Income tax changes to expect from Budget

With the economy in dire straits, all eyes are on finance minister Nirmala Sitharaman who will present her second budget today. While corporates have their own long wish list from Budget 2020, income tax payers, too, have their own demands. As always, most are hopeful for a rejig or a cut in income tax rates or slabs. Here is a look at possible announcements the middle-class taxpayer can expect from Budget 2020.Rejig in income tax slab rates The last meaningful change in income tax slabs was made in 2014 when the Modi government presented its first Union budget. Since then, there has not been any major change in these limits albeit some benefits and sops which were given in the years that followed. In fact, we saw the highest tax rate applicable to an individual being raised to 42.744 per cent in July 2019 when the full budget for FY 2019-20 was presented. The erstwhile maximum tax rate was 35.88 per cent - this jump of nearly 7 per cent has hurt even the super-rich.The interim Budget presented by the government in February 2019 extended the full tax rebate to resident individuals with total income up to Rs 5 lakh."The existing tax slabs are, up to 2.5 lakh (nil tax), Rs 2.5-5 lakh (5 percent), Rs 5-10 lakh (20 percent), and above Rs 10 lakh (30 percent). There is an expectation to rationalise these slabs to, up to Rs 5 lakh (Nil tax), Rs 5-10 lakh (10 percent) and Rs 10-20 lakh (20 percent) and above Rs 20 lakh (30 percent). This will benefit the taxpayers at large and will give more money to spend," said Kuldip Kumar, Partner and Leader, Personal Taxation, PwC India. Enhance section 80C limitSection 80C, of the Income-tax Act, 1961, is at the core of tax-saving for all categories of individuals. Whether the individual is a government employee, privately employed or for that matter working in an NGO, use the section 80C basket to save on tax.The deduction under Section 80C was last increased in 2014, from Rs 1 lakh. "The overall exemption limit under section 80C should at least be enhanced to Rs 3 lakh, from the current Rs 1.5 lakh. Similarly, while increasing the limits under 80C, concurrently the limit of investment under PPF may also be increased. The tax policy makers in sync with PPF authorities, can work at rejigging the limit of Rs 1.5 lakh per individual including minor children, and providing deduction for the additional investment under section 80C," said Nitin Baijal, Director, Deloitte India.Tweaks in long-term capital gains tax on equityThe recent years have seen changes in capital gains taxation which has increased the tax burden of individual tax payers. For instance, the long-term capital gains (LTCG) exceeding Rs 1 lakh on sale of equity shares and units of equity-oriented funds on which Securities Transaction Tax (STT) is paid, which were earlier tax exempt, were brought to tax at 10 percent for transfers made on or after April 1, 2018."To encourage small tax payers to invest in the stock market, the government may consider increasing the limit of Rs 1 lakh for taxing the long-term capital gains from transfer of such equity shares and units of equity-oriented funds. Further, the government may also consider specifying a holding period (say 5 years) and if such shares or units are transferred after the specified holding period, the long-term capital gains may be considered as exempt," said Shalini Jain, Tax Partner, EY India.Removal of dividend distribution tax The other big change expected in the Budget is removal of dividend distribution tax. At present, any dividend distributed by companies attracts an effective tax rate of 17.65 per cent. Further, shareholders receiving dividend above Rs 10 lakh a year are required to pay an additional 10 per cent tax.

from Economic Times https://ift.tt/31fFW1U