Here are the changes in tax rules you should know as we enter the new financial year (FY).
As India entered a new financial year on Wednesday, the Finance Bill 2020 will come into effect on April 1. While the finance ministry has extended various statutory deadlines, the changes proposed in the Union Budget 2020, including a new tax regime, will be implemented.
Earlier there were speculations that the financial year might get extended but the government has said the extensions to June 30 would apply to only some statuary deadlines related to tax.
Here are three changes in tax rules you should know as we enter the new financial year (FY).
New Tax Regime
Finance Minister Nirmala Sitharaman had announced a new income tax regime in the Budget to allow taxpayers save more money. The new regime, however, comes with certain terms and conditions.
"We propose to bring a personal income tax regime, where income tax rates will be reduced, so now, a person earning between Rs 5-7.5 lakhs will be required to pay tax at 10% against current 20%," she said.
While those earning up to Rs 5 lakh in a year will pay no tax, a person earning Rs 15 lakh per annum and not availing any deductions will now pay Rs 1.95 lakh tax in place of Rs 2.73 lakh, the FM said.
Under the new personal income tax regime, individual taxpayers will pay tax at a reduced rate of 10% for income between Rs 5 lakh and Rs 7.5 lakh. For income between Rs 7.5 lakh and Rs 10 lakhs, the tax rate will now be 15% against the current 20%. For income between Rs 10 lakh and Rs 12.5 lakh, the new tax rate will be 20%, down from 30% now. Rs 12.5 lakh - Rs 15 lakh - tax will be 25%. Income above Rs 15 lakh will continue to be taxed at 30%.
Here are the new income tax rates as proposed in the Union Budget 2020
> No tax for income below Rs 5 lakh
> Income between 5 lakh -7.5 lakh: 10%
> Income between 7.5 lakh- 10 lakh: 15%
> Income between 10 lakh- 12.5 lakh: 20%
> Income between 12.5 lakh- 15 lakh: 25%
> Income above 15 lakh: 30%
However, these reduced tax rates can only be availed by those who do not avail relief for investments.
Dividend Distribution Tax
The Finance Act, 2020, eliminates dividend distribution tax (DDT) levied on dividends distributed by companies which means it will be taxed at the hands of recipients as per applicable slab from April 1.
Companies are also required to deduct tax at source (TDS) at the rate of 10%, where the dividend paid exceeds Rs 5,000.
Definition of residency for NRIs
The Finance Act 2020 has changed the definition of a non-resident Indian (NRIs) for income tax purposes. An Indian citizen who visits India for a period of 120 days or above will be a resident as per the Income Tax Act while the earlier definition was 182 days or more.
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