Changes in Income tax act effecting an Individual Tax Payer

CA Priyanka Doddavari | Last updated: 01 August 2020

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The Income Tax Act has undergone reforms to simplify the tax structure and ease compliance. A new tax scheme offers lower tax rates by foregoing certain exemptions and deductions, such as standard deduction and HRA. Individuals can choose between this new scheme or the old rates, with a conscious decision needed based on personal financial circumstances. Changes also include taxing the full dividend amount and adjustments to tax audit thresholds.

The Finance minister in her speech said, Currently the Income Tax Act is riddled with various exemptions and deductions which make compliance by the taxpayer and administration of the Income Tax Act by the tax authorities a burdensome process. It is almost impossible for a taxpayer to comply with th

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FAQ :

The main aim of the new tax reforms is to simplify the tax structure, bring ease of compliance for taxpayers, and reduce litigation.

Under the new scheme, tax rates range from NIL for income up to Rs. 2,50,000, to 30% for income above Rs. 15,00,000, with intermediate slabs at 5%, 10%, 15%, 20%, and 25%.

Common deductions restricted under the new tax scheme include the standard deduction for salaried employees, professional tax, house rent allowance, leave travel concession, and contributions to EPF and PPF.

No, the new tax scheme is not mandatory. Individuals can choose to claim exemptions and pay tax at the old rates if it is more beneficial for them.

For individuals without business income, the option can be exercised while filing the IT Return and can be opted in or out of each year. For those with business income, the option must be exercised once and is valid for subsequent years, with the ability to opt out only once.

The exemption of up to Rs. 10 lakhs for dividend income has been removed, and the entire dividend amount received is now taxable in the hands of the individual.