Indian Budget 2020 Highlights – New Income Tax slabs

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In the Union Budget 2020 that was presented by Finance Monster on 1st Feb 2020, a number of tax changes has been proposed:

New Tax Slab rates (Optional)

While there is NO change in the existing Income-tax slab rates for individuals, a new tax regime has been proposed under which individuals would be taxed at reduced tax rates if they forego exemptions and deductions.

The new tax regime will be

Old Rate Slab Rates Rates of Tax (New rate
NIL upto Rs 2.5 lakh NIL
5% 2.5 lakh – 5 lakh 5%
20% 5 lakh – 7.5 lakh 10%
7.5 lakh – 10 lakh 15%
30% 10 lakh – 12.5 lakh 20%
12.5 lakh – 15 lakh 25%
above 15 lakh 30%

The new tax regime is optional. Individuals who opt to claim available exemptions/ deductions would be taxed as per the existing rates.

But if you want to opt for the new rates, then you will have to forego the various tax decusitons. For e.g. you then can’t claim House Rent Allowance (HRA), Leave Travel Concession (LTA), standard deduction, deductions under Section 80C, deduction in relation to self-occupied house property, set-off of loss from house property against any other source of income etc.

  • What’s out:   Some of the 70 exemptions and deductions you won’t get in new regime.
    Section 80C investments
    House rent allowance
    Housing loan interest
    Leave travel allowance
    Medical insurance premium
    Standard deduction
    Savings bank interest
    Education loan interest
  • What stays:  Some 50 tax exemptions have been left untouched. These include.
    Standard deduction on rent
    Agricultural income
    Income from life insurance
    Retrenchment compensation
    VRS proceeds
    Leave encashment on retirement
  • Individuals who earn taxable income up to INR 5,00,000 continue to be exempt from tax liability under the existing and new tax regimes
  • The budget has, however, left the surcharge on tax untouched. Taxpayers with income between Rs 50 lakh and Rs 1 crore will continue to pay 10% surcharge on the tax. The surcharge is 15% for income between Rs 1 crore and Rs 2 crore, 25% for between Rs 2 crore and Rs 5 crore and 37% for income over RS 5 crore. So taxpayers earning just below these threshold limits will not benefit if they forego the exemptions and move to the new tax regime.

Other Key Announcements

  • Taxation of dividend from domestic companies and mutual funds – DDT abolished but Income taxable in the hands of investor

    As per the existing provisions of the Income-tax, domestic companies that declare, distribute or pay dividend are required to pay a dividend distribution tax. Such dividend was exempt in the hands of the recipients up to INR 10,00,000.

    It is proposed to remove the dividend distribution tax payable by companies and tax the dividend from such companies and mutual funds in the hands of the recipients at the tax rates.

  • 10% TDS On Mutual Fund Income Above Rs 5,000

The finance bill proposed the insertion of a new section—194K—in the Income Tax Act, which states “any person responsible for paying income arising from units of mutual fund or a specified company must deduct tax at the rate of ten percent of such income”.

While there was lot of confusion on the budget annoucement day as to whether this 10% TDS is applicable for dividend or any capital gains or full redemption amount. But the Tax department has now clarified that the TDS is on Dividend Income only. See full details.

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