[Budget 2020] A Precious Little Something for Everyone
Rejigging of tax slabs appears a welcome move at first however, it is important to look closely into the implications of forgoing your deductions u/s 80C, 80D, 8024(b) etc
One of the major highlights of the Union Budget 2020 is the restructuring of Income Tax Slabs for individual tax payers. While announcing the lowered tax rates, the FM has clearly stated that the tax payer would surrender all other deductions and exemptions with the adoption of reduced rates. For, the new regime focuses on simplifying tax filing and proposes minimum tax calculations.
Rejigging of tax slabs appears a welcome move at first. However, it is important to look closely into the implications of forgoing your deductions u/s 80C, 80D, 8024(b) etc.
The FM has mentioned scrapping of 70 deductions out of total 100+ under the new regime; the fine print is yet to be disclosed. While on the one hand Union Budget 2020 puts more money in the hands of taxpayers by cutting tax rates, at the same time, it nullifies all tax benefits accrued from contribution to PF, PPF, SIPs in ELSS funds, life insurance premiums, Home loan interest payment and even your house rent allowance.
The real benefit for the individual taxpayer would highly depend on whether the new regime subsumes traditional long term tax benefit instruments such as tax benefits on Home Loan interest, investment schemes, and insurance products or not.
In either case, the option to stay with the old tax regime comes as a breather to the taxpayers. The government has currently presented the new tax regime as an optional move and taxpayers are currently free to choose between the proposed or existing tax rates.
Weigh both options and calculate the effectual benefit of the restructuring of tax-slab.
Another thumbs up are the abolition of dividend distribution tax (DDT). The dividends now will be taxed to the individual taxpayer, however at a marginal rate. In another middle-class focused move, the FM has extended the additional deduction of up to Rs 1.5 lac on the interest paid on loans for affordable housings valued up to Rs 45 lac by a year.
While all these moves will leave additional liquidity for taxpayers, the jury is still out on whether this extra spending power will fuel the demand side.