EPF), both mandatory and voluntary, will now be eligible to pay tax on excess contribution. 
  • This will impact high income employees who park funds in their EPF to earn tax-free interest, which has been higher compared to other government saving schemes such as the Public Provident Fund (PPF), National Saving Certificate (NSC), Senior Citizens Saving Scheme (SCSS) and Kisan Vikas Patra (KVP) to name a few. 
  • For the year 2020-21, the interest rate payout for EPF was 8.50%, higher in comparison to interest rate payout of 7.1% for PPF, 6.8% for NSC, 7.4% for SCSS and 6.9% for KVP. 

Relief to Senior Citizens

The senior citizens who are 75 years of age and above and who only have pension and interest income, the Budget proposed exemption from filing their income tax returns. The paying bank will deduct the necessary tax on their income. 

How It Affects You

This move will reduce the compliance burden on senior citizens. 

Pre-filing of Income Tax Returns

The Budget proposed to introduce certain financial taxes and interest payouts to be pre-filled in income tax returns forms. These include: 

  • Details of salary income
  • Tax payments 
  • Tax deducted at source
  • Details of capital gains from listed securities
  • Dividend income
  • Interest from banks and the post office

How It Affects You

Till now, the taxpayer had to manually fill in all details of their interest income and income from investments. While the pre-filled IT returns form is a complicated process for the tax department, it is expected to ease compliance on the taxpayer. 

Rationalisation of Taxation of Unit Linked Insurance Plan (ULIP)

The Budget capped tax exemption for maturity proceeds of a ULIP that has an annual premium of up to INR 2.5 lakh. This cap is applicable only for the policies taken on or after February 1, 2021. 

However, the amount received on death shall continue to remain exempt without any limit on the annual premium. 

To provide parity, the Budget proposes the non-exempt ULIP to be given the same concessional capital gains taxation regime as available to the mutual fund.

How It Affects You

  • Policyholders who already have an ongoing ULIP plan will not be impacted by the rationalisation. 
  • For new ULIP policyholders who purchase the policy on or after February 1, 2021, if their policy’s premium is above INR 2.5 lakh, their maturity proceeds will be taxable. 
  • If an individual has multiple ULIPs and their cumulative premium exceeds INR 2.5 lakh, the maturity proceeds would be eligible for tax. 
  • Till date, a ULIP’s premium was eligible for a tax deduction of up to INR 1.5 lakh held for a year under Section 80C of the Income-Tax Act and the proceeds from a ULIP were exempt from taxation under Section 10 (10 D) of the Income-Tax Act. 
  • Each ULIP provides a maturity benefit and a death benefit. Irrespective of what your ULIP annual premium is, your death benefit or proceeds determined by the insurance company will continue to be exempt from tax. 
  • For ULIP holders with the annual premium above INR 2.5 lakh, your ULIP proceeds will be taxed similarly to the taxation rules for equity-oriented mutual funds. 
  • For equity-oriented mutual funds, short-term capital gains (which are gains made from the sale of MFs within a period of a year) are taxed at 15% irrespective of your income slab. If you hold your ULIP for a year, your ULIPs maturity proceeds would be taxable at 15%.
  • Whereas, in cases where ULIPs are held beyond a year, they will fall under the bracket of long-term capital assets, which are currently taxed at 10% for equity-oriented mutual funds and hence, the same rate will apply to your ULIP. 
  • Further clarity is awaited on what happens when a policyholder switches from an equity fund to a debt fund. ULIPs provide policyholders the option of switching their portfolios from equity to debt and vice versa during the tenure of the policy.

Timely Deposit of Employees’ Contribution to Labour Welfare Funds by Due Date

If your employer delays depositing deductions made on account of your contribution towards provident funds, superannuation funds, and other social security funds, late deposit of employee’s contribution by the employer will not be allowed as deduction to the employer. 

How It Affects You

It will discourage your employer from delays in depositing deductions. Consequently, helping you accrue higher interest on your deposits. 

Non-filing of Return by Deductee/Collectee

A person in whose case tax deducted at source (deduction from a company’s payout to an employee) called TDS or the tax collected at source (deduction from a seller’s payout to the buyer of certain goods) called TCS of INR 50,000 or more has been made for the past two years but return of income has not been filed, the rate of TDS/TCS shall be at the double of the specified rate or 5%, whichever is higher. 

This provision shall not be applicable for the transactions where the full amount of tax is required to be deducted. Example for salary income, payment to non-resident, lottery among others. 

How It Affects You

If you fall in the category of people who have paid tax and not filed its return, a mandatory requirement for taxation, you will end up paying more.

This proposal by the government will encourage you to ensure you file returns for the tax already paid. 

Exemption for Leave Travel Concession (LTC) cash scheme 

The Budget proposed to provide tax exemption to the amount given to an employee in lieu of LTC subject to incurring of specified expenditure.

How It Affects You

It will help employees plan their taxes better and provide another way to save more taxes. 

Reduction in Time for Income Tax Proceedings

The budget reduced the time-limit for re-opening of an income tax assessment to 3 years from the present 6 years. In serious tax evasion cases, only where there is evidence of concealment of income of INR 50 lakh or more in a year, can the assessment be reopened up to ten years, the government said. 

How It Affects You

Income tax assessments could be re-opened up to 6 years and in serious tax fraud cases for up to ten years leaving taxpayers under uncertainty for a long time. This reduction would take away your concerns of being subjected to an assessment to a certain extent. 

Dispute Resolution Committee

A Dispute Resolution Committee, which will be faceless to ensure efficiency, transparency and accountability has been set up. Anyone with a taxable income up to INR 50 lakh and disputed income up to INR 10 lakh shall be eligible to approach the Committee. 

How It Affects You

This would reduce the litigation requirement for small taxpayers and will heighten transparency in the process of dispute resolution related to taxation. 

Faceless Income Tax Appellate Tribunal (ITAT)

A National Faceless ITAT will be set up to communicate between the Tribunal and the appellant electronically. Where personal hearing is needed, it shall be done through video-conferencing. 

The ITAT deals with appeals under the Direct Taxes Act. 

How It Affects You

This move in line with the federal government’s Digital India initiative, will encourage the taxpayer to participate in tax proceedings electronically. 

It is expected to streamline and expedite judicial hearings related to income tax matters. 

Exemption from Audit for non resident Indians (NRI)

The government proposed to increase the limit for tax audit for non resident Indians from INR 5 crore to INR 10 crore for those who carry out 95% of their transactions digitally.

When non resident Indians return to India, they have issues with respect to their accrued incomes in their foreign retirement accounts. This is usually due to a mismatch in taxation periods. 

The government has proposed to notify rules for removing the hardship of double taxation for non resident Indians. 

How It Affects You

The move will reduce compliance burden on NRIs. 

It will help in reducing the impact of double taxation for NRIs and mitigate difficulties in getting credit for Indian taxes in foreign jurisdictions. 

Relief for Dividend

The dividend payment to real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) would be exempt from tax deducted at source or the TDS. 

The government said advance tax liability on dividend income would arise only after the declaration or payment of dividend.

How It Affects You

It will encourage retail participants of the stock market to invest in REITs and InvITs. 

The government’s move to tax dividend income in advance only after declaration would help individuals to pay tax liabilities more accurately and avoid paying extra as the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax. 

As per Section 208 of the Income Tax Act, 1961, every person whose estimated tax liability for the year is more than or equal to INR 10,000 is liable to pay advance tax.