Union Budget for 2020-21

The Union budget presented on 1^st February 2020 disappointed the 35 Million Income Tax payers who were expecting some reduction in tax rates.

There is no change in Long term Capital Gain Tax which was expected by the investors.

The budget is having a vision to provide water, electricity and cooking gas to all households by 2022.

Budget shows the aggressive privatization and asset monetisation plan of the government for revenue generation. There is a proposal to sell stake in LIC of India.

New Income Tax Slab (optional)

Now you have an option to select a new regime for tax calculations if you are ready to forego all deductions.

The new tax slabs and rates are the same for all categories of tax payers including senior citizens and super senior citizens.

There are 7 tax slabs from 0% to 30%. Details are given below.

Health and education cess at the rate of 4 percent is levied on the income tax wherever applicable. There is a surcharge of 10% to 37% if your annual income is above 50 Lakhs.

You can decide and opt for the new rates, if it is beneficial to you. Otherwise, you can stick with the old rates.

There is no change in rates in that case. It is the same as last year.

You can choose the new rates or old rates every year.

But in most cases, the old tax regime which allows tax deductions under Section 80C, 80D, Home loan interest under Section 24, Standard deduction etc will be beneficial for you.

Dividends are taxable now in your hands – Dividend Distribution Tax is abolished.

Until now, dividends given by the companies or the mutual funds were not taxable in the hands of the investor. However, the companies or the mutual fund company deducts DDT (dividend distribution tax) before paying the dividend to the investors.

The effective tax rate was around 20.6% for the dividend distributed by the companies while it was 11.5% and 29% in case of equity and debt funds respectively.

Now, DDT has been done away with. The dividend shall now be taxable in the hands of the investor at their marginal tax rates. With DDT, everyone was taxed at the same rate.

This benefits those in lower tax brackets and adversely affects the investors in the 30% tax bracket.

There will be a TDS of 10% if the dividend exceeds 5000 in a year.

NRIs

You cannot be in India for more than 120 days in a year if you want tax treatment of NRI. This can affect those who are working in ship and sailing for few months only.

As per the budget proposal, if you are NRI for 7 out of 10 years, you will be treated as Resident not Ordinary Resident (RNOR). Remember, RNOR do not have to pay tax on their global income in India.

Any Indian Citizen, who is not tax resident in any other country, shall be deemed to be tax-resident in India. For such taxpayers, their global income will be taxed in India. Such NRIs will have to subject their entire global income to tax in India if they are not a tax-resident anywhere.

If you are in tax jurisdiction where taxes are zero (like in the Middle East countries), you don’t have to worry. It is not about zero taxes but about not being a tax resident anywhere.

Other major changes

1. Extension on Home Loan Tax Benefit under Section 80EEA for one more year.
2. Currently, as per the RBI guidelines, deposits with all commercial banks and cooperative banks are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC). Only Primary Cooperative Societies are not covered under DICGC. Deposit insurance from DICGC has been increased from Rs 1 lac to Rs 5 lacs per depositor. This is good news if you are worried about your bank fixed deposits or savings bank account.
3. Now,employer contribution to NPS, EPF and the superannuation funds in excess of Rs 7.5 lacs per year will be taxable. Not just that, even the interest or returns earned on such excess amount will now be taxable. It will affect those have high salaries.

Budget proposals are open for discussion in the parliament and it may undergo some changes. If you have any specific queries, please email me.