Budget 2020: Tax Benefits From the Red Briefcase

Finance Minister Nirmala Sitharaman will present Union Budget of India for 2020–2021 on 1st February 2020, at 11 a.m. It is her second budget. No doubt this budget is a difficult one. This is because India has been going through a tough and stressful time. Country needs the revival. Several key indicators have fallen to multi-year lows in this fiscal year. Some of it are:

GDP growth: 5% (Lowest in 11 years)
Private consumption: 5.8% (Lowest in 7 years)
Investments: 1% (Slowest in 17 years)
Manufacturing: 2% (Lowest in 15 years)
Agriculture: 2.8% (Lowest in 4 years)

The main question is that what this budget may bring for the Indian People. How can people take benefits from it. This article will give you an idea about the upcoming announcement regarding tax benefits in this 2020 budget.

1. Change in Tax Slab Rate

Finance Minister Nirmala Sitharaman may announce some relief in this year’s Budget on the personal income tax. According to the current tax slab, income up to Rs. 5,00,000 is taxed at 5% and from Rs. 5 lakh to Rs 10 lakh at a rate of 20%. Some thought process to reduce tax rates may carried on in the Budget 2020. It will increase the purchasing power of the individuals.

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A company is currently paying income tax on its taxable profit. Inspite of, when it distributes the surplus profit to the shareholder it will have to pay DDT at 20.56%. In addition, resident non-corporate taxpayers are also required to pay additional 10 percent (plus applicable surcharge and cess) tax on dividends above Rs 10 lakh.

2. Exemption from LTCG and DDT

Experts also expect the government to exempt dividend distribution tax (DDT) and long-term capital gains tax (LTCG) on shares listed on stock exchanges. “Long-term capital gains tax (LTCG) levying on listed stocks and securities transaction tax (STT) amounts to double taxation”, tax experts say.

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“STT was introduced in 2004 and subsequently, long-term capital gain on which STT is paid was exempted from taxation. Tax on long-term capital gains on listed securities was reintroduced in the Union budget of 2018. At the same time, STT continued which had negative effects on investor sentiments,” says Ashok Shah of NA Shah Associates. “Either the Government should abolish STT on listed securities or exempt Long Term Capital Gain.” he added

3. Home Loan

Moreover, the government may carry out some tax benefits for home loan buyers to help the real estate sector. In last year’s July budget, Finance Minister Nirmala Sitharaman declared an additional deduction of up to a maximum of 1.5 lakh for interest paid on a loan borrowed till 31 March 2020, for the purchase of an affordable house valued at 45 lakh. The expectation is to extend this deduction to all first time home buyers regardless of property value. This will be a substantial relief for individuals considering investing in their primary homes.

4. Pension fund

The Pension Fund Regulatory and Development Authority (PFRDA) is seeking to increase the income tax benefit under NPS to about Rs1 lakh in the coming budget. A tax deduction under Section 80CCD (1B) of the Income Tax Act is currently available on the Tier I NPS account for an investment of Rs 50,000 in a fiscal year.

Tax Calendar

If your employer also contributes to your NPS account, which is mandatory for government employees (with the exception of the Armed Forces), an additional deduction of up to 10% of the salary (basic + DA) is available regardless of any income tax deduction allowed for in Section 80 CCD(2).

The regulator also urged the government to extend the 14 percent tax-free contribution facility of NPS to all subscriber categories (only central government employees are currently eligible). As of 1 April 2019, 14% of employers’ pension contribution to central government employees under the NPS is tax-free. For others, up to 10 percent of the employers’ contribution is tax-free.

Correct Calculation of Income Tax for 2019-2020

Also recommendations have been given for Increasing the limit from current Rs 1.5 lakh under section 80C to Rs 2.5 lakh since the existing limit can easily be filled with the provident fund contributions and insurance premium by individuals.

5. GST rate cuts

Over the past two years, reductions in the GST rate have resulted in declining tax collections. Nevertheless, the automotive sector is looking forward to a reduction in the rate of GST from 28% to 18%. In fact, lithium-ion batteries may get exemption from 5 percent duties. Also, the health care segment expects the health care services to have a nil rated service under GST. Likewise, different items that fall between 18 percent and 28 percent may fall under a single rate.

Tax Discussion Forum

Apart from the above, this budget may also bring specific reform for the sectors like Power, infrastructure, non-banking financial companies (NBFCs), and Automobiles sector.

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