Even while the country is in a complete lockdown to control the spread of Coronavirus in the country, the new financial year (FY) 2020-21 has sneaked in from April 1. For income tax purpose, while the FY 2020-21 has begun on April 1 and will end on March 31, 2021, the relevant assessment year (AY) will be AY 2021-22. All income earned during the FY is assessed in the AY and income tax return for FY 2020-21 is accordingly filed in the AY 2021-22.
As a taxpayer and even if one is not a taxpayer, there have been several important changes that one needs to be aware of. Here are a few of those key income tax changes effective April 1, 2020.
1. Financial Year not extended
Firstly, it is important to note that contrary to the concern raised about a change in the financial year, the government had clarified on March 30, 2020, that the financial year has not been extended and the status quo on the same is being maintained. The government had extended the date related to the Indian Stamp Act for certain amendments to be effective from April 1, 2020, which has now been extended to July 1, 2020.
2. Last date for I-T savings extended
If you were not able to make income tax saving for FY 2019-20 because of the lockdown, there’s a piece of good news. The government has allowed taxpayers to invest in PPF, NSC, ELSS or any other tax saving scheme by June 30, 2020, and yet claim tax benefit for the FY 2019-20. The tax benefit under Section 80C, for FY 2019-20 may, therefore, be availed even if the investment is done between April 1, 2020, and June 30, 2020. However, for those who have already made tax-saving investments, can invest till June 30 or anytime later in the FY and avail tax benefit for FY 2020-21.
3. New Tax Regime in-force
Starting FY 2020-21, the income taxpayers will have an option to pay lower income tax rates by foregoing income tax exemptions and deductions or continue paying the same tax rates by availing the deductions. For those availing lower rates will be assessed under the New Tax Regime else the assessee will continue to pay taxes as per Old Tax Regime.
Under the new tax regime, the following will be the new income slabs and tax rates:
- Up to Rs 2.5 lakh – Nil
- From 2,50,001 to Rs 5 lakh – 5 per cent
- From 5,00,001 to Rs 7.5 lakh – 10 per cent
- From 7,50,001 to Rs 10 lakh -15 per cent
- From 10,00,001 to Rs 12.5 lakh – 20 per cent
- From 12,50,001 to Rs 15 lakh – 25 per cent
- Above Rs 15 lakh – 30 per cent
Some important exemptions, deductions available under Income-tax Act that the taxpayer will have to forgo will include – Investments in PPF, ELSS, Life insurance etc, and expense such as home loan repayments, tuition fees etc.
4. Belated return last date extended
The last date to file ITR without late filing fee for AY 2020-21(FY 18-19) was August 31, 2020. The late filers could file their belated return by March 31, 2020, which now has been extended by the government to June 30, 2020. The penalty of Rs 10,000 as a late filing fee for those with income above Rs 5 lakh will, however, needs to be paid.
5. Interest on due tax
If as a taxpayer you have delayed payments of advanced tax, self-assessment tax, regular tax, TDS, made between 20th March 2020 and 30th June 2020, the government has reduced interest rate at 9 per cent instead of 12 per cent per annum ( i.e. 0.75 per cent per month instead of 1 per cent per month.
6. Dividend taxable
From this FY, the dividend received by equity shareholders and equity mutual fund investors will become taxable as per one’s income tax slab. Till now, the company declaring the dividend was levying Dividend Distribution Tax (DDT) before the distribution of dividends to the investor but now that will stop. The tax on dividend will be paid by investor now. For equity MF investors, the DDT of 11.64 per cent was deducted before receiving the dividend amount. Those investors in higher tax slab will be impacted more because of this new rule.
7. Home loan for first-time buyers
For the first time buyer of a home, the government has extended the tax benefit available on interest payment of the home loan. Under Section 80EEA, the borrower can avail a deduction of up to Rs 1.5 lakh on home loan interest payment subject to certain conditions. One such condition is that the home loan needs to be sanctioned by the lending institution during the period from 1st April 2019 to 31st March 2020 which has now been extended to March 31, 2021. Importantly, the value of the home as per the stamp duty needs to be within Rs 45 lakh.