The new FY21 will witness a change in the implementation of a new tax structure apart from other changes. Here are the changes to know about the new financial year:
New Income tax slabs: In Budget 2020, finance minister Nirmala Sitharaman has proposed to introduce new income tax slabs with reduced rates for those foregoing certain exemptions and deductions. The "simplified tax regime", will be optional and co-exist with the old one with three slabs including various exemptions and deductions available to the taxpayer. An individual with an income of Rs 5-7.5 lakh will pay 10 per cent tax, income of Rs 7.5-10 lakh will attract 15 per cent, Rs 10-12.5 lakh will pay 20 per cent, Rs 12.5-15 lakh 25 per cent, above Rs 15 lakh 30 per cent. So, those coming under the above income brackets will see the effect from today.
Abolition of Dividend Distribution Tax at the hands of companies: The Budget has proposed to abolish DDT on dividends paid by the corporates and transfer the tax burden completely in the hands of the recipient. As per the budget proposal, the recipient of dividend would be liable to pay income tax at applicable rates irrespective of the amount of dividend received. It means from April 1, the dividend received by individuals will be taxed at the hands of recipients as per applicable slab.
Changes for NRIs: There has been an amendment in the Finance Act 2020 which proposes to change the definition of a non-resident Indian for income tax purposes. Earlier any Indian citizen or Indian-origin individual who left and visited India would have been a resident if the period of stay was 182 days or more. However, an NRI, with income in the previous year exceeding Rs 15 lakh excluding the income from foreign source, who visits India for a period of 120 days or above will be a resident as per the Income Tax Act.
Tax evasion: In order to rationalise the system of levying stamp duty and help curb tax evasion, the government has also amended the Indian Stamp Act, 1899. As part of the amendments, it was decided that the stamp duty rates levied by Maharashtra will be taken as a benchmark as it accounts for 70 per cent of the total collection. It was amended to state that the stamp duty will have to be paid by either the buyer or the seller of financial security, as against the current practice of levying the duty on both. The change was notified to be implemented from April 1 but will be implemented from July 1 because of COVID 19 outbreak.
Employer's contribution above Rs 7.5 lakh to EPF, superannuation funds, NPS becomes taxable:
According to the proposed Budget, it is stated that if an employer contribution to Employees' Provident Fund (EPF), National Pension System (NPS) and superannuation fund on an aggregate basis surpasses Rs 7.5 lakh in a financial year, then the surplus amount 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 , giving undue advantage to employees earning higher salaries.
Moreover, any interest or dividend earned on the excess contribution will also be taxable in the hands of an employee.