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Takeaways for Individual Taxpayers 2020-21

The Finance Minister of India in the Union Budget of 2020-2021, laid down a visionary and all-inclusive reform to stimulate growth, easing out compliances, simplifying tax structure, and reducing litigation. 

The budget is a roadmap for India to create a whopping $5 trillion economy by 2025. The Budget aims to increase the purchasing power of an individual by creating opportunities for a more disposable income. Finance Minister Sitharaman intends to boost the economy after the country has seen a sharp decline from 8.1% to 4.5% in the past 6 months.  This article outlines the takeaways for individual taxpayers, including changes in residency rule, personal tax framework, employer-related tax, and retrial plans.

Major Takeaways for Individual Taxpayers 

The major takeaways are:

  • Change in Income Tax System 
  • Residency Rule Change
  • Ease of compliances
  • Affordable housing scheme
  • Retrial System

Budget 2020 - Income Tax Outgo

  1. Change in Income Tax System

    The Finance Minister introduced income tax relaxations for the taxpayers in the Union Budget 2020. It is as follows:

    Income  Current Income Tax Rate
    Below Rs 2.5 Lakh Nil
    Rs 2.5 Lakh to Rs 5 Lakh 5%
    Rs 5 Lakh to Rs 7.5 Lakh 10%
    Rs 7.5 Lakh to Rs 10 Lakh  15%
    Rs 10 lakh to Rs 12.5 lakh 20%
    Rs 12.5 Lakh to Rs 15 Lakh 25%
    Above Rs 15 Lakh 30%

    For paying income tax, there are two systems of tax available. In the new tax regime, there are multiple tax rates available for different slabs of income. One can choose the new one or continue the older one as per their choice.

    Taxpayers without business income can opt for a new simple tax regime every year for filing income tax returns. Taxpayers with a business income can choose the new tax structure for all upcoming tax years. But if they switch back to the older tax system once, the business owners won't be able to return to the newer system. The taxpayers cannot avail of the newer tax system until they cease to become business owners. The taxpayers can opt for the new regime by filing the tax return by the due date.

  2. Change in Residency Rule

    In the Union Budget of 2020-21, the finance minister revised the maximum days that can be spent in India from 182 days to 120 days for triggering tax residency as an Indian citizen. The finance minister has also changed the conditions for a person to be eligible as NOR or Not Ordinary Resident. A person is considered a NOR for tax purposes if they have been a non-resident Indian for 7 years out of the past 10 years. This replaces the old criteria in which a non-resident person stayed in India for 9 years out of the past 10 years or a person staying for 729 days or less in the past 7 years.

    This clause establishes that such a person who stays more than the days mentioned above will be deemed an Indian resident. He/she is not liable to pay tax in any other country if they are earning from any profession or business in India.

  3. Ease of compliances

    In the Union Budget, the Finance Minister stated that in the current Income Tax Act, a change had been made, which allows the taxpayers to claim against an issue through their registered IT account on the e-tax filing portal. To improve transparency, the efficiency of Income Tax, and for eliminating interference of humans, the faceless scheme will be used for an e-assessment program started last year.

  4. Affordable housing

    Taxpayers can claim an extra tax deduction up to Rs 1.5 lakh per annum on the interest paid for loans taken for first time affordable house purchasing. The extra tax rebate was subjected to the condition that loam was sanctioned before March 31, 2020. To promote the government's scheme of 'Housing for All' and to widen the taxpayer's base, it was noted that the date of loan sanction increased by 1 year, so the last date is March 31, 2021. 

  5. Retrial Schemes 

    There are various employer contributions made to the following retrial schemes, which are currently liable to tax only when: 

    • The provident fund must exceed 12% of the salary paid by the employer
    • Under the National Pension Scheme Contribution to the salary for central government, workers must exceed 14% and the salary for other workers by 10%
    • The fund for superannuation must exceed INR 150,000
    • In certain situations, accruals are not acceptable

    There is an aggregate limit of Rs 7.5 Lakh to the schemes mentioned above on employer contribution as the budget proposed. Contributions higher than the limit would cause employees to pay extra taxes.  

  6. Miscellaneous Taxes

    • TDS was reduced from 10% to 2% for technical services under section 194J
    • The tax audit threshold is increased in the Union Budget from Rs 1 to Rs 5 because the gross receipts or the turnover in cash doesn't increase above 5% during the previous financial year. For taxpayers mentioned above, the due date for tax payment and audit is extended to October 31 from September 31st
    • Start-ups and employees under Employee Stock Option Plans (ESOPs) may choose to defer from paying taxes up to 5 years from the time of exercise of the start-ups or until the person leaves the start-up, or till the person decides to sell the shares, whichever is earlier
    • Under Section 50C, the value of stamp duty of the property must not exceed 110% of the actual cost on the transfer of capital assets like building or land. In such a case for calculating capital gain transfer, the consideration's full value will be considered. The amendment was changed from 105% to 110%
    • Section 234G states that a fee of Rs 200/day would be charged for a person defaulting in issuing certificate or statement by the university, college, research association, company or other such institution under Section 35 

    Hence, budget 2020, as the Finance Minister said, was focused on three key things – Economic Development of India, Aspirational India, and building a proactive and caring society for the citizens of India. All changes above were introduced, keeping in mind such themes that promote the growth of the individual's financial conditions and preserving fiscal prudence.

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Written By: Paisawiki - Updated: 19 March 2021