union budget 2020

Finance Minister Nirmala Sitharaman presented the Union Budget 2020 on February 1, 2020.  This is the second budget of Narendra Modi led NDA government’s second term, after having stormed back in power with a full majority in May 2019 General Elections.

With the economy witnessing a slowdown, there was a wider call to provide stimulus to demand through tax-breaks and additional benefits in the form of higher deductions to individual tax payers.

There is a lot of noise around announcements made during Union Budget 2020, and we just wish to cut the clutter.

Here are 3 takeaways from the budget which directly concern any tax-payer:

1. Deposit Insurance Coverage increased to ₹5 lakhs (prevailing Coverage ₹1 lakhs)

Recent fiasco like PMC Bank fraud has led to the Government taking note of financial loss to small and retail bank deposit holders. “Depositors are currently insured up to a maximum of ₹1,00,000 for both principal and interest amount held by him in the same right and same capacity as on the date of liquidation/cancellation of bank’s licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force”. With the new announcement made in the Union Budget, the Government wants to safeguard bank deposits of retail and small account holders from various risks and frauds. The coverage has been given a 5-fold increase, to ₹5 lakh. Good news for bank account holders as the measure was long pending.

2. New tax slab for income up to ₹15 lakh

There may not be any tax-benefits in terms of tax payable, especially if you are availing deduction under Section 80C, 80D including deduction on account of House Rent Allowance and various other deductions for investments and insurance. The move is aimed at simplifying tax-calculation for individuals who are not availing such benefits and consequently bring down their tax outgo.

All said and done, you would be better off in the existing structure tax-regime, especially if you are a good investor and avid tax-planner.

New Tax Regime (Optional without Any deduction)

Source: Finance Bill: Union Budget 2020

The benefit of existing tax regime would accrue on two counts:

  • Individuals with taxable income up to ₹5 lakh continue to pay no tax.
  • Availing deductions like interest payable on home loan and education loan, investments included under 80C and 80D along with deduction for HRA, would bring down an individuals’ overall income tax payable automatically.

As there continues to be ambiguity regarding the benefits of new vs old tax regime, we suggest investors to stick to the existing tax regime which offers more long term value to an individual.  Please note, employers contribution under 80CCD (up to ₹50,000 would continue to be a deduction under both the new and old tax regime).

3. Benefit of deduction on interest payable on affordable housing loan

Additional deduction on interest payable on account of loan availed to buy an affordable house, has been extended from the existing 31st March, 2020 to 31st March, 2021. The Government aims to provide housing to every individual in the country across urban and rural areas under the flagship “Pradhan Mantri Awas Yojana- Housing for all 2022”. The extension would provide additional maximum deduction of up to ₹1.5 lakh of interest payable for loans up to ₹45 lakh availed for buying first home for an individual. Thus, for the individuals who missed out on this opportunity, have an additional year to plan and buy a home, with the added benefit of higher deduction.

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