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Tax experts expect some rationalisation as there is a steep jump in tax rate when income exceeds ₹5 lakh
Some tweaking in dividend distribution tax, long term capital gains tax on listed shares are also high on the wish list
The lowering of corporate tax rate has triggered hopes that Finance Minister Nirmala Sitharaman will announce some relief on the personal income tax front in this year’s Budget. From rejig of income tax slabs or rates to higher deduction, expectations are high though tax rate cuts will definitely hit revenues at a time when government’s finance’s are strained. Apart from some rationalisation in income tax rates, experts also expect the government to tweak dividend distribution tax and long term capital gains tax on listed securities.
1) According to the current tax slab, income up to Rs 2,50,000 is tax exempted from Rs 1 to Rs. 5 lakh is taxed at 5% and from ₹5 lakh to ₹10 lakh at the rate of 20%. Some rationalization should be carried out in the Budget 2020 to moderate rate of tax.
2) Presently, a company pays income tax on its taxable profit. Thereafter, when it distributes the surplus profit to shareholder it needs to pay DDT at 20.56%. Further, resident non-corporate tax payers also need to pay additional tax at 10% (plus applicable surcharge and cess) on dividend above ₹10 lakh. Withdrawal of the DDT will remove the cascading impact of taxation. Government should tax dividend in the hands of the shareholders at concessional rates.
3) Levying tax on long term capital gains (LTCG) on listed securities and Securities Transaction tax (STT) amounts to double taxation, say tax experts.
STT was introduced in 2004 and accordingly long term capital gain on which SST is paid was exempted from tax. In the Union budget of 2018, tax on long term capital gains on listed securities was reintroduced. At the same time, STT was also continued. This had negative effects on sentiments of investors. Government should either abolish STT on listed securities or should exempt Long Term Capital Gain on sale of listed securities from tax.
4) The government is expected to roll out some tax sops for home loans to support the real estate sector. In last year’s July budget, Finance Minister Nirmala Sitharaman had announced an additional deduction of up to ₹1.5 lakh for interest paid on a loan borrowed up to 31st March 2020, for purchase of an affordable house valued at up to ₹45 lakh.
The expectation is that this is extended to all first time home buyers irrespective of the property value. This will be a big relief for individuals contemplating to invest in their primary homes.
Section 80C of the Income Tax Act does not provide for a focused benefit on housing. Tax payers have numerous investment alternatives to choose from and the lack of exclusive tax benefit on the principal amount of home loans makes them put their home purchase decisions on hold. A separate annual deduction of INR 150,000 for principal repayment will provide the much-needed fillip to opt for home loans and provide a fillip to housing sales too.
5) Pension fund regulator PFRDA has sought an increase in income tax benefit under NPS to ₹1 lakh in the upcoming Budget. Currently, investment of up to ₹50,000 in a financial year in Tier I NPS account is eligible for tax deduction under Section 80CCD (1B) of the Income Tax Act.
In case your employer is also contributing towards your NPS account, which is mandatory for government employees (except Armed Forces), an additional deduction of up to 10% of salary (basic + DA) irrespective of any limit qualifies for income tax deduction under Section 80 CCD(2).
The regulator has also urged the government to extend the facility of of tax-free contribution of 14% (currently only central government employees are eligible) under the NPS to all categories of subscribers. Employers’ contribution of 14% in pension under NPS for central government employees was made tax free from April 1, 2019. For others, up to 10% of the employers’ contribution is tax free.
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