Article by CA Rishabh R. Adukia, B.Com, ACA, ACS, LLB, MBF(ICAI), Certified Financial Planner
Hon’ble Finance Minister, Smt. Nirmala Sitharaman presented the Union Budget 2020-21 in the parliament on Feb 1, 2020. Summarizing her outlook for 2020-21 in her own words; “Our people should be gainfully employed, our businesses should be healthy; for all minorities, women and people from SCs and STs, this Budget aims to fulfil their aspirations.”
The three prominent themes for the Budget this year were
Economic Development and
The Finance minister also pointed out that the budget is to further bolster the income and purchasing power of the people with a key focus on doubling farmers income by 2022.
- The budget has disappointed more than 35 million income tax payers who were expecting a substantial reduction in tax rates.
- No change in Long term Capital Gain(LTCG) Tax which was expected by the investors
- The government has planned for aggressive privatization and asset monetisation for revenue generation. There is also a proposal for partial stake sale in LIC of India.
- The new income tax slab provided is optional in nature. i.e a taxpayer can choose from any of the two slab options as beneficial to them. Opting for new slab maybe beneficial for a select group of people depending on your total income. Kindly note, high income earners who are claiming exemptions will pay more tax if they chose the new tax regime as provided in Budget 2020.In most cases continuing at the existing slab may work out to be better than the proposed slab. Planning to save your taxes before the year begins maybe a good idea depending on the expected income.
- Dividends are taxable now in your hands – Dividend Distribution Tax is abolished. It will be taxed at your slab rates Until now, dividends given by the companies or the mutual funds were not taxable in the hands of the investor. However, the companies or the mutual fund company deducts DDT (dividend distribution tax) before paying the dividend to the investors. The effective tax rate was around 20.6% for the dividend distributed by the companies while it was 11.5% and 29% in case of equity and debt funds respectively. Now, DDT has been done away with. The dividend shall now be taxable in the hands of the investor at their marginal tax rates. With DDT, everyone was taxed at the same rate.This benefits those in lower tax brackets and adversely affects the investors in the 30% tax bracket. There will be a TDS of 10% if the dividend exceeds 5000 in a year.
NRIs – Non Resident Indians
- A person would be considered NRI only if the period of stay is less than 120 days in a financial year in India which was earlier 182 days. This will largely affect people who are working on ship and sailing for few months only.
- Also note, if you are NRI for 7 out of 10 years, you will be treated as Resident but not Ordinary Resident (RNOR). Remember, RNOR do not have to pay tax on their global income in India.
- Any Indian Citizen, who is not tax resident in any other country, shall be deemed to be tax-resident in India. For such taxpayers, their global income will be taxed in India. Such NRIs will have to subject their entire global income to tax in India if they are not a tax-resident anywhere. If you are in tax jurisdiction where taxes are zero (like in the Middle East countries), you don’t have to worry. It is not about zero taxes but about not being a tax resident anywhere.
Other major changes:-
- Travelling internationally / sending money abroad - The government has imposed a 5% tax to be collected on payments made overseas from India. However this is for remittances of over Rs. 7 lakhs.
- Extension on Home Loan Tax Benefit under Section 80EEA for one more year.
- Currently, as per the RBI guidelines, deposits with all commercial banks and cooperative banks are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC). Only Primary Cooperative Societies are not covered under DICGC. Deposit insurance from DICGC has been increased from Rs 1 lac to Rs 5 lacs per depositor. This is good news if you are worried about your bank fixed deposits or savings bank account.
- Now, employer contribution to NPS, EPF and the superannuation funds in excess of Rs 7.5 lacs per year will be taxable. Not just that, even the interest or returns earned on such excess amount will now be taxable. It will affect those have high salaries.