Though the FM Nirmala Sitaraman has extended numerous statutory deadlines related to taxation from 31 march to 30 June, the Finance Bill 2020 will be applied from 1 April, along with it the amendments proposed in the Union budget. Here are three changes in tax rules you should keep in mind in the new financial year (2020-2021).
New tax regime
In FY 2020-2021, you have the choice to opt for the new income tax regime or remain with the old one. Under the new system, there have seven tax slabs for individuals and Hindu Undivided Families (HUFs).
There’s no income tax for income up to ₹2.5 lakh, 5% for income between ₹2.5 lakh and ₹5 lakh, 10% for income between ₹5 lakh and ₹7.5 lakh, 15% for income between ₹7.5 lakh and ₹10 lakh, 20% for income between ₹10 lakh and ₹12.5 lakh, 25% for income between ₹12.5 lakh and ₹15 lakh, and 30% for income above ₹15 lakh.
Those with income under ₹5 lakh can continue to claim rebate under Section 87A up to ₹12,500, But the lower tax rates under the new tax regime come with certain conditions, for example, giving up most of the exemptions and deductions, including house rent allowance, standard deduction on salaries, deductions under Sections 80C and 80D and those related to your home loan.
Note – Income tax Slabs for the new Financial Year is given on this link – Income tax slabs for AY 2021-22 under new tax regime and old tax regime
Dividend Distribution Tax (DDT) rules
The Finance Act, 2020, removes dividend distribution tax (DDT) levied on dividends distributed by companies. Now, companies are required to pay DDT at 15%; after taking into consideration the surcharge and cess, the effective rate is 20.56%.
From 1 April, dividend income will be taxed at the applicable slab rates in the hands of the stakeholders. Also, before distributing the dividend, companies are required to deduct TDS at the rate of 10%, where the dividend paid exceeds ₹5,000.
“However, if a company declares dividends before 31 March 2020 but pays it on or after 1 April, the company will have to follow the old rule.” DDT won’t be levied even on dividends paid by mutual funds; tax will be charged at stockholders’ slab rates.
- All about e-payment of direct taxes
- 15 tax free incomes under income tax act 1961
- CBDT notifies Amendment in FORM NO. 12BA under Income Tax Rules, 1962
- Income Tax Refund – How to Claim & Check Refund Status
- All about permanent account number(PAN)
A lot of tax rules and compliances are reliant on the residential status of taxpayers.
According to the new rules, an Indian citizen or person of Indian origin visiting India for less than 120 days in the previous year would qualify as a non-resident Indian (NRI); before such a person was considered an NRI if he spent 182 days or more in India, in addition to an aggregate stay of 365 days or more in the preceding four years. The 120-day rule won’t apply in certain cases.
“According to Section 6 of the Income-tax Act, 1961, an Indian citizen who has total income, other than from foreign sources, exceeding ₹15 lakh during the previous year shall be deemed to be a resident in India in any previous year, if he is not liable to tax in any other country by reason of his domicile or residence or any similar criteria.”
Until Financial Year 2020, an individual was classified as “not ordinarily resident (NOR)” if he was an NRI for nine out of 10 preceding years; this has been reduced to seven out of 10 years.
While these are the major changes, consult an expert to know many others that can affect you individually.