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5 Major Changes in Budget 2020 (NRI Taxation Myths + New vs Old Slab)

wpflshnewsadmin by wpflshnewsadmin
December 12, 2020
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Funds 2020 was an enormous occasion.

For final so many days earlier than the funds, there was this noise and expectations round elevating 80C limits, change in tax slabs, and reversal of Long run capital features tax on fairness or no less than giving the advantage of Indexation in fairness taxation.

Nonetheless, nothing like that occurred.

budget 2020 highlights

Infact, issues have develop into extra difficult for buyers whereas I feel the govt. intention was to make it easy. So let me jot down all of the related factors and essential information gadgets.

 

1. New Tax Slabs vs Outdated Tax Slabs

A brand new (and optionally available) tax slab is launched now which has decrease tax charges in comparison with previous one. The investor may have selection of both staying with the previous slabs together with numerous exemptions and deductions they used to get pleasure from, or they’ll shift to new slabs with none exemptions/deductions.

New Earnings tax slab charges

Tax Slab

Tax Charge

Under 2.5 Lacs No Tax
2.5 Lacs- 5.0 Lacs 5%
5.0 Lacs- 7.5 Lacs 10%
7.5 Lacs – 10.0 Lacs 15%
10.0 Lacs – 12.5 Lacs 20%
12.5 Lacs – 15.0 Lacs 25%
Above 15 Lacs 30%
  • Training cess @4% on the tax quantity
  • Surcharge of 10% relevant if earnings > 50 Lacs and 15% if earnings > 1 Cr

Outdated Earnings tax slab charges (for these beneath 60 yrs.)

Tax Slab

Tax Charge

Under 2.5 Lacs No Tax
2.5 Lacs- 5.0 Lacs 5%
5.0 Lacs- 10 Lacs 20%
Above 10 Lacs 30%

Which tax slab is healthier?

Mainly the brand new tax slabs are of not a lot to those that take profit of varied deductions and advantages in any case, as a result of they’re able to deliver down their taxable earnings by some respectable margin. Solely those that have earnings vary of 6-9 lacs and don’t take good thing about any exemption/deduction will profit from the brand new slabs.

Instance 1 – Let’s see an instance right here and calculate the tax to be paid beneath previous and new system.

  • Earnings : Rs 15,00,000
  • 80C – Rs 1,50,000
  • House Mortgage Curiosity – Rs 2,00,000
  • Medical Insurance coverage – Rs 20,000
  • Commonplace Deduction – Rs 50,000

Calculation of Tax beneath OLD SLABS

You possibly can see that right here, the taxable earnings will come down by 4.2 lacs straight. So beneath the previous slab system, the taxable earnings will probably be Rs 10.8 Lacs (15 lacs – 4.2 lacs)

Let’s see tax calculations

Slab Slab Increased Quantity Earnings Tax Charge Taxable Earnings beneath Slab Tax
0 – 2.5 Lacs 250000 0% 250000 0
2.5 – 5 lacs 500000 5% 250000 12500
5 – 10 Lacs 1000000 20% 500000 100000
Above 10 lacs No Restrict 30% 80000 24000
Earnings Tax 136500
Training Cess @4% 5460
Surcharge 0
Complete Tax 141960

Calculation of Tax beneath NEW SLABS

In new slab, there isn’t any approach of getting any deductions/advantages , so let’s straight bounce into the tax calculations

Slab Slab Increased Quantity Earnings Tax Charge Taxable Earnings beneath Slab Tax
0 – 2.5 lacs 250000 0% 250000 0
2.5 – 5 lacs 500000 5% 250000 12500
5 – 7.5 Lacs 750000 10% 250000 25000
7.5 – 10 lacs 1000000 15% 250000 37500
10 – 12.5 Lacs 1250000 20% 250000 50000
12.5 – 15 Lacs 1500000 25% 250000 62500
Above 15 lacs No Restrict 30% 0 0
Earnings Tax 187500
Training Cess @4% 7500
Surcharge 0
Complete Tax 195000

Which tax system is healthier – Outdated or New?

  • Outdated slab tax is Rs. 1,41,960
  • New slab tax is Rs. 1,95,000
  • Distinction of Rs. 53,040

We are able to clearly see that the tax is lesser within the older system, in comparison with the newer system.

Vital Factors

  • You possibly can select every year which tax system you need to select from – New vs Outdated. Nonetheless this selection is simply these, who don’t have a BUSINESS INCOME. For individuals who have any form of enterprise earnings, will be unable to change again to the opposite system as soon as they’ve completed it.
  • Bear in mind, that there’s a tax rebate beneath sec 87A in each new and previous tax slabs the place an individual incomes as much as Rs 5 lacs will get a tax rebate of Rs 12,500, which technically signifies that if somebody’s taxable earnings is lower than 5 lacs, then they must not pay any tax.

2. No Deductions or Exemptions beneath New Tax Regime

I’ve already talked about this, but when one chooses the brand new tax regime, they will be unable to take good thing about following issues

  • 80C investments (PPF, ELSS, EPF, Life Insurance coverage Premium)
  • Medical Insurance coverage Premium
  • House Mortgage Curiosity
  • HRA
  • LTA
  • Commonplace Deduction of Rs 50,000
  • Additional 50,000 deduction for NPS (other than 80C restrict)
  • Donations beneath 80G
  • Training Mortgage Curiosity

Notice that you could nonetheless put your cash in all these 80C funding merchandise and medical insurance coverage and so on., however you will be unable to take tax advantages (not for individuals who follow previous system)

Nonetheless, the employer contribution to NPS and EPF remains to be tax free as much as 7.5 lacs per 12 months. So you may ask your employer to contribute extra in your behalf in these two issues.

3. NRI definition change + Taxation Rule

There was an excessive amount of confusion round new guidelines for NRI’s for the entire day and twitter noticed many individuals debating if many NRI’s particularly from Center east must pay taxes in India or not.

Here’s what the brand new rule says –

“If an individual is just not resident of any nation, then they’re deemed to be a resident of India and they are going to be taxed on their international earnings”

Check out the official confirmation here

There are a whole lot of residents of India, who keep in several international locations for small time frame and technically are usually not resident of any nation and therefore don’t pay any taxes. These buyers is not going to must pay the TAX in India for his or her international earnings.

That is totally different than these buyers who’re dwelling in international locations like UAE and so on. the place there’s ZERO tax. As a result of they’re a “tax resident” of those international locations. They’re simply not paying tax as a result of the regulation is like that. So these sorts of buyers don’t have to fret in any respect, and nothing modifications for them. Try the video clarification from officers

Now as per the brand new rule, an individual has to remain out of India for greater than 240 days to qualify as an NRI, in opposition to the previous restrict of 182 days.

4. Dividends will probably be taxable within the palms of buyers

The DDT (dividend distribution tax) is now abolished and the dividends will now be taxed within the palms of buyers as per their slab charges.

Until now the DDT charges for corporations was 20.35%. So each investor who acquired any form of dividend took that form of hit not directly (even thought it was tax free in buyers palms).

This isn’t nice information for individuals who are in increased tax bracket, as a result of they may pay increased tax now in comparison with what they paid earlier and now there will probably be further headache to trace and point out all dividend earnings whereas submitting tax returns.

There will probably be TDS @10% deducted by mutual funds, if the dividend to be given is greater than Rs 5,000 in a monetary 12 months to an investor.

Vital Replace : There was an enormous confusion round buyers and advisors neighborhood that TDS of 10% will even be relevant on redemption from mutual funds or not? However the govt has already clarified that the TDS is simply relevant on mutual funds dividend and nothing else. Any redemptions you do from mutual funds, that won’t entice any TDS for residents (for NRI’s , the TDS is already there since very long time)

Clarification from govt that TDS will only apply on TDS from mutual funds and not on capital gains

5. Banks Deposit Insurance coverage raised from 1 lacs to Rs 5 lacs

The insurance coverage in your financial institution deposits have gone up from Rs 1 lacs to Rs 5 lacs. This was a lot wanted change and at last it’s completed. Lately we noticed the issues in PMC financial institution (the financial institution is just not but closed or shut, therefore the insurance coverage will nonetheless not apply there)

Bank deposit insurance in India vs other countries

Conclusion

As govt mentioned, they need to simplify taxation guidelines in future and I really feel over subsequent 5-6 yrs, they may slowly attempt to take away the previous system of deductions and exemptions with lesser tax charges coming in.

Nonetheless I really feel, many of the buyers wants that carrot of “tax saving” for investments in any other case they don’t do it.

Whereas, its appropriate that one ought to make investments in any case whether or not there’s tax profit or not, however once you go to floor stage and see, the truth is that individuals want that nudge to speculate. We have to trick them for their very own profit, else they won’t consider investments.

From that time, it is perhaps a nasty information.

Additionally, for some years, we are going to see this confusion of previous vs new tax guidelines and which one ought to we be selecting, however this may’t proceed perpetually and finally we may have a single tax system and also you guess it proper, it is going to be the brand new one.

Let me know what are your feedback on this funds and the way do you see it?

Tags: BudgetmajorMythsNRISlabTaxation
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