Budget 2020: Twist in tax slabs change

As per the expectations of the market, the tax slabs have been changed for FY2020-2021. Finance Minister in the Budget has announced a new tax regime for the tax payers. The tax proposals would bring an ease of compliance and reduced litigation. The new tax slabs are as below:

- 10 per cent for income between Rs 5 lakh-7.5 lakh against 20 per cent

- 15 per cent for income between Rs 7.5 lakh-10 lakh against 20 per cent

- 20 per cent for income between Rs 10-12.5 lakh against 30 per cent

- 25 per cent for income between Rs 12.5 -15 lakh against 30 per cent

- 30 per cent for income above Rs 15 lakh

People having income up to Rs 5 lakh will not be required to pay any tax. However, this new tax regime is optional and the tax payers would have to opt for these slabs without taking benefit of the existing deductions allowed under section 80 C of Income Tax Act, 1961. Finance Minister also said that currently, more than 100 exemptions are provided in I-T Act. Approximately, 70 of them have been removed in the simplified regime and the remaining will be reviewed over the coming years to simplify the system.

With this new regime, a total of Rs 40,000 crore per year of the government’s revenue will be foregone per year.

The most affected sector due to the above changes has been the insurance sector. Nirmala Sitharaman has proposed to sell stake in the government-owned Life Insurance Corporation of India (LIC) through an Initial Public Offering (IPO). Also, no availment of deduction related to insurance in the new tax regime, further lowered the sentiments of the sector. The share price of HDFC Life Insurance Company fell by 6.6 per cent, ICICI Prudential Life Insurance Company dipped by 12.1 per cent and SBI Life Insurance Company slipped by 10.3 per cent.

A major relief also came for the companies paying dividend to shareholders. Earlier, the company had to pay Dividend Distribution Tax (DDT) of 15 per cent on dividend. In the Budget, the Finance Minister abolished DDT in the hands of company. With this, India would become a more attractive investment destination. DDT abolishment would also lead to additional funds in the hands of companies, which can be further re-invested for expansion.