Hon’ble Finance Minister Nirmala Sitharaman presented the Union Budget 2020-21 on Feb 1st. The union budget of this year surrounds on three ideas- Aspirational India, Economic development, A Caring Society.
The Finance Minister also proposed new income tax slabs with lower rates. You can opt for these income tax rates who want to give up some tax exemptions and deductions.
Optional New Tax Regime
There is no change in the existing income tax rates for individuals, however, there is an option to choose a new tax regime under which individuals will need to go without availing some tax deductions and exemptions like house rent allowance, standard deduction, deductions under Section 80C, deduction for self-occupied house property, leave travel concession, etc.
Let’s go through the new tax regime.
|Slab Rate||Rate of Tax|
|Up to ₹250,000||Nil|
|INR 2,50,001 to INR 5,00,000||5%|
|INR 5,00,001 to INR 7,50,000||10%|
|INR 7,50,001 to INR 10,00,000||15%|
|INR 10,00,001 to INR 12,50,000||20%|
|INR 12,50,001 to INR 15,00,000||25%|
If opted for the existing tax regime, you can take benefit of tax deductions under section 80D, 80C, house rent allowance, standard deduction, etc. However, opting for the next tax regime is beneficial for job-starters, pensioners, entrepreneurs and for taxpayers who don’t claim under available tax deductions.
Individuals whose taxable income is up to INR 5 lakh will be exempted from tax liability under both the existing and new tax regimes.
Dividend Distribution Tax Abolished
Depending on the existing provisions, domestic companies that distribute to pay the dividend are liable to pay a Dividend Distribution Tax (DDT). With the new announcement, it is proposed to remove the DDT that will help to boost the investments.
Employer Contributions to be Taxed
Contributions made by the employer to an employee’s account in a provident fund or retirement fund would be taxable for the employee. The employer contribution exceeding Rs 7,50,000 would be taxable.
Additional Deduction for Home Loan
An additional tax deduction of Rs 1.5 lacs was made available for interest on home loan taken for house property, provided the stamp duty doesn’t exceed Rs 45 lacs. In order to avail of this tax deduction, the loan amount needs to be sanctioned between 1st April 2019 to 31st March 2020.