The new financial year will begin on April 1, 2020, amid a country-wide lockdown. Even though the government has extended various tax-related deadlines (such as filing of income tax return for FY 2018-19, tax-saving for FY 2019-20, linking of PAN with Aadhaar etc.) certain new tax-related rules will come into effect from April 1.
The government via a press release dated March 30, 2020, has clarified that there is no extension of the financial year.
Here is a look at the new tax rules that will come into effect from the new financial year, i.e. April 1, 2020.
- New income tax regime
As announced in Budget 2020, from FY 2020-21, an individual taxpayer not having business income will have the option either to continue with the existing income tax regime and avail deductions and exemptions or avail the new tax regime with lower income tax rates sans deductions and tax-exemptions.
However, there is no clarity on certain aspects of the new tax regime. For instance, the option to avail new tax regime comes into effect from April 1, 2020, however, how will tax deduction at source (TDS) work under new tax regime? Can an employee switch between the new tax regime and the existing one during the financial year?
- Dividend becomes taxable in the hands of an individual
From April 1, dividend received by you from mutual funds and domestic companies will be taxable in your hands. Till FY 2019-20, dividend paid by mutual funds and domestic companies used to attract dividend distribution tax (DDT) which made dividends up to Rs 10 lakh in the hands of an individual tax-exempt.
Therefore, dividend received from April 1, will be added to an individual’s income and will be taxed at the applicable income slab rate.
Further, such dividend will attract tax deduction at source (TDS) at the rate of 10 per cent, if the dividend received by an individual in a financial year exceeds Rs 5,000.
- Changes in rules to determine NRI status
Budget 2020 proposed certain changes in the criteria used to determine the ‘non-resident Indian (NRI)’ status or otherwise of a person. However, certain amendments were made in those proposals at the time of passing of the Budget in the Parliament. As per the final changes made, a non-resident Indian visiting India will be considered ‘Resident but not ordinarily resident’, if his/her taxable income accruing in India exceeds Rs 15 lakh, stay in India exceeds 120 days and his/her total stay in India in the previous four financial year is 365 days or more.
However, if the taxable income accruing in India does not exceed 15 lakh, then the individual will be considered an NRI if his/her stay does not exceed 181 days.
Further, an Indian Citizen will be deemed to be a resident in India if he is not liable to pay tax in any other country or territory by reason of domicile or residence or any other criteria. However, this provision will be applicable if the income accrued in India is more than Rs 15 lakh in a financial year.
- Extension of deadline to avail deduction on loan for affordable house
Those who have not availed a loan for buying an affordable house, there was good news in Budget 2020. As per the announcement, the timeline to avail a loan for buying an affordable house in order to avail deduction under section 80EEA of the Income-tax Act, 1961 has been extended till March 31, 2021.
Earlier, individuals could avail deduction of Rs 1.5 lakh on the interest on home loan for property value not exceeding Rs 45 lakh, if the loan was sanctioned on or before March 31, 2020. This deduction was available over and above the deduction of Rs 2 lakh under section 24 for the interest paid on home loans.
Now, such a deduction can be claimed in FY 2020-21 as well if a loan is taken before March 31, 2021 for buying an affordable house of stamp duty value not more than Rs 45 lakh.
- Deferring tax payment in respect of income pertaining to ESOPs
Providing relief to employees of startups, the Budget has allowed deferment of TDS on shares allotted to them under employee stock ownership plan (ESOPs). As per the tax amendment, TDS on shares allotted under ESOPs scheme can now be deducted at the time of the employee leaving the company or selling of shares or expiry of five years from the end of the relevant financial year in which shares were allotted, whichever is earlier.
- Employer’s contribution above Rs 7.5 lakh to EPF, superannuation funds, NPS becomes taxable
As announced in Budget 2020, if employer contribution to Employees’ Provident Fund (EPF), National Pension System (NPS) and superannuation fund on an aggregate basis exceeds Rs 7.5 lakh in a financial year, then the excess will be taxable in the hands of the employee. Till FY 2019-20, there was no combined upper limit on the amount of deduction that could be claimed (from total income) for the contribution made by an employer which was giving undue advantage to employees earning higher salaries.
Further, any interest or dividend earned on the excess contribution will also be taxable in the hands of an employee.
- Insertion of Taxpayer’s Charter in the Income-tax Act
As per the Budget announcements, a Taxpayer’s Charter is to be inserted in the Income-tax Act. The aim of the charter is to provide time-bound services to the citizen. However, the contents of this Charter are yet to be notified.