Be it lowering tax rates to making tax reforms, the government in the Union Budget 2020 came up with some interesting proposals that could provide individual taxpayers with the much required relief. However, as expected, the taxpayers need to be aware of certain conditions.

A new tax regime has been proposed in the Union Budget in addition to the existing old tax regime. However, individual taxpayers must note that the new tax regime is optional for them. Thus, when filing returns, the assessee has been given the choice to choose either the new tax regime or the old tax regime. They can do that based on which one best suits them from a tax planning view point.

Under the new tax regime, government proposes to lower income tax rates for income segments up to Rs 15 lakh. That said, the key thing for you to note is that you need to be willing to give up exemptions and deductions available under various provisions of the Income-tax Act, 1961 for the proposed lower tax rates to be applicable. Thus, you have to give up on some exemptions and deductions. These may include the following:

  • Leave Travel Allowance (LTA)
  • House Rent Allowance (HRA)
  • Deductions available under chapter VI A of the Act that grant deductions under Section 80, which include 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG, 80GGA, 80GGC, etc.

You will only be able to claim the deduction under Section 80CCD(2) and Section 80JJAA.

If you are a salaried individual, the other thing you need to note is that Standard Deduction under Section 16, which is Rs. 50,000 currently, will be disallowed. Furthermore, the deduction on home loan interest under Section 24(b) will also be disallowed. In total, about 70 exemptions and deductions have been removed in the new tax regime.

You are much better using the old tax regime if your gross income is Rs. 10 lakh or above, and you are making use of deductions under Section 80C, 80D, and 24(b) of the Income Tax Act, 1961. The old regime works better for you from a tax planning standpoint. However, if you are an individual earning a gross income of Rs. 5 lakh falling in the middle-income group, you might find the new regime to your benefit.

The big point for you to consider in making the choice between the old and new tax regimes is your financial objectives. In case you have invested in tax saving equity asset classes to create wealth while saving on taxes, then the old tax regime might work out better for you. Further, if you are benefiting from deductions such as premium deductions, payment of children’s tuition fees, education loan EMIs, and home loan EMIs, the older regime continues to work better for you.

Apart from changes in personal tax, the Budget also proposed some other changes that could impact you as an investor. Let us see what these are:

Other proposed tax moves announced in the Union Budget 2020 that can impact you as an investor:

  • Abolishment of DDT and levying taxes on dividend payable to investors based on their applicable tax slab. If you are an individual tax payer in a lower tax slab, you could benefit from this.
  • Government proposed to extend the deduction of up to Rs 1.50 lakh on the interest paid on affordable housing loan for one more year until March 31, 2021 for first time home buyers’. This is for housing loans sanctioned on or before March 31, 2020. This is a great move for new home buyers.
  • Government proposed to make the PAN allotment process easier through an instant online allotment system based on Aadhaar. Thus, applicants need not fill out a detailed application form.

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