The Budget 2020 has remained a mixed bag for individual taxpayers and retail investors. On the taxation front, Finance Minister Nirmala Sitharaman has introduced a new option with revised slabs and rates, it involves foregoing key deductions and exemptions such as those under sections 80 (C) and 80 (D) of the Income Tax Act. Hiking the deposit insurance cover and introducing government securities (G-sec)-focussed debt ETFs, removal of dividend distribution tax are few other steps that concern a retail investor. Here is all you must know about Budget 2020:
Old versus new - Analyse tax savings, then decide
The new tax regime, though optional, will require taxpayers to forego various tax exemptions available in the old regime. The net benefit, thus, may not be positive for all taxpayers. You may have to do a net benefit analysis of the actual tax savings before opting for the new regime if you are already claiming deductions under 80C or 80D.
FULL COVERAGE:Union Budget 2020
"The option to individuals to opt for a lower tax slab structure with no deductions or to continue with the earlier higher slabs with deductions for home loan EMIs , investments in insurance etc seems slightly confusing. In a country like India with poor social security, it is imperative to incentivise young India to save for the future and own a house as well," says Krishna Kumar Karwa, Managing Director - Emkay Global Financial Services.
On top of it, the option to choose the old or the new income tax regime will just complicate filing income tax returns which was already a complicated process for individual tax payers, says Ankur Choudhary, Co-Founder & CIO, Goalwise.com.
However, if you are an NPS subscriber, you can continue to avail deduction under Section 80CCD(2) if your employer contributes towards your NPS account. "NPS deduction of 10 per cent from employer is the only tax benefit in the new tax regime because section 80CCD (2) has been kept independent. Employees with Rs 15 lakh salary may prefer opting for NPS more," he says.
Deposit insurance hiked to Rs 5 lakh
The near-collapse of banks such as PMC Bank had ignited a debate on the low limit of deposit insurance available to bank depositors, which had remained unchanged since 1993. As per current rules, each depositor in a bank is insured up to Rs 1 lakh for both the principal and interest amount on deposits. This includes all deposits - current account, savings account and fixed deposits etc.
"Hiking the deposit insurance cover for bank depositors from Rs 1 lakh to Rs 5 lakh is a positive and much awaited step. It was very much necessary to boost the trust and regain the confidence of depositors in bank deposits," says Rakesh Goyal, Director, Probus Insurance Broker.
Debt market for retail investors
In line with recent success of Bharat-ETF, the government has now announced a debt-ETF, primarily focussing on government securities. The move is expected to deepen the bond market, making it easier for retail investors to invest in G-securities.
"With the introduction of debt-ETF, the government has met the long-standing demand for increased participation by retail investors in the G-sec market. It allows them exposure at a fraction of the cost and with very little downside," says Jitesh Shahani, partner, L&L Partners.
However, Choudhary of Goalwise sees it benefitting only big investors. "Debt ETF with government securities is a good idea for bigger investors like HNIs, pension funds etc as it will give them a cheaper way to invest in government securities. For retail investors it may not make much of a difference as Gilt Mutual Funds might be more convenient for them for the same purpose."
DDT removal not so positive
The Budget 2020 has abolished the Dividend Distribution Tax at the company level, but it will be taxable at the hands of investors, adding another compliance burden for them. "Although the move will drive companies to change their tax culture and they may offer more dividends, it is not the right way of doing it because shareholders are also owners and as owners of the company they pay tax on profits and it gets taxed again," says Nirmal Jain, Founder & chairman of IIFL.
NRIs get a bad deal
If you are an Indian willing to claim the NRI status, the Budget 2020 has some bad news. Now you'll require a stay of 240 days abroad to claim the NRI status instead of 182 days. Besides, if you are not a resident of any country, and yet your stay expanded beyond 240 days, you will be entitled to pay taxes in India for your income earned abroad.
"Non resident tax nomads who are not a tax resident of any country, would now be subject to tax in India as if they are tax residents of India if they are Indian nationals. This is an interesting move as many individuals who were in such a position and consequently benefitted would now be within the Indian tax net. This move could possibly lead to citizenship shopping!" says Bijal Ajinkya, Partner, Khaitan & Co.