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CA RK Agrawal Gives Six-point Income Tax Advisory

The financial year 2019-20 was closed on March 31 as usual, and the new fiscal year 2020-21 is starting from today. In view of the lockdown to check the spread of the coronavirus, the government has already extended the deadlines for certain statutory compliances for 2019-2020. As the government did not extend the financial year closing on March 31 2020, the new financial year has already begun with effect from today. There are some important changes that will come into effect from April 1, 2020, in the Income Tax.

By CA RK Agrawal

1. New Income Tax Regime
The new tax slabs will come into effect from the financial year 2020-2021. However, the old tax slabs will also remain in effect, giving a choice to the individual to opt between the two. Under the new tax rates there is zero tax for income up to Rs 2.5 lakh; 5% for income between Rs 2.5 lakh and up to Rs 5 lakh; 10% for income between Rs 5 lakh and up to Rs 7.5 lakh; 15% for income between Rs 7.5 lakh and up to Rs 10 lakh; 20% for income between Rs 10 lakh and up to Rs 12.5 lakh; 25% for income between Rs 12.5 lakh and up to Rs 15 lakh; 30% for income above Rs 15 lakh.

But under this new lower tax rates, the individual will have to give up on a lot of deductions that could help reduce taxable income like standard deduction, the popular deductions under Section 80C, exemptions on house rent allowance, leave travel allowance (LTA) and the deduction on interest paid on home loans. Whether an individual should choose the new tax regime or the old one depends on a case to case basis.

2. Dividend Become Taxable in the Hand of Recipient
Dividends received from mutual funds and domestic companies will be taxable at the recipient’s hands. For example, dividends earned by the recipients from their mutual fund investments will be taxed at their slab rates. Earlier, the dividend was tax-free in the hand of the recipient as dividend distribution tax (DDT) was payable in the hand of the payer.

The new tax regime from April 1 increases the tax burden on investors in higher tax brackets while lowering it for people in low tax brackets. However, it is to be noted that TDS or tax deduction at source at the rate of 10% will be levied if the dividend received by an investor in a financial year exceeds Rs 5,000.

3. Employer’s Contribution above Rs 7.5 Lakh to EPF, Superannuation Fund, NPS Becomes Taxable
If the employer’s contribution exceeding Rs 7.5 lakh in a year towards NPS, superannuation fund and EPF, it will be taxable in the hands of the employee. This change in income tax rule will be applicable in both the old and new tax regime. It should be noted that if an individual opts for the new tax slabs, he can still claim an income tax deduction on employer contribution towards employee’s NPS account. If your employer is contributing towards your NPS account, a deduction of up to 10% of salary (basic + DA) irrespective of any limit qualifies for income tax deduction under Section 80 CCD(2). The central government employees enjoy a higher limit of 14% of the salary. For others, the limit is 10%.

4. Extension of Deadline to Avail Deduction on Loan for Affordable House
For those who are buying a house for the first time and if the value is up to Rs 45 lakh, the government has extended the date for availing additional tax benefit by a year to March 31, 2021. House owners who have taken loans to purchase homes up to Rs 45 lakh will be eligible to claim an additional tax deduction of Rs 1.5 lakh on interest in addition to the existing deduction of Rs 2 lakh.

Earlier, this deduction was allowed on housing loans sanctioned on or before March 31, 2020.

5. Deferring Tax Payment in Respect of Payment Pertaining to ESOPs
Providing relief to employees of startups, the government has allowed deferment of TDS on share allotted to them under stock option ownership plan (ESOP). As per tax amendment TDS on share allotted under ESOPs scheme can now be deducted at the time employee leaving the company or selling of shares or expiry of five years from the end of the relevant financial year in which share was allotted, whichever is earlier.

6. Changes in Rules to Determine NRI Status
Budget 2020 proposed certain changes in the criteria used to determine the ‘non-resident Indian (NRI)’ status or otherwise of a person. However, certain amendments were made in those proposals at the time of passing of the Budget in the Parliament. As per the final changes made, a non-resident Indian visiting India will be considered ‘Resident but not ordinarily resident’, if his/her taxable income accruing in India exceeds Rs 15 lakh, stay in India exceeds 120 days and his/her total stay in India in the previous four financial years is 365 days or more.

However, if the taxable income accruing in India does not exceed 15 lakhs, then the individual will be considered an NRI if his/her stay does not exceed 181 days.

Further, an Indian citizen will be deemed to be a resident in India if he is not liable to pay tax in any other country or territory by reason of domicile or residence or any other criteria. However, this provision will be applicable if the income accrued in India is more than Rs 15 lakh in a financial year.

The author is a chartered accountant at Krishna R Associates. The views are his own.

Author’s Disclaimer:
The entire contents of this article have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, the author assumes no responsibility, therefore. Users of this information are expected to refer to the relevant provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. The author assumes no responsibility for the consequences of the use of said information.

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