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Union Budget Expectations 2020: Income Tax Slab Rate/Long Term Capital Gain Tax (LTCG)/Dividend Distribution Tax (DDT)

Union Budget Expectations 2020: People of India are expecting tax reforms from Union Budget 2020 going to be presented by Finance Minister Nirmala Sitharaman on February 01, 2020. The top three tax reforms include changes in income tax slab rate, long term capital gain (LTCG) tax and Dividend Distribution Tax. So, let’s have a look at the Union Budget 2020 Expectations in detail.
Jan 31, 2020 11:27 IST
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Budget 2020 Expectations: Income Tax Slab Rate, Long Term Capital Gain Tax (LTCG), Dividend Distribution Tax (DDT)
Budget 2020 Expectations: Income Tax Slab Rate, Long Term Capital Gain Tax (LTCG), Dividend Distribution Tax (DDT)

Union Budget 2020 is going to be presented on 1st February 2020 by the Finance Minister, Nirmal Sitharaman and the session will be commenced at 11 AM. FM will be presenting the Budget for the second time. People are expecting the implementation of a lot of promising initiatives through Budget 2020 which will help the Indian Economy to increase its slow rate of growth. The most important three reforms which are being highly recommended in the Union Budget 2020 are:

  1. Increase in the Income Tax Exemption Limit from Rs. 2.5 Lakh to Rs. 5 Lakh.
  2. Deduction in Long Term Capital Gains (LTCG) Tax Rate
  3. Scrapping of Dividend Distribution Tax (DDT)

Let’s understand in detail the expectations of different participants of the Indian economy including Investors and stakeholders of different sectors & industries:

Expectation 1: Increase in the Income Tax Exemption Limit

One of the biggest expectations of the common man from Budget 2020 is the increase in income tax exemption limit from the current Rs. 2.5 Lakh to Rs. 5 Lakh. This change in the income tax slab rate was also proposed last year, but the same was not implemented in the FY 2019-20. However, this year also the Industry Stalwarts has proposed the idea of increasing the income tax exemption limit or cut in the income tax rate to provide significant relief to the mass taxpayers. 

India has followed the Income Tax Slab System to levy different income tax rates under different income slabs from the Resident Individuals and Non-Resident Individuals (NRI). So, let us understand the two very important questions in detail:

  1. What is an Income Tax Slab?
  2. What is the Current Income Tax Slab Rate (FY 2019-20)?

What is an Income Tax Slab?

Income Tax Slabs in India basically consist of different tax rates that get levied on the Income of Individuals. Different Tax Rates are applied on Different Income slabs for the current financial year starting from 1st April and ending on 31st March. The Individual Taxpayers are classified into three categories:

Income Tax Slab Rate

The final tax amount payable by the individual is calculated on the income after all the deductions and tax-exemptions.

FY 2019-2020 Current Income Tax Slab

Below table shows the Income Tax Slab Rates for Resident Individual below 60 years of age, between 60 and 80 years of age (Senior Citizen) and above 80 years of age (Super Senior Citizen):

Income Tax Slabs for Resident Individuals below 60 years of age

Income Tax Slab

Income Tax Rates and Cess

Up to Rs 2.5 Lakh

Nil

Above Rs. 2.5 Lakh to 5 Lakh

5% of (Total income minus Rs 2,50,000)

+ 4% cess

Above Rs. 5 Lakh to Rs. 10 Lakh

Rs 12,500

+ 20% of (Total income minus Rs 5,00,000)

+ 4% cess

Above Rs. 10 Lakh

Rs 1,12,500

+ 30% of (Total income minus Rs 10,00,000)

+ 4% cess

Income tax slabs for Resident Individuals between 60 and 80 years of age (Senior Citizen)

Income Tax Slab

Income Tax Rates and Cess

Up to Rs.3 Lakh

Nil

Above Rs. 3 Lakh to Rs. 5 Lakh

5% of (Total income minus Rs 3,00,000)

+ 4% cess

Above Rs. 5 Lakh to Rs. 10 Lakh

Rs 10,000

+ 20% of (Total income minus Rs 5,00,000)

+ 4% cess

Above Rs. 10 Lakh

Rs 1,10,000

+ 30% of (Total income minus Rs 10,00,000)

+ 4% cess

Income tax slabs for Resident individuals above 80 years of age (Super Senior Citizen)

Income Tax Slab

Income Tax Rates and Cess

Up to Rs. 5 lakh

Nil

Above Rs. 5 Lakh to Rs. 10 Lakh

20% of (Total income minus Rs 5,00,000)

+ 4% cess

Above Rs. 10 Lakh

Rs 1,00,000

+ 30% of (Total income minus Rs 10,00,000)

+ 4% cess

Also, a rebate of Rs. 12500 was announced in Budget 2019 for the taxpayer whose taxable income is up to Rs. 5 Lakh per annum. Under the category of Non-Resident Individuals (NRI), the basic exemption limit is Rs 2.5 Lakhs in a financial year irrespective of their age.

A surcharge is being charged on the Individual Income of above 50 Lakhs under the following three categories:

 

Taxable Income

Surcharge Rate

Above Rs. 50 Lakh upto Rs. 1 Crore

10%

Above Rs. 1 Crore upto Rs. 2 Crore

15%

Above Rs. 2 Crore upto Rs. 5 crore

25%

Above Rs. 5 Crore

37%

Expectation-2: Deduction in Long Term Capital Gains (LTCG) Tax Rate

In Budget 2018-19, Long-Term Capital Gains (LTCG) tax was introduced by the Late Former Finance Minister Arun Jaitley. A tax of 10% was introduced on gains arising from the transfer of listed equity shares exceeding Rs. 1 Lakh without any indexation benefit.

As per the sources, the industry experts want the government to scrap LTCG tax or extend the holding period for investments from the current one year which will help in boosting the investments in the economy.

Expectation-3: Scrapping of Dividend Distribution Tax (DDT)

Dividend Distribution Tax (DDT) is the tax levied on dividends distributed by the companies from its profits. Remember, this profit gets already taxed before dividend distribution. The company has to pay DDT @20-21%.

Further, the individuals who will be receiving this dividend have to pay 10% income tax if the amount exceeds Rs. 10 Lakh per annum. Various Industry experts are demanding the government to scrap Dividend Distribution Tax (DDT) as both the companies and investors are taking the burden of multiple taxes.  The abolition of DDT will eventually result in high investments in profit-making companies and higher distribution of dividends.

The above tax reforms are expected from the Union Budget 2020 as it will provide tax relief to the common man, investors and major stakeholders of the Indian Economy. Financial Planners & Investors wants the government to consider all of their expectations and reflect the same in this Union Budget. Simplifying tax structure should be one of the primary agenda of the Government in Union Budget 2020.