Finance Minister likely to tweak the tax slabs limit in Budget 2020 through budgetary constraints could play a critical role.
Change in tax slab:
Budget likely to announce four different tax slabs in place of the existing three to boost the disposable income amid a sharp slowdown in the economy.
The task force on direct tax was suggested in August 2019 for 10 per cent tax rate for those individuals who are earning between Rs 2.5 lakh and Rs 10 lakh. The 20 per cent slab for income between Rs 10 lakh to Rs 20 lakh followed by 30 per cent for the income between 20 lakh to Rs 2 crore.
Standard deduction limit may rise:
The government may remove some unnecessary deductions more deductions like medical insurance and higher education. However, some allowances may remove.
No tax on an unsold house:
The government may abolish tax on notional income from unsold houses and houses, not let-out. However, deductions on such homes may withdraw in this budget. The separate class of self-occupied houses norm may be removed from the existing tax law. Income from house property would be chargeable only about the contractual rent or the lettable value of the house given out on rent.
Shareholders may pay tax on dividend, not the company:
The government may announce a significant change in tax-free dividend benefit, Dividend Distribution Tax (DDT). The stock market is looking for a better bet for investors, the government likely to propose that instead of the company, shareholders will pay tax on dividend income.
A dividend is a return given by a company to its shareholders out of the profits. Currently, companies are paying DDT at the rate of 15 per cent of the dividend along with 12 per cent surcharge and a 3 per cent education cess.
A domestic company will be liable to pay an additional tax at the rate of 15 per cent on any amount declared, distributed or paid in the form of dividends to its shareholders.
Capital Gain tenure may change:
The budget may announce major change in capital gains rules as preferential treatment of capital gain tax and duration is hitting the investment pattern. The government may announce some changes in the holding period norms and tax treatment of long term capital gain.
The government may rely on the direct tax task force and announce three assets class, financial assets– equity shares, equity-oriented mutual funds followed by other financial assets and non-financial assets.
The government may change the base year for determining the cost of acquisition to compute capital gains. The current rate was fixed in 2001.
The economy is facing a sharp slowdown. On the eve of the budget day, the government has revised its GDP figure from 6.8 per cent to 6.1 per cent, and the advance estimate of CSO’s indicate real GDP rate will 5 per cent in the financial year 2020. Economic Survey 2020 has realised that “5 per cent growth projected for 2019-20 is the lowest it could fall for now”.
But the government is considering this budget as a chance to boost the disposable income and revive the subdued economy.