This year’s budget quite confused the financial gurus, media and even the stock markets; stock markets didn’t know how to react – plunged on the day of the budget, went sideways the next working day and then up from there. Let us see how the relevant provisions of the budget affect or don’t affect you.
New Optional Tax Structure. A new tax structure has been introduced with lower tax brackets. However, the normal deductions that one claims on Income Tax, ie, Standard Deduction (Rs 50,000), Section 80C deductions (maximum up to Rs 1.5 Lakhs in instruments like DSOPF/ PPF/ EPF, AGIF/ NGIS/ AFGIS, other life insurances, ELSS, Principal part of home loan, children’s tuition fee, etc), home loan interest (24(b)), NPS, medical insurance (80D), LTA, education loan interest (80E), etc will then not be available if you choose the New structure.
[For those financially inclined, all deductions under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) will not be claimable by those opting for the new tax regime.]
|Income Brackets||Current||New Optional Structure|
|Up to Rs 2,50,000 lakhs||Nil||Nil|
|Rs 2,50,001 – Rs 5,00,000||5%||5%|
|Rs 5,00,001 – Rs 7,50,000||20%||10%|
|Rs 7,50,000 – Rs 10,00,000||15%|
|Rs 10,00,000 – Rs 12,50,00||30%||20%|
|Rs12,50,000 – Rs15,00,000||25%|
|Rs 15,00,001 and above||30%|
The new structure is Optional. Should you opt for the new structure or continue with the old one? Income Tax Dept has made a calculator available for you at the link: https://www.incometaxindiaefiling.gov.in/Tax_Calculator/index.html?lang=eng. Just feed in your visualized income details for the next financial year (Apr 2020 – Mar 2021) and come to know what to do. Also, remember that you can switch the tax regime every year between the old and the new regime. ‘Taxpayers can switch back and forth between the existing income tax regime and the new one that offers lower slabs without exemptions’, said the Central Board of Direct Taxes (CBDT) Chairman PC Mody. However, business owners won’t have this option.
Why has the Govt. introduced this new system? The overall aim is to simplify tax structure so that it is easily understood by the common man with the least of complications. We see all or most of tax exemptions going off in few years with tax rates coming down and personal tax calculations themselves being much simpler than they are today.
Dividend Distribution Tax (DDT) which the companies had to deduct at their end on the dividends being paid out (in shares and mutual funds typically) at a flat rate of 20.36% will not be deducted, the individuals will have to show dividends received in their own income and pay the tax as per their tax slab. This dividend will also be subject to a TDS (Tax Deduction at Source) at the rate of 10% if the dividend amount exceeds Rs. 5000 during the FY. However, please note that the dividend referred to here is the dividend received from shares as also from mutual funds. The gains made in the shares or mutual funds (called capital gains or increase in NAV/stock price) is not within the ambit of this tax, contrary to popular belief amongst some people post-budget.
Deposit Insurance. Last year, we had the infamous PMC bank scandal where thousands of depositors were left stranded after the RBI imposed strict withdrawal limits thanks to a major scandal. One of the biggest talking points was how it would have been amazing if bank deposits were insured beyond the nominal amount of 1 lakh, considering many people had deposits running into several lakhs all locked up because of RBI notification. The government has listened to us and increased the amount to 5 lakhs. So in case, you lose your bank deposits, you’ll now have 5 lakhs as insurance to protect your downside.
Definition of NRI (Non-Resident Indians) has changed now. Earlier, to qualify as an NRI, one had to be out of India for 183 days. The number of days has gone up to 240 days now. This will affect many individuals like merchant navy guys and NRIs who frequently visit India in a major way.
Tax on NRI Income. The Union Budget has proposed that NRIs had to pay up taxes on global earnings if they were not paying in any other jurisdiction or country, generating much debate, especially with regard to some gulf countries where there is no income tax. The ministry said it was an anti-abuse provision amid growing instances of NRIs shifting their stay in low or no-tax jurisdiction to avoid tax payment in India. Later it has been clarified that NRIs would be liable to pay tax only on income derived from business or profession in India even if they themselves are based abroad. However, some confusion about the merchant navy guys still remains since they are technically the resident of no country!
Employer’s contribution to provident fund, NPS and superannuation funds worth more than 7.5 lakh a year will be taxable. Please note that this pertains to yearly contributions and not the accumulated amount in such avenues. This provision is of concern only to the faujis who’ve transited to the corporate and are (luckily!) earning great salaries, and to similarly placed children and spouses of faujis. Of course, the serving faujis don’t have to bother – your employer (i.e the Govt) makes no contribution to your DSOPF – so no worries!
Other smaller provisions of this budget which may be of interest to some select few:
- I-T Act will be amended to allow faceless appeals so that the person appealing cannot be hounded by the IT Dept.
- Tax on Cooperative societies to be reduced to 22% plus surcharge and cess, as against 30% as at present. So your housing society can do some more good for its residents!
- Tax holiday for affordable housing extended by one more year. Additional deduction up to Rs. 1.5 lakhs for interest paid on loans taken for an affordable house is extended further till 31st March 2021.
- The tax burden on employees due to tax on ESOPs (Employee Stock Options) to be deferred by five years or till they leave the company or when they sell, whichever is earliest.
- Defense gets Rs 3.37 lakh crore as the defense budget. Last year. It was 3.18 lakh crores.
- 100 more airports to be set up by 2024 to support the UDAN scheme.
- More Tejas-like trains for tourists.
- India is now 5th largest economy in the world.
- Central Govt debt reduced to 48.7% of GDP from 52.2% in March 2014.
- Govt plans to sell part of its holding in Life Insurance Corporation (LIC) by way of Initial Public Offering (IPO). If it comes out on favorable terms, it’ll be a good business and stock to buy!
Finally Our Take on the Budget?
It is a budget that doesn’t do anything much earth-shaking to the Indian economy! Hard to see how the Rs 5 Trillion economies will be carved out from this, unless Govt does more things outside the budget ambit, like the way corporate tax was lowered a few months back.
The direct personal tax line of thought of the Govt is very clear now. Rates of personal tax will remain low but the innumerable tax sops that are present there right now will be phased out gradually. So, do not plan anything financial long term based merely on tax concessions.
Also, remember that these budget provisions take effect only from the financial year starting from 1st April 2020. So, the Income Tax Return (ITR) that you file this year in the Jun-Jul period (for the earning period Apr 2019 – Mar 2020) will still be based on the provisions existing today.
In the end, All Izz Well!
We can again get down to our lives and planning it well till the next budget comes around 🙂