February 1, 2020

Budget 2020 Highlights – 5 Changes you must know

So finally the Budget 2020 is out. Whether you expected a lot from this budget? It is natural for all individuals to expect something from each budget. However, all expectations will not turn into realities. Let us see the Budget 2020 Highlights.

Budget 2020 Highlights

Budget 2020 Highlights – 5 changes you must know

1. Income Tax Slabs changed

There is a big change in individual tax slabs. I think this new change made life complicated to many than simplifying the tax. In one way Government is forcing us to SAVE more. However, with this new change, I think the Government is more concerned with making us to SPEND more.

There will be two types of tax slabs.

  1. For those who wish to claim IT Deductions and Exemptions.
  2. For those who DO NOT wish to claim IT Deductions and Exemptions.

Let me explain both the slabs as below.

Latest Income Tax Slab Rates for FY 2020-21 AY 2021-22

Now, if you wish to choose the new tax regime, then you have to forget the below deductions or exemptions.

(i) Leave travel concession as contained in clause (5) of section 10;
(ii) House rent allowance as contained in clause (13A) of section 10;
(iii) Some of the allowance as contained in clause (14) of section 10;
(iv) Allowances to MPs/MLAs as contained in clause (17) of section 10;
(v) Allowance for income of minor as contained in clause (32) of section 10;
(vi) Exemption for SEZ unit contained in section 10AA;
(vii) Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in
section 16;
(viii) Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23.
(Loss under the head income from house property for rented house shall not be allowed to be set off under any
other head and would be allowed to be carried forward as per extant law);
(ix) Additional deprecation under clause (iia) of sub-section (1) of section 32;
(x) Deductions under section 32AD, 33AB, 33ABA;
(xi) Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause
(iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;
(xii) Deduction under section 35AD or section 35CCC;
(xiii) Deduction from family pension under clause (iia) of section 57;
(xiv) Any deduction 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). However, deduction under
sub-section (2) of section 80CCD (employer contribution on account of the employee in notified pension scheme) and
section 80JJAA (for new employment) can be claimed.

However, there are certain deductions you can still claim using the new tax regime and they are as below.

  1. Retirement benefits, gratuity etc.
  2. commutation of pension
  3. leave encashment on retirement
  4. retrenchment compensation
  5. VRS benefits
  6. EPFO: Employer contribution
  7. NPS withdrawal benefits
  8. Education scholarships
  9. Payments of awards instituted in public interest

Which one to use for the highest tax benefits?

It is not yet clear and hence it is hard for me to say anything BLINDLY. However, going by changes, I assume it changes from individual to individuals. Hence, you have to calculate on your own and adopt the one which is more beneficial for you.

CONFUSING RIGHT? YES, as per me, this new tax slab regime is the most complicated tax slab rate any government introduced. Now many individuals will be in a dilemma of which one to use, the ADDITIONAL one along with the existing headache for taxpayers of HOW TO SAVE MORE TAX.

Refer a detailed:-Latest Income Tax Slab Rates FY 2020-21 (AY 2021-22)

2. Bank Deposit Insurance raised from existing Rs.1 lakh to Rs.5 lakh

Many Bank Depositors lost faith when the PMC kind of banks goes on financial issues. Many individuals started to fear to keep more than Rs.1 lakh in a bank. Because, as per the DICGC ( Deposit Insurance and Credit Guarantee Corporation), the maximum guarantee a depositor receive was Rs.1 lakh. However, to increase the faith among the depositors, the Government increased the limit to Rs.5,00,000.

This I think a good move. However, the Government must increase the cover with certain frequency as the inflation increases and income increases, even this Rs.5,00,000 increase may be peanut after certain years.

3. Affordable home loans under Sec.80EEA extended for one more year

To understand more on this aspect, refer my last year post Budget 2019-20 – Tax Incentive for affordable housing.

4. Dividend Distribution Tax Abolished in the hands of Companies BUT NOT FOR INDIVIDUALS!!

Many rejoiced with the news that DDT was abolished for all. However, it is abolished in the hands of companies. Hence, tax on dividends from shares and mutual funds (both equity and debt) will be taxed as per slab of the recipient.

Going forward companies will not deduct the DDT but as an investor, you have to pay the DDT as per your tax slab. Hence, this leads to many Mutual Fund investors to move to the GROWTH option than the DIVIDEND option. Because as of now, even the companies used to deduct the DDT, we as investors have no need to pay the tax. Hence, many felt it is tax-free DIVIDEND.

5. Definition of NRI is changed

Earlier the NRI status was defined if an Indian Citizen who resides in India for less than 182 days during the course of the preceding financial year. This is now reduced to 120 days.

One more change is if you are a citizen of India, but not a tax resident (on account of domicile or residence or similar exemption) in any other country, you will be deemed to be a resident in India.

6. TDS on Mutual Funds for Resident Indians

Introduction of new Sec.194K, Mutual Fund Companies will deduct the TDS on your Dividend Income if your such Dividend Income is more than Rs.5,000 in a Financial Year.

There was a huge cry and confusion with respect to this section. However, later on CBDT came with clarification and mentioned that such TDS will be applicable for Dividend Options only.

Hence, any capital gain in mutual funds with respect to sale or transfer of mutual funds will not attract any TDS.

Note:-Avoiding TDS does not mean avoiding TAX. As DDT was abolished in the hands of the Mutual Fund Companies, the Dividend income will be taxable as per your tax slab. If your tax slab is 30% and TDS was done at 10%, then your tax liability will not end there. You have to pay the remaining 20% Tax.

However, if your tax slab is 10% and TDS was deducted on such dividend income, then you no need to pay any further tax.

Except for these five changes, I am unable to find any other new moves in the Budget 2020. So the dust and NOISE is over now. Calm down and relax and enjoy the realities 🙂

26 Comments

  1. Dear Sri Basavraj, What about tbe exemption of Interest Income on Specified Asset so defined in section 115C(f)(iii) for NRIs and for NRI turned R O R, if declaration made to A. O, provided under 115H

    Is flexibility provided in choosing between old and new system in any assessment years as per assessee’s suitability

    Reply
    • Dear Dr.K Ramdas,
      As far as I know, there is no change in it.

      Reply
  2. Sir, As per the old ITR 2, for filling the Capital gain Tax, there is no column to fill the STCG or LTCG from the Debt Funds. If one has LTCG from Debt Funds where to enter this data. There is column for LTCG from Equity stocks or units of Mutual Funds but no column for DEBT Funds or units from Debt Mutual Funds.

    Reply
  3. Dear Sir,

    Is this new Tax slab are also applicable for F.Y. 2019-20 ?

    Reply
  4. Hello Basu,

    If I receive Dividends from Equity MF’s more than 1Lakh/ Year, and I file tax returns as per Old tax regime – do I still need to pay tax for the dividend [ adding the div amount to my total taxable salary] or I can get the benefit of tax exemption up to 10 Lakh of Dividend amount?

    Reply
    • Dear Raghottam,
      Dividend taxation is different than the tax slab. The dividend is now taxable as per your tax slab.

      Reply
  5. Sir, Interest earned on PPF is now taxable?

    Reply
  6. NPS deduction just like Provident fund through the employer is also exempted under new tax regime, right?

    Reply
    • Dear Sreekanth,
      Yes. If you wish to claim the deduction, then you have to use the old tax slab but not the new one.

      Reply
  7. Excellent Post Sir, Please correct 10 Lakh slab by mistaken an additional zero is entered.

    Reply
    • Dear Amit,
      Oh yes….Sorry and thanks for the same. Updated it.

      Reply
    • Sir, Not claiming portion also required correction. Sorry for questioning you.

      Reply
    • I am retired from service, can i change my option of old / new tax regime every year or option once exercised is unchangable

      Reply
  8. is exemption of interest on savings bank under section 80TTA and 80 TTB are also abolished. Kindly elucidate

    Reply
    • Dear Krishna,
      As per me, YES. But let us wait for the clarity. Do remember that exemptions or deductions not abolished (except few) but they gave us choice to adopt the tax slabs.

      Reply
  9. Thanks for your feedback. I see these tax slabs are useless atleast for me. 1 – I will have to save either ppf or else but new tax slabs are not encouraging the same.
    2 – I have to pay more tax if I follow the new slabs as I can’t use HRA and 80C.

    I completely agree with you this budget is for encouraging spending instead of saving for future.

    Reply
    • Dear Anchit,
      I am also of the same opinion. It is just an EYEWASH.

      Reply
      • How can one claim the “Employer contribution” in new tax regime ? We used to claim “Employee contribution” and not the “Employer contribution” under section 80C in old tax regime.

        Reply
        • Dear Navin,
          If you are willing to adopt the new tax slab, then you have to FORGET.

          Reply
  10. This PF also can’t claim deduction in new slab?

    Reply
    • Dear Pranav,
      Sadly YES if you wish to adopt the new tax slab.

      Reply

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