Union Budget 2020 is an event that impacts how one plans for his Taxes & Investments. Here are the key provisions of Union Budget 2020 – Impact on Tax & Investments. Updated 04 Feb 2020.
We have also .written a separate post on Budget 2020 – Highlights & Key Provisions to understand how the overall economy is impacted by budget 2020. Also read this if you are an NRI Budget 2020 – Impact on NRI Taxation & Investments.
Union Budget 2020 – Impact on Tax & Investments
Union Budget 2020 – Impact on Taxation
- – SEC 80 G – Donation
The donee has to update the information of the donor on the income tax portal. So a prefilled information will come just like form 26AS on TDS.
Impact: There is common malpractice of donating & the donee cuts 2-5% and returns balance in cash. So now genuine Trusts & Doner will survive.
2. Income Tax Slabs
The slabs have been rationalized and 2 more slabs have been introduced.
* Subject to certain removals of Exemptions (Union Budget 2020 – Impact on tax & investments). Else, you can continue with old regime.
List of deductions excluded from New Tax Regime (Section 115BAC)
(i) LTA as contained in clause (5) of section 10;
(ii) HRA as contained in clause (13A) of section 10;
(iii) 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.
(iv) Allowances to MPs/MLAs as contained in clause (17) of section 10;
(v) Allowance for the 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) Some of the allowance as contained in clause (14) of section 10;
Union Budget 2020 – Impact on tax & investments – Still Under New Tax Regime, you can take benefit of the following:
- Retirement benefits, gratuity etc.
- Commutation of pension
- Leave encashment on Retirement
- Retrenchment Compensation
- VRS benefits
- EPFO: Employer contribution
- NPS withdrawal benefits
- Education scholarships
- Payments of awards instituted in public interest
* The new tax regime option shall be exercised for every previous year where the individual or the HUF has no business income, and in other cases (like business) the option once exercised for a previous year shall be valid for that previous year and all subsequent years.
* Business income taxpayers cannot change the regime once chosen.
3. Vivaad se Vishwas Scheme – No dispute but trust scheme – Measure to reduce Tax Litigation in Lines with Sabka Vishwas Scheme. Taxpayer will be required to pay only the basic amount without any interest or penalty upto 31.3.2020. Scheme will remain open upto 31.7.2020 (with some additional amount). Taxpayers who have any appeal pending may use the scheme.
4. ESOPs Taxation eased for employees of start-up companies – Employees may delay payment of taxes by upto 5 years from date of allotment.
Up until now, at the time of exercising the ESOP option, its value was deemed to be a prerequisite and included as part of your income. You had to pay tax on this whether or not you had realised the monetary value of the ESOPs.
This has changed now for ESOPs granted in 2020-21 fiscal and onwards. You will have to pay tax on the earliest of the following dates:
- At the end of 5 fiscal years from the year in which you exercised the ESOP
- The date on which you sold the shares
- The date on which you ceased being an employee of the company
The important note here is – you will have to pay the tax within 14 days of this date. Also startup means company qualify under Section 80-IAC of the Income Tax Act.
5. Deduction for Housing Loans(Sec 80EEA) taken on or before March, 2020 for Affordable Housing extended by 1 year. The basic guideline to remain same i.e. house under 45 Lakhs & deduction of Rs 1.5 Lakh.
Union Budget 2020 – Impact on Tax & Investments – Benefits/Impacts on NRIs
– A visiting NRI need to stay 240 days outside India rather than 182 days. So from Apr 1, 2021, Resident Indian will be one who’s in India for 120 days or more.
Criteria of determining NOR in India modified as under:
⎼ Individual who is NRI in 7 out of 10 preceding years
⎼ For HUF, the Manager has been an NRI in 7 out of 10 preceding years
– If an NRI does not belong to any country (living in a different country or on an offshore vessel), he has to pay tax on his global income in India.
– If an NRI is living in zero tax country and is enjoying tax-free benefits in your country of stay, your home country (India) will still tax you.
Clarification: The government clarified in a press release that the intention behind this rule is not pressuring NRIs who are bonafide workers in another country. They are behind people who manage “NRI Taxation” just to escape the Indian Tax payment. My interpretation is that if you have a work visa, you are a bonafide worker.
– The benefit of Withholding tax rate of 5% under section 194LD extended to more instruments including Municipal Bonds and the lower withholding tax rate will be available for more time. So lower TDS will be applied.
– Certain specified categories of G-secs would be opened fully for NRIs.
– TCS @ 5% on Foreign Remittance through Liberalised Remittance scheme for remittance exceeding Rs. 7 Lacs p.a.
– TCS @ 5% on Seller of an overseas tour package who receives any amount from the buyer.
Here is a detailed post on Union Budget 2020 Impact on NRIs
5. Abolishment of Dividend Distribution Tax
FM proposed to remove the deeply unpopular dividend distribution tax (DDT). This does not mean dividends are tax free. They will be added to income and tax as per your tax entitlement.
The Budget has proposed to levy 10% tax deducted at source (TDS) from mutual funds income. Mutual Fund companies may have to deduct 10% if income from mutual funds units is over Rs.5000. Confusion is in the word “income”. Some expert says it is for dividends. Some say it is for Capital Gains. We feel income is “dividend” and not gains. So still waiting for clarification, otherwise we understand this TDS will be on Dividends only.
Update: 04 Feb 2020: Union Government issued a clarification that TDS will only be on DIVIDENDS and not Capital Gains. So it will not impact Redemption (Withdrawal of Funds), Switches, STP & SWP in MFs.
As of now MFs deduct TDS of 15% in equity funds and 30% in debt funds only from NRI investors. There is no TDS from domestic investors. The investor can claim a refund on this TDS based on their tax liability at the time of filing returns.
DDT has also been abolished for MF as well. Flows should get diverted to growth funds over dividend funds given LTCG/STCG tax is lower than the marginal tax rate at which dividends will be taxed.
Union Budget 2020 – Impact on Investments
Deepening of Bond Markets: Certain categories of government securities to be open to all Non-residents and residents. New legislation for netting of financial debts in Derivatives Markets. New Debt ETF to be floated for Government securities after the success of PSU Debt ETF (Bharat Bond).
Investment under the New Tax Regime
If you choose the new regime, Section 80C & related investments will not be required. So investment strategy ELSS, PPF & NPS will need to revisit.
Segregated Units (Side-pokcets) NOT to be taxed fully. Taxation clarified and original date/cost same for side-pocket.
– Dividend Distribution Tax (DDT) abolished, shifted to individuals instead of companies. MFs will have no DDT but Dividend will taxable now in hands of the investor.
Fewer benefits from Corporate NPS, EPF & Superannuation Fund
For those of you in the high tax bracket using corporate NPS for tax planning, there is some bad news. Currently, contribution by a company on behalf of the employee was exempt without a limit. Now an upper limit of Rs 7.5 lakh comes into force for NPS, superannuation and provident fund put together.
These were the details of Union Budget 2020 – Impact on tax & investments. I will keep on updating till I get new/fresh information on the Budget 2020.
