Something To Cheer For Lower, Middle Income Group

Finance Minister Nirmala Sitharaman presented the much-anticipated Budget in Parliament on February 1 amid high expectations from the common man that the Budget will have some major sops for him. True to the indications by the FM in the recent past that she will provide relief on the personal tax front, a number of changes have been proposed to existing slab and tax rates.

In a historic move, the FM announced the launch of a new personal income tax regime for taxpayers who may want to forego the deduction and exemptions being availed by them. The tax slab rates under the new regime would be as follows: 

However, the rates of surcharge and cess remain unchanged. 

Budget 2020 provides that a taxpayer has the option to be taxed under the existing regime or the proposed regime. Those who propose to opt for taxation under the new regime will not be entitled to exemptions/ deductions such as standard deduction, deduction under Section 80C, 80D, house rent allowance, leave travel concession, interest on self-occupied/ vacant property and host of specified deductions/exemptions. 

While the proposed regime may offer some (though not substantial) relief in comparison to the existing regime, this impact may get nullified or may be negative in case of individuals having liability to pay interest on home loan for a self-occupied property. However, this would need to be analysed on a case-by-case basis to ascertain the actual impact. 

Further, the individual taxpayer not having business income has an option to make a choice between the existing regime and the proposed regime every year.

Another paradigm change introduced by Budget 2020 is the abolition of Dividend Distribution Tax payable by corporates / mutual funds. Consequently, dividends would be taxable in the hands of shareholders/ unitholders at the applicable slab rates. This will impact adversely individuals who were earlier not liable to pay tax on dividends or those paying 10 per cent on dividend income exceeding Rs 10 lakh. In contrast, it is proposed that surcharge on capital gains arising on sale of listed equity shares/units of equity-oriented mutual fund/units of business trust shall not exceed 15 per cent, which is a welcome change.

During last year’s Budget, the government allowed additional income tax deduction up to Rs 1.5 lakh on account of loan availed until March 31, 2020 towards affordable housing for purchase of first residential property, the stamp duty value of which did not exceed Rs 45 lakh, subject to conditions. While the time limit for availing loan against such property has been extended to 31st March 2021, this deduction would not be available in case a taxpayer opts for the proposed tax regime.

In nutshell, while on the one hand the Budget has something to cheer for lower or middle-income group, it does not bring similar reason to smile for the higher income group. Though expectations of the common man on more tax sops were high, the same has not been met possibly due to the fiscal deficit constraints that the FM  faced, who had to tread a delicate path to strike a balance between the fiscal deficit and reducing taxes for the common man.