The Finance Minister introduced several proposals in relation to the personal tax regime in the Budget 2020 presented in the parliament on February 1, 2020.

Determination of residential status for certain categories of individuals
The budget proposes to introduce the following amendments in determining residential status for certain categories of individuals.

As per the proposed amendments, a citizen of India would be deemed to be a resident of India in any financial year, if such individual is not liable to tax in any other country.

As per the existing provisions, an Indian Citizen or Person of Indian Origin, who being outside India, comes on a visit to India in any financial year, would be considered as a resident in India, if such individual stays in India for 182 days or more. The amendment proposed by the budget provides for such an individual to be resident in India in either of the two scenarios – (i) the individual’s stay in India during the financial year is 182 days or more; or (ii) the individual’s stay in India is 120 days or more in the current financial year and 365 days or more in the preceding 4 financial years.

The basic conditions for determining residential status for other categories of individuals remains the same.

Conditions to be categorized as not ordinarily resident or ordinarily resident
A resident in India would be considered as not ordinarily resident if the individual has been a non-resident in India in 7 out of 10 preceding financial years.

Individuals should take note of the proposed amendments in relation to residential status since the taxability of income depends on the residential status. While non-residents and not ordinarily residents are taxed on India sourced income, ordinarily residents are taxed on their worldwide income in India.

Optional new tax regime
While there is no change in the existing Income-tax slab rates for individuals, a new tax regime has been proposed under which individuals foregoing exemptions and deductions would be taxed at reduced tax rates.

The exemptions and deductions that would need to be foregone includes inter alia exemptions and deductions claimed widely by individuals including House Rent Allowance, Leave Travel Concession, standard deduction, deductions under Section 80C, deduction in relation to self-occupied house property, set-off of loss from house property against any other source of income etc.

Surcharge and education cess would apply as per existing rates.

The new tax regime is optional. Individuals who opt to claim available exemptions/ deductions would be taxed as per the existing rates.

Individuals who earn taxable income up to INR 5,00,000 continue to be exempt from tax liability under the existing and new tax regimes.

Certain contributions to be taxed as perquisite

Contributions exceeding INR 7,50,000 made by employer to an employee’s account in a recognized provident fund, notified pension scheme or approved superannuation fund would be taxable perquisite in the hands of the employees.The annual accretions to such contributions exceeding INR 7,50,000 would also be considered as taxable perquisite.

Taxation of benefits under Employee Stock Benefit Plans

Securities issued under Employee Stock Benefit Plans by employers are taxable in the hands of the employees at the time of their exercise (i.e. allotment). In case of eligible start-ups, the payment of tax on such benefit is proposed to be deferred to within 14 days after (i) 5 years from the end of financial year in which options are exercised, or (ii) date of sale of such security by the employee or (iii) the date of the emplo ..

Taxation of dividend from domestic companies and mutual funds
As per the existing provisions of the Income-tax, domestic companies that declare, distribute or pay dividend are required to pay a dividend distribution tax.Such dividend was exempt in the hands of the recipients up to INR 10,00,000.

It is proposed to remove the dividend distribution tax payable by companies and tax the dividend from such companies and mutual funds in the hands of the recipients at the tax rates applicable to the respective recipients (i.e. applicable slab rates for individuals.)