Wealthcare Investments

Budget provisions on Personal taxation!!

Many investors are trying to figure out the tax implications and modalities around 4 main points, which are as follows. 

1)      Should I be in existing regime of Taxation or move to new regime?

2)      What will be the implication of DDT (Dividend Distribution Tax) abolishment on my investments?

3)      Introduction of TDS on Mutual funds?

4)      NRIs will be Taxed on his global income in India

I am trying to provide some guidance so that your information is correct and updated. Thanks to media and social media messages, people are more confused than clear. Also people are not able to get everything at one place. I have tried to put all information in one place for you. 

Let’s examine all the concerns in same order.

1)      Should I be in existing Tax regime or change to new regime

If you are enjoying various tax saving sections of IT Act, than you may consider to stay in existing regime as moving to new Tax regime, will not allow most the provisions to be used!! If you are salaried, you can switch between old and new regime every year also. But if you are non-salary Tax payer, you can change only once in life time, unless you have shown nil income in previous FY in future. On the face of it, New Tax regime looks attractive from saving taxes unless salaried people who are receiving too many perquisites under the cost to company package. Pl see attached file for exemptions to be continued in new Tax regime also. This will help you figure out which tax regime you wish to stay.

2)      What is the impact of DDT abolishment on my Investments?

Budget has abolished the DDT at the source. Meaning now on, company or Mutual fund or any investment which pays dividend to the investor will not deduct the DDT but pay full dividend amount to the investor. Investor will have to club this dividend income to his/her total income and pay tax at the applicable Tax rate.

People who are in lower tax bracket can benefit from this move. But HNI and Ultra HNIs will have to shell out more tax as compared to DDT now. Therefore, HNI and Ultra HNI Investor may have to switch the investments from Dividend Payout Option to Growth Option. If Investor needs regular cash flows to fund their living than they can be better off with Systematic withdrawal plans (SWP) of Mutual funds. It may be noted that Investors in Equity, PMS, AIFs or REITs etc. products will have to re-examine their strategy as Dividend Income will be taxed at their personal tax rate, resulting in lower returns from these investments. Suggest you to examine the real modalities with the product vendor or manufacturer as there are various types of AIFs, REITs and INViTs.

3)      Introduction of TDS in Mutual funds?

There are speculations and rumours that there will be TDS in Mutual Funds dividend and redemptions. Whatever I have understood and researched, its going to be only on the Dividend Payout of Mutual Funds. There shall be no TDS on the redemptions from Mutual fund. I think this is correct also. Capital Gain Tax was re-introduced in FY 18-19 and there was no provision of TDS since then. Now that DDT is abolished and assessee will have to pay the tax as per his/her tax bracket, TDS is brought in so that assessee will be reminded to pay taxes on such dividend income and Income Tax department can track such lapses. However, pls note that the debate is still going on and its still not clear whether TDS will be deducted on redemption or not.

Whatever the case may be, TDS is not new thing for us and compliant tax payers have nothing to hide so it TDS will be adjusted against total tax liability👍

4)      NRIs will be Taxed on his global income in India

There was also lot of confusion about the Taxes on NRIs. Let me share the article from Economic Times –“The government has clarified, via a press release that in case of an Indian citizen who becomes deemed resident of India under the changes proposed by Union Budget 2020, income earned outside India by him/her shall not be taxed in India unless it is derived from an Indian business or profession. Necessary clarification, if required, shall be incorporated in the relevant provision of the law.

The clarification has come after the Finance Bill, 2020 has proposed that an Indian citizen shall be deemed to be resident in India, if he is not liable to be taxed in any country or jurisdiction. This is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdiction to avoid payment of tax in India, says the release issued today.

The new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries. The intrepretation of the proposed provision that those Indians who are bonafide workers in other countries, including in Middle East, and who are not liable to tax in these countries will be taxed in India on the income that they have earned there, is not correct, as per the press release.”

Above paragraph puts an end to various speculations.

I must re-iterate that I am not CA or a Tax consultant. I have tried to gather information from various reliable sources and trying to address some of the concerns of the Investors in this article. You are requested to consult your CA/ Tax advisor on the same. Sole objective of the article is to provide latest, updated information about the subject concerns and clarify various doubts that you may have. Having idea about the provisions, will help you understand and discuss with your Tax advisor prudently. We are not responsible for any error, inaccuracy, omission etc. in this article.

In case you have further query, pls feel free to call me on 9833778887!! I will be happy to answer queries to my best ability.

I hope the article helped you. Pls do share with your contact and help others too.

Author –

Bhavesh D Damania

Founder - Wealthcare Investments

EduPrenuer, TV show panellist and Blogger

You can reach him at 9833778887 and wealthcarein@gmail.com

"Risk comes until you know what, where and why you are Investing"