The recently announced budget introduced significant personal finance changes impacting taxpayers and investors. One of the key updates involved Unit Linked Insurance Plans (ULIPs). It has been clarified by the Finance Ministry that if the annual premium exceeds ₹2.5 lakhs the redemption becomes subject to capital gains tax.
ULIPs that are held for more than a year will be taxed at 12.5%, equating them to equity-oriented mutual funds and stocks. Earlier ULIP redemptions were tax free under section 10(10D) if the annual premium remained below ₹2.5 lakh for policies that are purchased after February 1, 2021.
Timeline for filing updated income tax returns has been extended
One more crucial development has been that the timeline for filing updated income tax returns has been extended. This will provide a huge respite to taxpayers along with much needed flexibility. Tax payers now have four years, instead of the earlier two for filing updated returns.
Still, claiming refunds or reducing liabilities is restricted. Tax payable in such cases ranges from 60% to 70% of the tax and interest on any additional income, purely depending on the filing timeframe relative to the assessment year’s end.
Further, the NPS Vatsalya scheme, designed to support children or dependents with disabilities will now witness the same tax exemptions as the regular NPS scheme. This provides parents and guardians with an additional tax deduction under the old tax regime. The deduction provided will be of ₹50,000, thus offering enhanced financial support.
Several TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) limits have been changed and revised again. The tax deduction limit on interest rate earned by senior citizens has been escalated to ₹1 lakh. Whereas for normal citizens i.e., those who are not senior citizens it has risen to ₹50,000.
Further, the TDS threshold on the rent has been significantly increased to ₹6 lakhs per year and the TDS threshold on dividend income has been increased to ₹10,000 reducing the number of investors subjected to TDS on dividends under section 194K.
Further, TCS threshold for remittances made under RBI’s Liberalized Remittance Scheme (LRS) is now proposed to be increased from ₹7 lakhs to ₹10 lakhs.
Other changes include tax exemption for withdrawals from the National Savings Scheme made on or after August 29,2024 and a modified Central KYC i.e., Know Your Customer system. This system will be rolled out in 2025 along with a streamlined framework for periodic updates. All these updates will facilitate financial inclusion and simplify the process of resolving disputes related to finances.
