How Has Budget 2020 Impacted Personal Taxes?

On February 1, 2020, Finance Minister, Nirmala Sitharaman, proposed a host of changes regarding the personal tax structure in the country. Read on to know about the proposals:

Optional New Tax Structure:

The Finance Minister proposed a new tax regime, wherein you can forego a certain amount of existing exemptions/ deductions to avail of a new tax structure with reduced rates. To put it simply, if you choose to waive off a considerable amount of present deductions and exemptions in tax, you will be taxed at reduced rates. Here, you must remember that no changes have been proposed in the existing tax regime, and the new structure is completely optional. You can either choose to be taxed at the new proposed tax structure or continue with the old tax regime.

What are the Tax Exemptions and Deductions You Need to Forego to Avail of the New Tax Regime?

Here is a list of some of the deductions you would need to forego:

  • House Rent Allowance (HRA).
  • Leave Travel Concession (LTA).
  • Deductions under Section 80C of the Income Tax Act.
  • Deductions under Section 80D on medical insurance.
  • Deductions under Section 80E on education loans.
  • Deductions on interest paid for home loans for renovation.

The new income-tax slab rates under the proposed changes will be as follows:

Tax-slab rates Taxation rate
Up to Rs 2.5 lakh Nil
From Rs 2,50,001 to Rs 5,00,000 5%
From Rs 5,00,001 to Rs 7,50,000 10%
From Rs 7,50,001 to Rs 10,00,000 15%
From Rs 10,00,001 to Rs 12,50,000 20%
From Rs 12,50,001 to Rs 15,00,000 25%
Above Rs 15,00,000 30%

You must remember that surcharge and education cess will continue to be charged as per the earlier rates. Also, if you are a salaried individual with a taxable income up to Rs 5 lakh, you can continue to remain exempt from any tax liability.

According to market experts, the new proposed structure has tried to provide more disposable income to taxpayers, while simultaneously curbing the incentives to save taxes through standard deductions. The new structure has considerably simplified the tax structure, with a goal of better tax compliance.

Taxation on employee stock benefits for start-ups to be deferred: The contributions made by your employer through stock benefit plans by allotment of shares would usually be taxable at the time of allotment. However, for start-up employees, TDS (Tax Deducted at Source) will be deducted not at the time of allotment, but at the time of the employee leaving or selling their shares.

Changes in dividend distribution tax: Earlier, while the dividend paid by companies was taxable under the dividend distribution tax, you, as a recipient of dividends up to Rs 10 lakh, were not required to pay taxes. The proposed tax structure, however, removes the dividend distribution tax on companies, while taxing individuals on the same as per their tax slab rates.

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Timeline for loan under affordable house scheme extended:If you had taken a loan for a house under the affordable housing scheme, you could avail of a deduction of Rs 1.5 lakh, provided the stamp duty on the house wasn’t more than Rs 45 lakh. One of the conditions for availing the additional deduction was that the loan must have been sanctioned between April 1, 2019 and March 31, 2020. The new proposal has extended the timeline till March 31, 2021.

Changes in tax administration:As per the finance ministers, certain changes would be incorporated to make the tax regime more efficient. These changes include:

  • To end any harassment to taxpayers, a ‘Taxpayer’s Charter’ would be incorporated.
  • A new system of instant allocation of PAN through your Aadhaar number.
  • In sync with a faceless tax assessment process, a faceless appeal system to be introduced.
  • A new system titled ‘Vivad se Vishwas’ to remove discrepancies in tax disputes will be implemented.

Conclusion

Thus, the budget 2020 proposes manifold changes, which can simplify the existing tax regime. Even as these proposals remain to be finally incorporated, it provides a blueprint for the upcoming budget.

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