Budget 2020-21: Key Takeaways for Individual Tax Payers

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The Union Minister for Finance and Corporate Affairs Nirmala Sitharaman departs from North Block to Rashtrapati Bhavan and Parliament House, along with the Minister of State for Finance and Corporate Affairs, Anurag Singh Thakur and the senior officials to present the General Budget 2020-21.

With a 160 minutes speech, the longest Budget speech by any finance minister so far, Finance minister Nirmala Sitharaman tabled the Union Budget 2020-21 in the Lok Sabha yesterday, aimed towards introducing a slew of measures to boost the economy suffering from a slowdown.

FM announced the launch of a new personal income tax regime wherein taxpayers will get certain tax benefits if they forego exemptions.  Personal income tax rates along with important sections such as Section 80C, deductions under Chapter VIA, standard deduction are critical elements that are watched closely by taxpayers.

Key Highlights:

– To introduce a new simplified personal tax regime

– No income tax for income up to Rs 2.5 lakh

– 10% income tax for those earning between Rs 5 lakh to Rs 7.5 lakh versus 20% earlier

Under the proposed I-T slab, Income between Rs 5 and 7.5 lakh will be taxed at 10 per cent, while those between Rs 7.5 and 10 lakh at 15 per cent. Those earning between Rs 10 and 12.5 lakh will pay tax at the rate of 20 per cent, while those between Rs 12.5 and Rs 15 lakh will pay at the rate of 25 per cent. Income above Rs 15 lakh will be taxed at 30 per cent.

However, the new regime will be optional and those who want to stick to claiming deductions will be allowed to do so.

Tax experts say that individuals will have to check if they will have greater benefit under the new tax rates. It depends on a case to case basis. However, individuals with business income cannot switch to the new tax rates and then back again to the old rates. But others can do so.

Also, the FM in her Budget 2020 speech has proposed for rationalization of tax treatment of employer’s contribution to recognized provident funds, superannuation funds and national pension scheme. The proposal is to provide a combined upper limit of Rs 7.5 lakh in respect of employer’s contribution in a year to NPS, superannuation fund and recognised provident fund and any excess contribution is proposed to be taxable.

The budget presented by finance minister Nirmala Sitharaman has brought in some major changes for investors. The dividend distribution tax (DDT) has been abolished at both the company and mutual fund levels. Instead, dividends will be taxable in the hands of investors and will be taxed at their slab rates. In addition, tax will be deducted at source (TDS) on mutual fund dividends in excess of ₹5,000 per year at the rate of 10%.

To simplify the entire process and lower tax rates, she announced that around 70 of more than 100 income tax deductions and exemptions have been removed. Also, PAN cards will be allotted instantly online soon with Aadhaar. ‘Vivad se Vishwas’ scheme will be introduced for direct tax payers whose appeals are pending at various forum. These new income tax related proposals will come into effect from financial year 2020-21.

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