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What are the New Budget Proposals for FY 2020-2021 that you need to know?

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New Budget Proposals
February 20, 2020

Table of Content

1. What are the major tax provisions introduced in the budget for Individual taxation?

2. What are the different tax slabs and tax rates under the new tax regime?

3. Which are the deductions/exemptions not available under the new tax regime?

4. Whether section 10(10D) exemption is available in the new tax regime?

5. How will the new tax regime work for an individual?

6. What is the comparison of tax under the old and new tax regime?

7. Is the new tax regime optional? Can I change the option once selected for any financial year?

8. Is tax planning still required since FM has announced a lower tax rate without deductions/exemptions?

9. Does my investment in insurance and pension still be eligible for tax benefit?

10. Does new budget proposals apply for current financial year 2019-20?

11. What is the taxability of dividend received in the Budget proposal?

12. Whether there is any TDS on dividend income in Budget proposal?

 

 

  • New Budget Proposal Update FY 2020-2021

1.) What are the major tax provisions introduced in the budget for Individual taxation?

FM introduced a income tax slab rates for Individuals and HUFs for income <Rs. 15 lakh. It provides for new tax slabs with reduced tax rates without allowing for deductions (80C, 80CCC, 80D, 80G, interest from housing loan, etc)/exemptions (LTA, HRA, Standard deduction of salary, etc).

2.) What are the different tax slabs and tax rates under the new tax regime?

Total Income per annum

Tax Rates

Upto Rs. 2.5 lakh

      Nil

Above Rs. 2.5 lakh up to Rs. 5 lakh

      5%

Above Rs. 5 lakh up to Rs. 7.50 lakh
  1.  

Above Rs. 7.50 lakh up to Rs. Rs. 10 lakh
  1.  

Above Rs. 10 lakh up to Rs. 12.50 lakh
  1.  

Above 12.50 lakh up to Rs. 15 lakh
  1.  

Above 15 lakh
  1.  

3.) Which are the deductions/exemptions not available under the new tax regime?

Deductions/exemptions not allowed*

Deduction amount (Rs.)

80C investments
  1.  

House Rent allowance (HRA)

 

As applicable

Leave Travel Allowance (LTA)

 

As applicable

Housing Loan interest
  1.  

Medical insurance premium

 

50,000

(considered for self and parents<60 yrs.)

Standard deduction of salary

 
  1.  

Savings bank interest

 
  1.  

*All chapter VI-A deductions and specific exemptions u/s 10 are not available

4.) Whether section 10(10D) exemption is available in the new tax regime?

Yes. Section 10(10D) exemption continues for a life insurance policy under both new and old tax regime.

5.) How will the new tax regime work for an individual?

While computing your tax liability, in the new tax regime you will have to forgo the deductions/exemptions stated in Q.3 above and apply new tax slabs and reduced tax rates as stated in Q.2 above.

6.) What is the comparison of tax under the old and new tax regime?

The below table captures a comparison of tax under old and new regime, along with the tax savings.

Income

Old regime

(with deductions*)

 

  1.  

New regime

 

 

  1.  

Tax savings in Old regime

  1.  
  2.  

Asset creation happening for meeting future financial goals

Old regime#

New regime

Up to Rs. 7 lakh p.a.
  •  

Rs.33,800
  1.  
  •  

 
  •  

Up to Rs. 10 lakh p.a.

Rs. 21,320
  1.  
  1.  
  •  
  •  

Up to Rs. 12 lakh p.a.

Rs. 62,920
  1.  
  1.  
  •  
  •  

Up to Rs. 15 lakh p.a.
  1.  

Rs. 1,95,000
  1.  
  •  
  •  

*80C-1.5 lakh; 80D-25,000; 80TTA (bank interest)-10,000; standard deduction from salary-50,000, LTA–25,000 and Interest from housing loan-2 lakh

#Asset created will be of 1.5 lakh of 80C plus tax saving shown in column (C) above.

7.) Is the new tax regime optional? Can I change the option once selected for any financial year?

Yes.

a) For individuals without business income, option can be selected every financial year.

b) For individuals with business income, one time option to select the new tax regime from financial year 2020-21. Once option chosen it cannot be changed.

8.) Is tax planning still required since FM has announced a lower tax rate without deductions/exemptions?

Yes, certainly. Though FM has provided an optional new tax regime, an individual has to weigh the old tax regime and new tax regime, to optimize tax savings and creation of wealth through investments for meeting his future needs.

Tax planning is one of the important aspects of financial planning. Taking control of your own finances is a key to wealth creation. This can be achieved by taking tax benefits (deductions/exemptions) available under the Income tax law, which further leads to creation of an asset pool for your future.

The investment in life insurance, pension and health insurance is imperative to fulfill your financial goals such as children's education, marriage, your own retirement needs, life and health eventualities of your family.

9.) Does my investment in insurance and pension still be eligible for tax benefit?

These investments are still eligible for tax benefit under the old tax regime.

10.) Does new budget proposals apply for current financial year 2019-20?

No. It will apply from financial year 2020-21.

11.) What is the taxability of dividend received in the Budget proposal?

Currently dividend is tax free in the hands of the recipient. However, it will be be taxed in the hands of recipient from financial year 2020-21.

12.) Whether there is any TDS on dividend income in Budget proposal?

Yes. Companies distributing dividend to its shareholders will be deducting TDS @10% for dividend exceeding Rs. 5000.

TDS will be reflected in Form 26AS as well.

ARN: ED/10/19/16120

Disclaimer: The above-mentioned tax rates and tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.

Plan Income tax

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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