Major takeaways from the Budget 2020-21 that would have an impact on individual investors
01-Feb-2020 •Research Desk
New income-tax slabs
The following income-tax slabs have been proposed for people willing to forego certain deductions and exemptions, such as those under Chapter VI-A (which includes Section 80C as well) of the Income-tax Act.
| Taxable Income Slabs (In Rs) | Income Tax Rates |
| Up to 2.5 lakh | Nil |
| Rs 2.5 - 5 lakh | 5% |
| Rs 5 - 7.5 lakh | 10% |
| Rs 7.5 - 10 lakh | 15% |
| Rs 10 - 12.5 lakh | 20% |
| Rs 12.5 - 15 lakh | 25% |
| Above Rs 15 lakh | 30% |
| Note: There won't be any tax if the total taxable income doesn't exceed Rs 5 lakh. | |
However, the new slab structure is optional. Those who are interested in availing deductions under Chapter VI-A of the Income-tax Act, they can continue with the existing slabs.
Implication: The following chart explains the tax implication for individual investors belonging to different tax brackets. It may be noted that we have only considered exemptions of Rs.1.5 lakh under section 80C, which is applicable to a majority of individual investors. For investors who can avail deductions under other heads like those related to HRA, health insurance, etc., the implications could vary widely than the ones illustrated below.
Abolition of Dividend Distribution Tax
Dividend Distribution Tax (DDT) has been abolished. The dividend will now be taxed in the hands of the recipient at the tax rate applicable to them.
Implication: The dividend income from mutual funds will now become tax-free for those with an annual income (including dividends) of less than Rs 5 lakh. For other investors, it will be added to their income and taxed as per the slab system.
Other important provisions for individuals
1. The deposit insurance cover for a bank depositor has been raised from Rs 1 lakh to Rs 5 lakh.
2. An employer's cumulative contribution of above Rs. 7.5 lakh in a year to NPS, superannuation fund and recognised provident fund has been proposed to be added to the income and taxed as per the applicable slabs. Consequently, any annual interest or dividend credited is also taxable to the extent it relates to the employer's contribution.
3. The tax benefit on the interest payment of up to Rs 1.5 lakh on affordable housing loans has been extended by one more year to cover the loans availed up to March 31, 2021.
4. A scheme 'Vivad se Vishwas' has been proposed to bring down litigation in direct taxation for direct taxpayers whose appeals are pending at various forums.
5. Launch of a system for the instant allotment of PAN based on the Aadhaar Card has been proposed.
6. A new debt ETF, comprising government securities, has been proposed
What about PMVVY?
Initially launched in 2017 for senior citizens, Pradhan Mantri Vaya Vandana Yojana (PMVVY) was extended by two more years during the 2018-19 Budget, effectively being open for subscription till March 31, 2020. However, there seems to be no mention of any extension for the scheme in this year's finance bill. Until more clarity emerges, it seems that the scheme will lapse by the end of March 2020.
