Budget 2020 - Personal Taxes

A lot of changes have been proposed to personal income taxes in the recent budget. This blog aims to capture most tax changes impacting the common man..

Changes to Personal Income Tax
Assessees can now opt for a new simplified tax regime if they forego all current exemptions (mainly salaried class) such as LTA, HRA & 80C deductions. It also includes foregoing set-off of losses from house property against salary income.

1. 5% tax for income between Rs 2.5 and Rs 5 lakh
2. 10% tax for income between Rs 5 and Rs 7.5 lakh
3. 15% tax for income between 7.5 lakh and 10 lakh
4. 20% tax for income between 10 lakh and 12.5 lakh
5. 25% tax for income between 12.5 lakh and 15 lakh
6. 30% tax for income above 15 lakh

Criteria for Non-Resident Indian (NRI) status
A person who stays more than 240 days abroad is considered a NRI and can enjoy the respective tax reliefs available. Anyone staying less than 240 days abroad in a financial year is considered as a TAX RESIDENT of India and would be required to declare all their income abroad in India and pay TAX in India.

Tax changes for Salaried

1. Employer's contribution to PF,NPS, Superannuation schemesin excess of Rs.7.5L p.a to be taxed as salary.
2. Income, Dividend & Interest arising from such excess contributions to also be taxed
3. 80G info on donations to be pre-filled for assessees as charitable organizations must submit all donation info electronically to the IT department  
4. Tax on ESOPs for eligible startups now defered to 5 years from the date of allotment (or) sale of shares (or) cessation of employment, whichever is earlier.

Tax changes on Property Transactions

1. Maximum deduction of Rs.2 Lacs allowed on self-occupied property for Home Loan interest u/s 24(b) if completed within 5 years and no maximum for let-out property.
2. No notional rent clause allowed only up to 2 property(s).
3. Notional rent applies on third & subsequent property(s)
4. Set-off of loss against house property is capped at a maximum of Rs.2Lacs (against salary, capital gains & other income). Rest is allowed to be carried forward for 8 years & can be set-off only against income u/h house property in future. Such loss cannot be offset if house is not let out in future
5. Relief to home sellers - adjustment to sale consideration on transfer of immovable property made only when stamp duty differential is in excess of 10% from sale amount, to allow for market fluctuations (earlier it was 5%)
6. First time home buyers can claim additional tax deduction of up to Rs.1.5Lacs for interest on home loan on affordable housing until 31 Mar 2021.
7. More info than tax credit statement (Form 26AS) proposed to include sale/purchase of immovable property, share transactions etc.

Tax changes for Shares/Mutual Funds

1. DDT (Dividend Distribution Tax) abolished for shares & mutual funds. Now recipients of dividends to pay income tax at slab rates.
2. TDS @10% applicable on all dividends in excess of Rs.5000

Other transactions

1. For those travelling abroad or remiting money via LRS (Liberalized Remittance Scheme), authorized banks and tour operators will collect TDS @5% (10% without PAN)
2. For professionals offering "Technical Services", revised TDS of 2% applies instead of 10%
3. However TDS of 10% still applies to Lawyers, CAs and Doctors. 
4. Tax Audit turnover increased from Rs.1 cr to Rs.5 cr, provided cash transation is less than 5% of tax payer's receipts and payments.
5. If subjected to tax audit, last date of filing moved to Oct 31 instead of Sep 30.

Summary
While every attempt is being made to widen the tax net, it may have helped to inflation-adjust the basic tax exemption slab from Rs.2.5L to Rs.6L. HR/Finance department of companies will have to present the math for both tax regimes and help employees choose the best option for minimizing their tax outgo by 1st week of April. In the next blog, we shall explore the macro picture of this budget..