Income Tax Regime
On February 1, 2020, Finance Minister Nirmala Sitharaman, proposed a new optional income tax regime. This new regime offers lower rates as a trade-off for foregoing exemptions for annual incomes up to around 15 Lakh Rupees. The move supposed to be a relief for those lower and middle-class taxpayers.
In return for the lower rates offered, those opting for this optional scheme are not allowed to have any kind of tax deductions. This whole process is substantial for tax benefits.
New tax structure rejigged
The Finance Minister Nirmala Sitharaman rejigged the new tax structure into 4 thinly sliced tax slabs between 5 Lakhs to 15 Lakhs Rupees. The rates of taxable income have been modified.
The following are the slabs and the modified percentage of the whole taxable income:
- For 5 to 7.5 Lakhs, the percentage was modified from 20% to 10%.
- For 7.5 to 10 Lakhs, the percentage was modified from 20% to 15%.
- For 10 to 12.5 Lakhs, the percentage was modified from 30% to 20%.
- For 12.5 to 15 Lakhs, the percentage was modified from 30% to 25%.
The optional new tax scheme
According to experts as well as Financial ministry, the new optional income tax regime is estimated to cost about 40,000 Crore per year, for the national treasury; in foregoing IT revenues. For those people who do not have any business income, this choosing option is completely reversible.
Dividend Distribution Tax (DDT)
As is well known, Dividend Distribution Tax (DDT) is that tax, which is imposed by the Indian central government on Indian firms or companies based on the dividend paid to a company’s investors. It is mandatory for the company to deposit DDT within 14 days of declaration, distribution or dividend payment: whichever is earlier.
As per the previous budget: under DDT, companies, firms, business organizations, or mutual funds had to pay up to 15% of the dividend income. However, the dividend income of up to 10 Lakhs annually was not added to a person’s taxable income. The new budget has scrapped the DDT entirely. Accordingly, dividend income will be added as a part of an individual’s taxable income, and this could be taxed up to around 42.7%. This move is considered as a big disincentive for those who use investments as tax saving instruments.
Tax Payer’s Charter
The Finance Minister, Nirmala Sitharaman, has promised a tax payer’s charter in this budget. The rights of this charter would soon be made part of the statutes. The details were not revealed in the budget. This charter serves to establish trust between taxpayers and tax- administrators.
No respite for cheating NRIs!
The new budget has tightened screws on those NRIs who seek to escape tax by exploiting their non-resident status. This change was brought forth as some NRIs used loopholes to evade taxes by diligently dividing their time between India and overseas; thus, getting categorized as non-tax residents in India. A 182-day relaxation has been made available to Indian citizens abroad and those of Indian origin.
This gives a small glimpse of the new tax deal for the common man in India as well as the NRIs.