Budget 2020 – Important Changes that you should know
Budget 2020, most people looking forward to this event.
Prior to this event, most people are dreaming just like every year that Government will increase the 80c limit.
In addition, People are also expecting the Government to increase income tax slabs, expecting indexation benefit for equity investment.
But the above changes not there in this Budget.
Finally, The Government in its budget of 2020 has introduced a new tax regime.
However, the old tax regime will remain and taxpayers have the option to select any one tax regime.
What is the new income tax regime in the Budget 2020?…
A new tax regime is introduced in this budget.
The taxpayers can opt for a new tax regime that does not have any deductions like 80 C, 80 D, etc.
However, the taxpayers have the option to stay with the old tax regime which has many deductions like 80 C, 80 D, 80ccd, etc.
New Income Tax regime rates are as given below…
- 4% of education of cess will be added to the above tax rate.
- In addition, a surcharge of 10% if the income > 50 lakh and 15% of the surcharge is applicable if income > 1 crore.
Old Income Tax Regime rates prior to this Budget 2020 ( Age below 60 years)…
Which Income Tax Regime is better for you?…
Ideally, the new income tax regime is beneficial to those who are not claiming any deductions like 80C, 80D, 80CCD, etc.
What will be taxable income with New regime if the income is 14 lakh?…
As you can not claim any deductions under the new tax regime, the total income tax for 14 lakh income is Rs.1,69,000.
What is the income tax for 14 lakh income under the old income tax regime ?…
- Income is Rs.14,00,000.
- 80 C Limit is 1,50,000
- Standard Deduction Rs.50,000
- Health Insurance Premium Rs.50,000 ( Rs.25,000 Self + Rs.30,000 for parents if every one is below 60 years of age).
- Home Loan Interest is Rs.2,00,000.
- So, the total deductions Rs.4,50,000
Now let’s calculate the tax under the old income tax regime in Budget 2020…
The taxable income is Rs.9,50,000 ( Rs.14,00,000 minus Rs.4,50,000).
- Tax in old tax regime is Rs.1,06,600
- Income Tax in New Income Tax regime is Rs.1,69,000.
- The difference is Rs.62,400.
Hence it is very clear that the old income tax regime is better than the new income tax regime for 14 lakh income.
However, You need to calculate tax in both the regimes and have to decide which regime is better for you.
Imp Note : –
- In both the tax regimes i.e old regime and the new regime, under section 87 A, persons earning income up to 5 lakh can get a deduction up to Rs.12,500.
- Hence, technically in both the regimes up to 5 lakh income, there is no tax.
- Persons who do not have business income can switch from the old regime to the new regime and new regime to old regime any number of times.
- When it comes to business income, persons can switch from the old regime to the new regime but they can not switch back to the old tax regime unless their business income is zero.
What are the Sections that you can not claim deductions in the new tax regime according to Budget 2020?…
You can not claim the following deductions in the new income tax regime…
- Education Loan Interest
- Donation under 80 G section.
- NPS Contribution for Rs.50,000 ( which is more than 80 c limit).
- Rs,50,000 Standard Deduction.
- Leave Travel Allowance
- Home Loan Interest
- H.R.A ( Home Rent Allowance).
- Health Insurance Premium
- 80 C deduction ( PPF, EPF, GPF, ELSS, LIFE INSURANCE PREMIUM).
However, You can still invest in life insurance, ElSS, etc.
But you can not get tax deductions under the nex income tax regime.
However, the employer contribution in NPS and EPF is tax-free up to 7.5 lakh per year.
Sections that are retained in new income tax regime?…
- Retirement benefits, gratuity, etc
- commutation of pension
- Leave encashment on retirement
- Retrechment compensation.
- VRS benefits
- Employer contribution.
- NPS withdrawal benefits.
- Educational Scholarships
- Payments of awards instituted in Public Interest.
Deposit Insurance of Banks has increased from 1 lakh to 5 lakh in this 2020 Budget…
Prior to this 2020 Budget, Deposit insurance in banks is 1 lakh only.
But in this budget, this insurance has raised to 5 lakh.
Dividend in equity or equity mutual funds will be taxed in investors’ hands…
Prior to this budget, there is no need to pay tax on dividends by the investors.
But from Now, onwards dividends will be added to the investor’s income.
In addition, investors need to pay tax on dividend received based on their tax slab.
Earlier, companies used to pay a dividend distribution tax of 20.35%.
Now, Tax liability increased for dividends for those who are 30% slab in this budget.
In addition, mutual fund companies will deduct 10% TDS if the dividend received by the investor is more than Rs.5,000.
However, there will be no TDS for investors if they have invested in the growth option of mutual fund schemes.
Non-Resident Indian (NRI) Definition changed and also TAx rule change…
Now onwards a person will be called an NRI if he stays more than 240 days ( 121 days in India) outside India.
Earlier, a person is called as a resident if he stays in India for more than 182 days.
What is the new tax rule?…
According to the new tax rule, the NRI’s who stay outside India and Not paying any taxes abroad has to pay tax in India.
There is so much confusion among this rule among middle east NRIs and persons living in countries like UAE etc.
As these countries are not charging any taxes.
But this is clarified by the income tax department.
The clarification is that NRI’s have to pay taxes if they become NRI, not on the basis of Business or Profession.
Some people are staying in some countries in order to pay low or no tax.
As they stay very days in all countries, they are not resident in any country.
However, some bonafide workers are working in countries like UAE, Dubai, etc, this rule will not be applicable.
The Finance bill may be modified in this regard.
The middle east NRIs also not needed to any tax as long as their income is not from Business or profession.
You can find the list of middle east countries in this link.
Conclusion about Budget 2020…
Actually there is no need to introduce a new income tax regime.
Which actually confusing taxpayers.
According to my knowledge, The Govt may be thinking to remove the old income tax regime in the future.
But if that happens, those persons who are saving for tax purposes only will not save money at all.
Which is not good at all for our country.
Click this link to read about What is the best way to achieve “Financial Goals?…
The source for this article is Finance Bill.