Summary: Finance Minister, Nirmala Sitharaman presented the Union Budget 2020on the 1st of February, 2020. The main talking points that affect the common man are around changes in the income tax rates, taxation rules for NRIs and scrapping of Dividend Distribution Tax. Let us look at some of the announcements and their impact on us.
The budget for the financial year 2020-21 was presented by Finance Minister Nirmala Sitharam on February 1. Here is an analysis of the impact of some of the announcements on us –
1) Changes in Income Tax Slab
There are changes in the tax slabs and the rates. From FY 2020-21, individuals and HUFs will have two options for filing returns – a) With deductions and exemptions b) Without deductions and exemptions. Here are the new income slabs and respective tax rates if you decide to not to avail of deductions and exemptions such as Investment in Section 80CC or Deduction of payment of interest on home loan. If you want to avail of exemptions and deductions, the tax rates same as the previous year.
1) Changes in Income Tax Slab
There are changes in the tax slabs and the rates. From FY 2020-21, individuals and HUFs will have two options for filing returns – a) With deductions and exemptions b) Without deductions and exemptions. Here are the new income slabs and respective tax rates if you decide to not to avail of deductions and exemptions such as Investment in Section 80CC or Deduction of payment of interest on home loan. If you want to avail of exemptions and deductions, the tax rates same as the previous year.
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Income Slabs
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New Tax Rate
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Old Tax Rate
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₹0 – ₹ 2,50,000
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No tax
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No tax
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₹2,50,000 – ₹5,00,000
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5%
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5%
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₹5,00,000 – ₹7,50,000
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10%
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20%
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₹7,50,000 – ₹10,00,000
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15%
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20%
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₹10,00,000 – ₹12,50,000
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20%
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30%
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₹12,50,0000 – ₹15,00,000
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25%
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30%
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> ₹15,00,000
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30%
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30%
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Impact – You can find out which option is beneficial for you and file your returns using that option. If your income is between ₹5,00,000 and ₹15,00,000, you will pay lesser tax as well if you choose the new option. If you file taxes as per the new option , you will have lesser documentation in terms of IT proofs as compared to earlier years. You need not forcefully invest for fulfilling requirements related to deductions and exemptions. Do revisit the investments and decide if you need to change your investment portfolio.
2) Employer Contributions Taxable
Impact – If your employer contribution to any constituents of your cost to the company such as EPF, NPS, superannuation fund, etc. is more than ₹7,50,000, then the excess amount is taxable in your hands.
3) Tax payment for ESOPs can be deferred by employees who receive them
Impact – If you are an employee of a startup as defined by the government and have received Employee Stock Option Plans (ESOPs), you can defer paying taxes up to five years from the time you receive the options or till the time you leave the startup, or until you sell the shares, whichever is earlier. This is useful to your liquidity position. You can plan to pay tax when you have enough cash.
4) DDT is not applicable anymore
Impact – Mutual funds and companies do not have to pay DDT. income earned will be clubbed with your income and be taxed in your hand. Growth option in MF makes sense. Retirees or ppl who do not pay tax – good to take dividend option
5) The definition of Resident Indian has been changed
An NRI who lives in India for 122 days or more will be considered as a resident Indian. An NRI who does not file taxes in any other country is deemed to be a resident Indian.
Impact – If you are an NRI, then you have to consider the number of days you live in India and accordingly file your tax returns. If you are an NRI and do not pay tax because of visa status, residency country’s taxation rules or domicile status, your total income will be taxable in India.
6) Bank deposits get ₹5,00,000 insurance cover
Impact – Your fixed deposits and savings accounts in each bank will be covered up to ₹5,00,000 by the deposit insurance scheme for banks. If the bank goes into liquidation or fails to pay back your money, you will be insured up to a sum assured amount of ₹5,00,000. In the light of the recent failure of Punjab and Maharashtra co-operative bank, this is a good move to protect small investors.
7) The government has decided to divest part of its stake in LIC
Impact – This move will result in the partial listing of the country’s largest insurance company. This can mean better product management and better pricing of products. There will be more accountability and focus on customer service.
2) Employer Contributions Taxable
Impact – If your employer contribution to any constituents of your cost to the company such as EPF, NPS, superannuation fund, etc. is more than ₹7,50,000, then the excess amount is taxable in your hands.
3) Tax payment for ESOPs can be deferred by employees who receive them
Impact – If you are an employee of a startup as defined by the government and have received Employee Stock Option Plans (ESOPs), you can defer paying taxes up to five years from the time you receive the options or till the time you leave the startup, or until you sell the shares, whichever is earlier. This is useful to your liquidity position. You can plan to pay tax when you have enough cash.
4) DDT is not applicable anymore
Impact – Mutual funds and companies do not have to pay DDT. income earned will be clubbed with your income and be taxed in your hand. Growth option in MF makes sense. Retirees or ppl who do not pay tax – good to take dividend option
5) The definition of Resident Indian has been changed
An NRI who lives in India for 122 days or more will be considered as a resident Indian. An NRI who does not file taxes in any other country is deemed to be a resident Indian.
Impact – If you are an NRI, then you have to consider the number of days you live in India and accordingly file your tax returns. If you are an NRI and do not pay tax because of visa status, residency country’s taxation rules or domicile status, your total income will be taxable in India.
6) Bank deposits get ₹5,00,000 insurance cover
Impact – Your fixed deposits and savings accounts in each bank will be covered up to ₹5,00,000 by the deposit insurance scheme for banks. If the bank goes into liquidation or fails to pay back your money, you will be insured up to a sum assured amount of ₹5,00,000. In the light of the recent failure of Punjab and Maharashtra co-operative bank, this is a good move to protect small investors.
7) The government has decided to divest part of its stake in LIC
Impact – This move will result in the partial listing of the country’s largest insurance company. This can mean better product management and better pricing of products. There will be more accountability and focus on customer service.
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