5 Tax Changes That Will Be Effective From 1 April 2020

Olga Robert

The financial year 2020-21 is almost here. While the government has eased tax compliance deadlines amid the 3-week lockdown across India to fight COVID-19, the financial year will begin as always on 1 April.

The Ministry of Finance also clarified that the financial year 2020-21 will begin on 1 April 2020 via Twitter.

Here are 5 tax changes applicable from 1 April 2020:

1. Optional Income Tax Regimes

For the new financial year 2020-21, you have the option to choose lower income tax rates if you let go of certain deductions and exemptions including those under section 80C.

Depending on your income structure and investments, you can choose to stick to the old income tax regime or switch to the new one. You will also have to plan your investments accordingly for the whole financial year.

New income tax rates for 2020-21:

Taxable Income Slab (Rs) Existing Tax Rates New Optional Tax Rates For FY 2020-21
0-2.5 Lakh Exempt Exempt
2.5-5 Lakh 5% 5%
5-7.5 Lakh 20% 10%
7.5-10 Lakh 20% 15%
10-12.5 Lakh 30% 20%
12.5-15 Lakh 30% 25%
Above 15 Lakh 30% 30%

The Income Tax Department has a calculator application on its official website to give you a rough idea of how much tax you can save under the two regimes and make a comparison. However, you could seek professional advice if you have investments and a complex income structure.

2. Employer's contribution over Rs 7.5 lakh p.a to EPF, NPS will become taxable

In Budget 2020, it was announced that employer's contribution above Rs 7.5 lakh (in aggregate) in a financial year towards EPF (Employees' Provident Fund), superannuation funds, NPS (National Pension Scheme) will become taxable in the hands of the employee.

Further, any interest or dividend earned on this excess contribution will also be taxable in the hands of an employee.

3. Dividend income taxed as per individual income slab

Starting 1 April 2020, dividend income received from investments in mutual funds and Indian companies will be taxable in the hands of the receiver. It will be added to one's total taxable income and taxed as per their applicable income slab rate.

Further, if the dividend income in a financial year exceeds Rs 5,000, it will attract tax deduction at source (TDS) at the rate of 10 percent.

4. NRI tax

Certain changes in determining the 'non-resident Indian (NRI)' status for tax purposes were proposed in the Budget.

As per the latest amendments to the Finance Bill 2020 passed in the Parliament, a non-resident's status will be considered 'Resident but not ordinarily resident' for income tax purposes if his/her taxable income sourced in India exceeds Rs 15 lakh and they have resided in the country for over 120 days in the particular financial year or for 365 days or more in the previous four financial years.

Further, an Indian Citizen will be deemed as a resident in India if he/she is not liable to pay tax in any other country or territory by reason of domicile or residence or any other criteria, however, only if his/her annual income accrued in India is over Rs 15 lakh.

It was clarified that for the total income calculation, income from foreign sources will be excluded. It pertains to NRIs deriving income from doing business in India or undertaking a profession in the country.

Further, the tax deducted at source (TDS) rate on payment of dividend to non-residents and foreign companies has been set at 20 percent.

5. TCS on education-related remittances

Tax collected at source (TCS) at the rate of 5 percent will be charged on remittances exceeding Rs 7 lakh a year, under the Reserve Bank of India's liberalised remittance scheme (LRS).

However, for education-related remittances, the tax rate is lower at 0.5 percent.

Also Read:

Form 15G, 15H Validity Extended To Avoid TDS On Late Submission For FY21

Validity Of Lower Withholding Tax Orders Extended By 3 Months

Temporary Revision In Mutual Fund Cut Off Timings- What It Means For Investors?