In the much awaited Budget 2020 which was presented last week, Finance Minister Nirmala Sitharaman stated certain new income tax guidelines including change in tax slabs for individuals earning up to Rs 15 lakh each year. Financial advisors must explain these latest rules to their clients which will be effective from FY 2020-21.

  1. The new income tax slabs are as follows:
  • Up to Rs 2.5 lakh – Exempt from tax
  • 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 lakhs – 25%
  • Above Rs 15 lakh – No change in tax rates

Financial experts must keep in mind that these new tax slabs are applicable for individuals who give up deductions and exemptions. The deductions consist of Section 80C, Section 80D, Leave Travel Allowance, House Rent Allowance, Standard Deductions and others. These rates are optional. Your clients can stick to the older slabs if they wish to.

  1. Presently, firms have to pay dividend distribution tax (DDT) on the dividend disbursed to their shareholders at the rate of 15% in addition to relevant surcharge and cess. In Budget 2020, it was announced that the dividend will be taxed in the hands of the investors only. The dividend earnings will be added to the investors’ income and taxed as per their income tax slabs.
  2. To encourage affordable housing, the Finance Minister prolonged the date for obtaining added tax benefit on buying new houses up to Rs 45 lakh by a year to 31st March, 2021. Therefore, if your clients have taken loans to buy houses up to Rs 45 lakh, they are now entitled to claim added deduction of Rs 1.5 lakh. This amount is in addition to the Rs 2 lakh deduction given to home buyers who have purchased affordable housing on loans taken up to 31st March, 2020.