April 1st is the beginning of the new financial year 2020-21. And as per the union budget announced by our honorable Finance Minister Nirmala Sitharaman, several new I-T rules will now come into effect. 

Considering the COVID-19 pandemic lockdown situation the government has extended the deadline of some rules and procedures so that the people don’t face difficulties at the start of the new financial year. This includes an extension in the deadline for filing income tax returns for 2018-19 to June 30 and similarly, linking of pan card with Aadhaar card has also been extended to June 30.

Still, there are some income tax changes which you should be aware of –

Income tax slab changes:

New Tax slabs have come into effect from April 1. However, the old tax slabs will also remain in effect and taxpayers are free to choose between the old and the new tax slabs, as per their convenience. 

The key highlights of the new tax slab:

There is zero tax for income up to ₹2.5 lakh;

5 % for income between ₹ 2.5 lakh to ₹ 5 lakh;

10 % for income between ₹5 lakh to ₹ 7.5 lakh; 

15 % for income between ₹7.5 lakh to ₹ 10 lakh; 

20 % for income between ₹10 lakh to ₹12.5 lakh; 

25 % for income between ₹ 12.5 lakh to ₹ 15 lakh; 

And, 30 % for income above ₹ 15 lakh.

But the most important thing to consider here is- If one opts for the new tax slabs, they will have to give up on a lot of deductions. Hence, they will not be able to reduce taxable income which was done under standard deduction, such as Section 80C exemptions, exemptions on house rent allowance, leave travel allowance (LTA) and the deduction on interest paid on home loans.

Hence, it can be said that the new tax regime will mostly provide benefits to the young taxpayers as they don’t have many investments such as insurance, tuition fees of children, home loans, etc. 

Dividends from mutual funds & domestic companies to be taxable:

Dividends (profits) received from mutual funds and also from domestic companies are now taxable at the recipient’s hands from April 1st. This is a huge change in the new tax regime, as the dividends which the recipients will earn from their mutual fund investments will now be taxed at the recipient’s slab rates. 

Earlier, the dividends received from mutual funds were tax-free in the recipient’s hands but the mutual funds deducted a dividend distribution tax (DDT) at a rate of 11.2% for equity-oriented funds and 29.12% for debt-oriented funds.

Relief for first-time homebuyers:

The new Income tax regime has given relief to first-time homebuyers. But this is only applicable for those who are buying a house with a value up to ₹ 45 lakh for the first time. As per the new rules, the government has extended the date for availing additional tax benefits by a year to March 31, 2021. Hence, these home buyers will now be able to claim an additional tax deduction of ₹1.5 lakh on the interest which is on the top of the existing deduction of ₹2 lakh.

ESOPs for start-up employees to be tax-free

As per the new income tax rules, the employees of start-up companies get an exemption from paying tax on the shares allotted within the ESOPs (Employee Stock Ownership Plan).

Contribution above ₹7.5 lakhs in NPS & EPF to be taxable

If the employer’s contribution exceeds ₹7.5 lakh in a financial year towards NPS, superannuation fund and EPF, the amount will now be taxable. This particular change in income tax rule will be applicable to both the old and new tax regime.

But, it should be noted that if an individual opts for the new tax slabs, he can still claim an income tax deduction on employer contribution towards the employee’s NPS account.