The Union Budget 2020-21 will be announced on February 1, and everyone is waiting with bated breath to see what Finance Minister, Nirmala Sitharaman, has in store for us. The expectations of income tax payers are running high, as this budget is one of the key factors in reviving our sluggish economy.
Taxpayers are expecting a slash in income tax rates though tax rate cuts will definitely hit revenues at a time when the government’s finances are doomed. Apart from some rationalization in income tax rates, experts also expect the government to lower the dividend distribution tax and long-term capital gains tax on the listed securities.
- Currently taxpayers having income up to Rs 5 lakh are taxed at 5%, and those falling under income from Rs 5 – 10 lakh are taxed at 20%. Moderating the personal income tax rates by bringing in slight changes is expected in the Union Budget. Considering the steep rise in cost of living due to inflation, it is suggested that the basic limit for exemption and other income slabs should be enhanced to provide some benefit to the lower income groups.
- Modifications in Dividend Distribution Tax (DDT) are anticipated as well. Presently, companies pay income tax on their taxable profit. Thereafter, when they distribute the surplus profit to shareholders, they need to pay DDT at 20.56%. Further, resident non-corporate taxpayers also need to pay additional tax at 10% (plus applicable surcharge and cess) on dividends above Rs 10 lakh.
- Long term capital gains tax was re-introduced in 2018 after a gap of 14 years. This tax is applicable on profits arising from the sale of applicable assets (such as equity, mutual funds and property) held for more than one year from the date of purchase. Financial experts say that a relaxation on the LTCG tax which is applicable on equities will promote a better market participation.
- FM Nirmala Sitharaman had stated in the previous budget that an additional deduction of up to Rs 1.5 lakh on interest paid on home loans borrowed up to March 31, 2020 for purchase of an affordable house valued up to Rs 45 lakh would be allowed. This year, taxpayers expect that this decision will be extended to all first-time home buyers irrespective of the property value. This will come as a big relief for all first-time buyers who are looking forward to invest in their first home.
- Pension Fund Regulatory and Development Authority or PFRDA has sought an increase in income tax benefit under National Pension System or NPS to Rs 1 lakh in the upcoming budget. An investment of up to Rs 50,000 in a financial year in Tier I NPS account is eligible for tax deduction under Section 80CCD (1B) of the Income Tax Act. In scenarios where your employer is also contributing towards your NPS account, an additional deduction of up to 10% of salary (basic + DA) irrespective of any limit qualifies for income tax deduction under Section 80 CCD (2).
Union Budget 2020-21 may be the most waited for budget in the last two decades as this will be a deciding point for the direction of the Indian economy. Join us for live updates on this Saturday!