Now that the noise around the budget has died down, let us analyze the budget in detail and find out how it has affected the individual.
Here are some of the positive announcements made by the Finance Minister in the budget speech and their effects on individuals like you and me –
Positives of Budget 2020
It was hard to find but still, we are trying 🙂
Bank deposits are now insured upto Rs 5 Lakh
Earlier your money which is parked in a savings account or fixed deposit was insured upto Rs 1 Lakh. But it’s a big relief that now this limit is increased by 5 times.
Dividend Distribution Tax by the company has been abolished.
What It Means – Dividend taxed will be in the hands of the shareholders. Taxpayers in the lower-income slabs will greatly benefit from this move as the effective rate of tax will become lower. For example, mutual fund companies paid 25% tax on Debt oriented funds and a 10% tax on Equity-oriented funds. If you are a taxpayer who does not fall in any income tax slab, your income from the dividend will not get taxed. If you fall in the 10% income tax slab and have invested in a debt fund. Your returns will be taxed at 10% and not at 25% like before. (but if you are in higher tax bracket – you should shift to growth funds)
This will also promote foreign investments as foreign investors can accrue credit for the tax paid in their home countries.
This change will also impact Portfolio Management Services & Your investment in direct stocks
Changes in tax slabs for individuals
There are changes in the tax slabs for individuals. There are two options available to individuals and HUFs. They can choose to follow any option that is advantageous to them. Here is a comparison of the options with the tax slabs and income tax rates applicable from the next assessment year –
|OPTION 1||OPTION 2|
|Taxable Income (After considering deductions and exemptions)||Tax Rate||Taxable Income (Ignoring deductions and exemptions)||Tax Rate|
|₹0 – ₹ 2,50,000||0%||₹0 – ₹ 2,50,000||0%|
|₹2,50,000 – ₹5,00,000||5%||₹2,50,000 – ₹5,00,000||5%|
|₹5,00,000 – ₹7,50,000||20%||₹5,00,000 – ₹7,50,000||10%|
|₹7,50,000 – ₹10,00,000||20%||₹7,50,000 – ₹10,00,000||15%|
|₹10,00,000 – ₹12,50,000||30%||₹10,00,000 – ₹12,50,000||20%|
|₹12,50,0000 – ₹15,00,000||30%||₹12,50,0000 – ₹15,00,000||25%|
|> ₹15,00,000||30%||> ₹15,00,000||30%|
What It Means –The changed income tax rates and slabs will be applicable for those who are ready to forego exemptions and deductions such as Standard deduction, allowances under Section 80C and Section 80D, LTA exemption, HRA exemptions, interest on housing loan on the self-occupied property and a few other factors. The tax rate for those earning income between ₹5,00,000 and ₹15,00,000 is lower than earlier if they opt for Option 2. People can compute their tax in both scenarios and select the one that is most optimum for them.
Defer tax payment for ESOPs
Employees of startups who own Employee Stock Option Plans (ESOPs) can defer paying taxes up to five years from the time of exercise, till the time they leave the startup, or until they sell their shares, whichever is earlier.
What It Means –This provides some amount of relief for employees as earlier they had to pay when they signed up for ESOPs and when they earned capital gains. This affected the liquidity position of the employees. Now they can defer payment when they have enough liquidity.
Tax Reliefs for Startups
The budget proposes to increase the turnover limit from existing Rs25 crore to Rs100 crore for startups that are allowed a deduction of 100% of profits for three consecutive assessment years out of seven years.
What It Means – Startups will be able to carry forward losses and also have more cash to run their business.
Increase in Custom Duty
Custom duty on products such as tableware, kitchenware, electrical appliances, footwear, furniture, stationery, and toys will be levied.
What It Means – This gives an advantage to domestic companies as they can manufacture and sell at competitive rates. It gives a boost to the ‘Make in India’ scheme.
The decrease in Custom Duty
Customs duty exemption on raw sugar, agro-animal based products, Tuna bait, skimmed milk, certain alcoholic beverages, soya fiber, soya protein withdrew.
What It Means –Products using these items as a raw material can be produced at a more competitive cost and the benefits can be passed on to end consumers resulting in lower prices.
Home Loan Interest Deduction
The benefit under section 80EEA to avail an additional Rs 1.5 lakh interest deduction on home loans for first-time homebuyers is proposed to be extended till March 31, 2021.
What It Means – First-time homeowners can avail of additional deduction while calculating tax. Since many first time home buyers fall in the lower and mid-income segments, this will be advantageous to many and it may also propel the demand for housing.
Budget Allocation To Transport
Rs 1.7 lakh crore has been provided for transport infrastructure in 2020-21. 1,150 trains are expected to run under the public-private partnership (PPP).
What It Means – Many Indian cities face a lot of commute issues. The thrust towards infrastructure will provide us a smoother commute. At the same, there will be better connectivity between different states and cities.
Companies working on affordable housing projects can claim a 100% tax deduction on profits from March 2021 under section 80IBA.
What It Means – This extension in the timeline will increase the motivation among real estate developers to work on projects in affordable housing.
Bw budget made lot of things very complex so importance of Financial Planning is further increased.
This post is written by Vidya
If you have any questions related to the budget 2020 – you can add in the comment section.
can u explain more about LIC issue. Thanks.
I have seen in TV that abolition of Dividend Distribution Tax will reduce the VNB margins of Life Insurance Companies and as a result all the Life Insurance stocks have fallen and did not recover fully from the fall. Is it true that abolition of Dividend Distribution Tax will reduce the VNB margins of Life Insurance Companies? Please let me know
With best regards
What is VNB?
Is interest earned on Tax Free Bonds taxable under option 2 in this budget (FY 20-21)? If not,
under which section is it exempted?
Whether 8tta and 80ttb are available for senior citizens
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Such a wonderful article.Thank you for sharing.
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