By Deepika Mathur and Mona Karnavat
Finance Minister Nirmala Sitharaman has presented a Union Budget that is designed to boost income in the hands of taxpayers and provide a fillip to rural income and infrastructure. Individual taxpayers must carefully assess tax liability under the new tax regime given the multiple changes suggested. Check slab
Let’s take a quick look at the key changes proposed in the personal tax regime.
Changes in the personal tax rates
The proposed law now provides taxpayers an option to avail a new income tax slab and rate structure without availing the benefit of certain exemptions, deductions and set-offs of house property losses. The below table provides the current and the proposed rates. Individual will have the option to be taxed as per the proposed regime or as per the current regime.
For taxpayers with income of Rs 15 lakh, there is a net saving of Rs 7,800 under the new regime assuming they claim standard deduction from salary of Rs 50,000, section 80C deduction of Rs 1.5 lakhs and section 80D deduction of Rs 25,000. In case the individual is also claiming deductions such as HRA/ LTA/ Loss from House property, shifting to the new regime will not be beneficial. Here’s the full list of all the exemptions
Taxability of dividend income
With the proposed removal of DDT an individual is liable to pay the tax on dividend income as per the applicable slab rates. This will be applicable to dividend income from mutual funds as well. Under the current regime, dividend from mutual funds are fully exempt and dividend on equity from domestic companies is taxable at the rate of 10% beyond Rs10 lakhs. As a result, tax liability for individuals with dividend income will go up.
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Deferment of perquisite tax on ESOPs for start-ups
The Budget seeks to increase the attractiveness of the start-up ecosystem for potential employees by deferring the taxability of ESOPs – from treating ESOPs as taxable perquisites at the time of exercise of option, tax payment is proposed to be deferred by 5 years from the date of allotment or till the employee leaves the company or when the employee sells the shares, whichever is earlier; this is applicable only for start-ups with turnover up to Rs 100 crores.
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This welcome change will help solve cash flow mismatch for employees who are unable to sell the shares immediately upon exercising their options as there is no exit mechanism for most unlisted start-ups while tax was payable immediately.
Boost to affordable housing
The period of loan sanction for first time home buyers is proposed to be extended to 31 March 2021. Hence an additional deduction of Rs1.5 lakhs can be claimed on the interest on housing loan on new loans availed by the taxpayer subject to other conditions under section 80EEA.
Limiting benefits under PF/ Superannuation/ NPS
The Budget proposes to make employer’s contribution to provident fund, NPS and superannuation of more than Rs 7.5 lakh per annum, taxable. It also proposes to treat interest on provident fund as perquisite to the extent it relates to the employer’s contribution which is included in total income.
Currently employer’s contribution to PF of up to 12% of salary and to NPS of up to 10% of salary, is exempt without any limit. This change will impact individuals with high salaries.
Improving effectiveness of tax administration – Faceless Appeals
A scheme of faceless appeals (following faceless assessments) is proposed wherein the interface between the appellant and Commissioner (Appeals) will be removed to the extent technologically feasible. Also, a new appellate system with dynamic jurisdiction will be introduced to ensure that appeals will be disposed of by one or more Commissioner (Appeals).
Deepika Mathur is Director with Deloitte Haskins and Sells LLP; and Mona Karnavat is Manager with Deloitte Haskins and Sells LLP
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