Important Amendments and Tax Changes You Need to Know before Filing ITR for FY 19-20 and FY 20-21

FM Nirmala Sitharaman presented the Union Budget 2020 on 1st February 2020. This year, FM announced the budget in a compact mode where all schemes and policies revolved around three prominent themes, Aspirational India, Economic Development and Caring Society.

Including in the Budget 2020, FM stated for Central government aspirations to improve compliance status of tax regulations in the country by forming a robust faceless tax assessment mechanism, by bringing simplified measures in the tax compliances and reducing the burden of tax litigations on individual taxpayers.

Stating flaws in the current tax regime, FM placed a proposal for removal of some annoying tax deductions and exemptions which were troubling both the taxpayers and the authorities and replacing it with a new tax regime to be made applicable from AY 2020-21.

Here ‘s a list of some key changes proposed in the Income-tax rules for FY 2019 and FY 2020, which every taxpayer should know before finalizing his/her Income Tax Return.

Changes proposed in tax rules for FY 2019-2020 (AY 2020-21) :

  1. Limit for rebate under Section 87A increased from Rs 3.5 lakh to Rs 5 lakh for all Resident Individuals, which means for Income up to Rs 5 lakh, the exemption for Rs 12,500 or the actual tax amount payable whichever is lower shall be provided.
  2. The amount of standard deduction for the Salaried class and Pensioners increased from Rs 40,000 to Rs 50,000.
  3. The surcharge as compared to FY 2018-2019 hiked to
    1. 10% for income group of Rs 50 lakh to 1 crore
    2. 15% for income group of 1 crore to 2 crore
    3. 25% for income group of 2 crores to 5 crore
    4. 37% for income group above 5 crores.
  1. Lump-Sum withdrawal at maturity from the National Pension System was made fully exempted, which was earlier limited to a 40% exemption.
  2. Section 139 in the Income Tax Act, 1961 to make the filling of Income-tax return mandatory even for those whose income lies below the exemption limit. Taxpayers those 1) making deposits in aggregate or exceeding Rs 1 crore in their current accounts; 2) made an expenditure in aggregate or exceeding Rs 2 lakh for incurring a foreign trip ; 3) incurred an item of expenditure in aggregate or exceeding Rs 1 lakh towards consumption of electricity.
  3. Additional deduction on home loan interest of Rs 1.5 lakh provided under a new Section 80EEA.
  4. Limit of charge of TDS for banks increased from Rs 10,000 to Rs 40,000 under TDS Section 194A and inserted new TDS Section 194M for charging of 5% TDS on payments made to contractors or professionals by individuals and HUFs.

Changes proposed in tax rules for FY 2020-2021 (AY 2021-22) :

  1. Introduced a new Optional theme for Taxation under Section 115BAC, where a taxpayer by foregoing some deductions and exemptions will be able to pay tax at lower rates and according to new Income tax slab rates.
  2. Opting Section 115BAC, a taxpayer has to forego about 70 exemptions and deductions including Section 80C deductions, Section 10 exemptions, set off of losses and others as notified in Section 115BAC.
  3. Companies exempted from payment of tax for dividend distribution which was earlier taxed at the rate of 15% under Section 115O and now only is taxed in the hands of the recipient.
  4. TDS of 10% will be deducted by the payer in case the amount of dividend is paid above Rs 5000.
  5. Corporate to be taxed at the rate of 15% made applicable to domestic companies engaged in the manufacturing and power sector.
  6. The threshold for tax audit increased from 1 crore to 5 crores and the due date for filing an Income tax return for audit accesses is now changed to 31st October than 30th September earlier.
  7. Introduced new Vivad se Vishwas cum Tax Amnesty Scheme to reduce tax litigations.
  8. Issued guidelines for obtaining Unique Registration Number by all charity institutions.
  9. Provided 100 % tax exemption on startup profits for an extended period of 10 years with an extension in turnover up to Rs 100 crore.

Applicable Income Tax Slab Rates:

The following rates shall be applicable to taxpayers for FY 2019 and FY 2020:

Income Tax Rate for AY 2020- 21 Tax Rate for AY 2021- 22 (If OPTED for Section 115BAC ) Tax Rate for AY 2021- 22 (If NOT OPTED Section 115BAC ) Health and Education Cess (Will be charged on Income tax + Surcharge )
Upto Rs 2.5 lakh Nil Nil Nil Nil
2.5 lakh to 5 lakh 5% 5% 5% 4%
5 lakh to 7.5 lakh 20% 10% 20% 4%
7.5 lakh to 10 lakh 20% 15% 20% 4%
10 lakh to 12.5 lakh 30% 20% 30% 4%
12.5 lakh to 15 lakh 30% 25% 30% 4%
Above Rs 15 lakh 30% 30% 30% 4%

* Surcharge will remain the same as applicable.

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