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Six changes in tax rules that come into effect today

Today is first day of the financial year 2020-21, and with new year come new tax rules. Here are the six changes that come into effect from today

Topics
Taxation Laws | filing income tax | Income tax

Sukanya Roy  |  New Delhi 

This financial year, taxpayers will be able to choose between two sets of slab rates and pay their taxes accordingly. They could either opt for the new rates announced in Budget, or stick to the existing slabs. Under the new regime, there is no on annual income up to Rs 2.5 lakh, while 5% is payable on income above Rs 2.5 lakh and up to Rs 5 lakh, and 10% on income over Rs 5 lakh and up to 7.5 lakh. For income betwen Rs 7.5 lakh and Rs 10 lakh, tax has to be paid at a rate of 15%. Income between Rs 10 lakh and Rs 12.5 lakh attracts 20% tax, while 25% tax is payable in the Rs 12.5 to Rs 15 lakh bracket. Anything above Rs 15 lakh attracts 30% tax. These rates are lower than those prevailing under the old regime. However, those opting for new slab rates will not be able to avail certain some deductions, such as Leave Travel Concession, or LTC, and relief Section of the Act. These deductions are available to those opting for the old regime.

If you are buying a mobile handset, you will now have to pay more as goods and services tax rates on them have been increased to 18% from 12%. This will make these phone sets expensive, subject to adjustment in input tax credit. Though firms will get relief because their refunds are currently piled up (tax on inputs are higher than final products), some hike in prices may still happen.

The way dividends are taxed has also changed. Now, dividends distributed by companies and mutual funds would be taxed in the hands of the recipient, at the applicable slab rate. Earlier, these were taxed at the company level. So, companies used to deduct over 20% tax after surcharge and grossing up. Mutual funds deducted at the rate of 11.2% for equity-oriented schemes and 29.12% for debt oriented ones.

Employers' contribution to employees' provident fund, national pension scheme or any other superannuation fund above Rs 7.5 lakh in a year will be taxable for employees. This is bad news for senior employees.

Those buying a new house worth up to Rs 45 lakh will get additional tax deduction of Rs 1.5 lakh on interest component of loan in addition to Rs 2 lakh that is currently available. The offer was to expire in FY20, but was extended by a year.

Employees of will get deferment of tax on ESOPs by 48 months or until the employees leave the company or when they sell the shares, whichever is earlier. This will improve the cash flow of employees, so that they don't have to bear the burden of tax on allotment of shares.

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First Published: Wed, April 01 2020. 20:00 IST
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