Before actually knowing what the Budget 2020 offers for us on taxation, here is a quick look on what the previous full budget presented on July 5, 2019 by Finance Minister Nirmala Sitharaman brought for us:
No change in the tax slab and tax rate:
|Tax slab||Tax rate|
|Upto Rs. 2.5 lakh||0|
|Rs. 2.5 lakh- Rs. 5 lakh||5%|
|Rs. 5 lakh- Rs. 10 lakh||20%|
|Rs. 10 lakh plus||30%|
Increase in limit under Section 87A in Interim Budget 2019: In the interim budget presented just before the general assembly elections, the government provided relief to taxpayers earning less than Rs. 5 lakh by increasing limit under section 87 A. Because of this rebate they ended up paying zero tax. While the rebate of a maximum of Rs. 12,500 was granted for FY 2019-20, the limit to be eligible for it was raised to Rs. 5 lakh.
For section 87 A rebate to become applicable, there are needed 3 criterions which need to be met:
1. Resident individual taxpayers are only allowed this rebate
2. The total income after considering any deduction needs to be below Rs. 5 lakh
3. The maximum rebate allowed is Rs. 12500.
Increase In standard deduction: While the concept of standard deduction for the salaried class was reintroduced in Budget 2018, its limit was hiked from Rs. 40,000 to Rs. 50000. This deduction is extended in lieu of medical allowances and transport expenditure.
TDS limit increased: As part of Section 194 A of the Income tax Act, there had been an increase in the threshold limit for tax deduction at source on interest income besides interest on securities from the earlier Rs. 10000 to Rs. 40000. So, interest remains taxable on earnings made on post office accounts or other fixed deposits basis the person's tax slab but TDS limit has seen an increase.
In the full budget 2019, some of the major changes made include:
1. Increase in Cess on super rich: The full budget 2019 hit super rich class had with an increased cess for those earning between Rs. 2 crore to Rs. 5 crore and Rs. 5 crore and above. The effective rate for each of these class has been increased by 3.12% and 6.86%, respectively.
2. NPS made tax friendly: Exemption limit on withdrawal from NPS was increased to 60%. The scheme also percent to withdraw a maximum of 60% after the person turns 60 years in age. In the earlier case, only 40% was tax free but now the entire corpus that can be withdrawn at 60 years is tax free. Also, employees who contribute towards the scheme were allowed some additional tax benefits. The balance 40% is also tax exempt at 60 years of age as no tax is levied on NPS subscriber. However, the annuity or pension is taxable as per the individual's income slab in the year of receipt.
3. Interchangeability of PAN and aadhaar: This was another breakthrough announcement as those without PAN were also allowed to quote aadhaar for carrying different transaction where PAN is otherwise mandatory. Also, in a case when the individual quotes aadhaar, the department of income tax will suo moto issue PAN. So, with this provisions, taxpayers can also file their ITR just by quoting their aadhaar.
4. E-assessment scheme 2019: The scheme aimed to offer more transparency in the system as there shall be no physical interaction between the taxpayers and tax authorities in respect of any of the proceedings involving tax and other such issues. .
5. Home loan deduction: As part of the newly introduced section 80EEA, there was allowed a deduction of up to Rs. 1.5 lakh on home loan interest payment. Under section 24, interest on home loan up to Rs. 2 lakh per year is allowed deduction. Nonetheless for you to be eligible to avail section 80EEA, the registration of the house should not cost more than Rs. 45 lakhs.
6. TDS on cash withdrawal over Rs. 1 crore per year: Withdrawals from bank over Rs. 1 crore in a year for business payment will attract a TDS of 2%.
7. Deduction on interest paid for purchase of electric vehicles: On loans taken to purchase electric vehicles, there was introduced a deduction of as much as Rs. 1.5 lakh.