The current situation of the COVID-19 Epidemic has hampered not only the lives of humans but also played a great role in the status of present tax regime i.e. 2020-2021 in a comparative study with the tax regime of financial year 2019-2020. To get the clarity and a better understanding of the topic Vriddhi Legal was fortune to have a conversation with CA Nupur Agarwal practicing in Lucknow. During the conversation the deep knowledge of present tax boons and banes was discussed for a better understanding.
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What is the role of Government in the present Tax Regime in perceptive of Middle-class men of the society?
“In the financial year of 2020-2021 the new plan has resulted to bring benefits under the scheme in relation to the Middle class income holder as there are increasing numbers of housing loans in present time who are applying for them or have them running from past time, the benefit can be seen under Section 80 e where in FY 2019-2020 in past financial year a person applying for housing loan could take the benefit over the interest arising only under section 24 but in current financial year regime the benefits can be taken under 80e up to amount of Rs. 1.5 lakhs as this was limited till 2019-2020 but now the Government has extended the benefits in present financial year 2020-2021 where a person who has taken loan to purchase home i.e. he has opted for housing loan and the amount is less than Rs. 35 lakhs where the value of property is Rs. 45 lakhs, here it can be seen the benefit is for lower income groups and not for the ones who fall under higher income groups who purchase houses at the cost of Rs. 1 crore or more, so the focus of new scheme concerns about the lower income groups who have the purchasing power of 1000 to 1200 sq. ft of homes which easily falls under Rs. 45 lakhs so the relief is basically for middle class sections where the benefit can be taken under section 80 e in the FY of 2020-21 which can be claimed and income as well as liability can be reduced and pay reduced amount of Tax.”
There are many professionals working in field of technical as well as professional services. Basically, what are technical services and is there any benefit for such service providers in the new slab? And are Lawyer in profit or loss?
“Yes, there are benefits but before understanding the benefits we need to understand the difference between Technical and Professional services. So Professional services are those services which fall under section 44 of Income Tax Act which enshrines which services are to be addressed as professional services for example legal services, medical services, accounting services, interior designing services are to be tagged as professional services but there are many services which don’t fall under this criteria for example suppose any reality show takes place and any signer or superstar is being invited as a guest or as an audience so that person is not offering his professional services in the reality show as his professional services not these as in context of an actor his professional services are acting, for any singer his professional services are singing but going in that reality show neither he is acting nor he is singing so these services won’t be considered as professional services but they fall under the head of Technical Services and in concern of Technical services Government has now differentiated these two services as what people do is take Professional Services as technical Services and Vice-versa and deducted 10% TDS but now Government has drawn a line between Professional Services and Technical Services and gave the difference between the two and the rate of TDS on Professional Services will be as it was of 10% but on Technical services which are different from Professional ones and don’t fall under Section 44 of Income Tax Act will deduct 2% of TDS.” CA NUPUR
“Lawyers are included in professional services as they provide legal services fall under the same rate of TDS i.e. 10% as there is no change in Professional services the changes have been implemented only in Technical services. I would like to quote one more e.g. as people have taken AMC’s for maintenance and they pay maintenance charges what are they doing? They are just maintaining them not providing any professional services which fall under section 44 and these services will also come under technical services and 2% TDS will be deducted.”CA NUPUR.
As per the studies and analysis there is a difference in Dividend. So, can you explain what is dividend and what are the changes in it and are there any profits or not?
“Dividends are basically of two types one is of mutual funds company where we purchase units on such purchases company declare some dividends so what they do is they give these number of dividends to AMC’s i.e. asset management companies and they pass on the dividends which we purchase from them. Dividend are form of extra incomes which we have invested in a company and in its capital, so in return they provide us with extra income, we can also say them as part of profits as a company earned profit and gave a part of it to us as people have invested in the company. One dividend is given to unit holders and the other dividend is which companies give directly to their share holders as their equity shareholders suppose A B and C are shareholders have purchased shares amounting to Rs. 1 lakhs of any company as they have contributed capital in that company so whenever a company earns profit some part of that profit is given to these equity share holders just to boost them and to thank them for their investment so a part of income is given to shareholders which is tagged as Dividend so on one hand we have a dividend which MNC’s gives to unit holders and on other hand dividend which is directly given by a company to equity share holders. So the past scenario was companies distributed their dividends likely companies gave their dividends to AMC’s and AMC’s gave them to their ultimate owner or companies gave them to equities so here what happened was known as tax distribution of dividends as Government said if you are giving Dividends give the distribution tax to them and the tax was approx 20.26% of dividend distribution tax to be paid but in the present scenario Government has completely struck down the tax and as under new guidelines the company is not the one to pay the tax but the tax is to be paid by the individual the one who is receiving the dividend so the burden of tax has shifted from company to the receiver so now any Indian company giving Dividend to any person i.e. equity or preference share holder now that will be on deduction of 10% TDS and then to pay the dividend if the dividend amount exceeds from Rs 5000 in one FY suppose he gets dividend from 4 companies amounting to Rs. 1000 on total i.e. Rs. 4000 so here TDS will not be deducted but if in one FY he gets Dividend exceeding Rs. 5000 then the 10% TDS will be deducted same case if there is any mutual funds company here the scene was that they paid to AMC’s then the Dividend distribution tax was deducted as Government has said tax will be taken on distribution as AMC’s were giving to units holders and tax was being charged which was double tax being charged so to avoid double taxation now the receiver will only bear the charges of tax and again AMC’s will pay the dividend then 10% TDS will be deducted that too in such cases where in one FY the amount exceeds Rs. 5000” CA NUPUR
The scenario of 2019-2020 was different as of 2020-21 with present epidemic situation under the concern of people so please put some limelight on tax regime as which was better tax regime of FY 2019-20202 or of FY 2020-21 what is the difference between the two
“Firstly, to get the clear picture we need to under what was the Tax rate of FY 2019-2020 and what has been implemented in present FY tax regime 2020-21, the slab rate in 2019-20202 was in 3 slabs where people with Rs. 2.5 lakhs income were exempted completely from paying any tax and if the income was from Rs 2.5 lakhs to Rs. 5 lakhs the tax rate was 5% and if income was from Rs 5lakh to Rs 10 lakh then the tax rate was 20% and if the income exceeds Rs 10lakhs then the tax rate is 30% this was the old regime and there was relief under section 80 A that if taxable income is Rs 5 lakh and tax on the amount by 5% is Rs. 12500 and if relief of Section 80 A is seen then the benefit was of Rs. 12500 and no amount of tax to be paid also the reduction and exemptions can be redeemed like fees of school students, LIC, payment of Health Insurance premiums in old regime the benefits were taken over the premiums and their payments in FY 2019-2020. The new tax slab regime enshrines that the relief under 80 A Rs 12500 is still given in new slab but the problem is all the reductions which we are claiming under 80 C of student fees, medical claim, interest on housing loan under new slab rates are not into action anymore that is on all income rate the whole tax rate has to be paid now talking about the slab rates there are 6 types of slab rates here up to Rs. 2.5 lakhs are exempted here as well Rs 2.5 lakhs to Rs 5 lakhs is 5%, from Rs 5lakhs to Rs 7 lakhs 10 %, from 7.5 lakhs to Rs 10 lakhs is 15%, from Rs 10 lakhs to Rs 12.5 lakhs is 20% and from Rs 12.5 lakhs to Rs 15 lakhs is 25% and income above Rs 15 lakhs is 30% that is in old slab rate above Rs. 10 lakhs only 30% were taken but in new slab rate above Rs. 15 lakhs the rate is 30%. the main problem in new slab rate is that reduction and exemption cannot be claimed” CA Nupur.
“This means it has been slowed that there is no load on pockets but the reality is under new slab rate approximately there are same rates of payments” Adv. Nishant
“Now I will tell you about four scenarios in which if a person is not claiming any exemptions completely belonging to low income groups ones who have no investments neither in LIC nor in school fees what is the better slab rates for such persons and then I will tell you about people who keep on increasing their exemptions so what will be the benefits under such cases. So in the first case where there are no exemption claims in new tax slab the slab rates are low as for Rs 10lakhs and above 7.5% is being charged but in old ones the rate is 30% now the new regime is beneficial in comparison of old rates and on income of Rs 7.5 lakhs Rs 26,0000 can be saved if we are going under new slab rate and if the income is Rs 20 lakhs then the saved amount is Rs 78000 if we are going under new tax regime these are the cases when exemptions are not being claimed. Now if we are taking the exemptions as there are many people who submit the fees of school students , LIC premium will be paid under 80 D medical claim as there are medical histories of people and their family members and if not then for a preventive measure they take a medical checkup so the person will take the benefit of such payments so if reductions are claimed and it goes above Rs 2.5 lakhs so till Rs 7.5 lakhs if ones income falls in such rates then for him the old tax regimes are better for him and if one goes in new regime then there person can have savings. Now under next tax slab where redemption is claimed Rs. 2 lakh 25 thousand so here in starting we have Rs 12.5 lakhs so the benefit is under old tax regime before the claims are high and rate will be reduced in tax slab and will be benefitted afterwards under new regime but if we increase as exemption is of Rs 2.5 lakhs that is under 80 C and under 80 E ore exemption is taken of Rs 2.5 lakhs so on total the redemption is Rs 3 lakhs so if we take exemption of more amount so it is benefitted to take it under old tax regime as comparatively to new tax regime as under new regime loss will be incurred if income is of Rs 7.5 lakhs and exemption amount is Rs 2.5 lakhs so tax rate in old regime will be zero as here income is of Rs 5lakhs and on this amount relief of 80 A is taken so it will be zero but if we go in new regime so approx Rs 39thounsand tax will be paid so the summary is if exemptions are more and each person invests no matter what are the situations as he invests in LIC, PPF, Medical claim likewise if he takes a house there will be interests so the benefits will be under old regime the next drawback of new regime is that if a person goes into new regime from old regime he cannot go back to old regime he will be bound to stay in new regime always no matter his income gets increased he will be paying more tax and cannot pay old tax rate. Business groups have a benefit that they can go back to old regime if they switched into new one but this also can be done only once.”CA NUPUR
“So, it’s better to stay in the old regime for the time being until Government says that new regime is better and is on applicable rates” CA NUPUR
So, we have an option to go in new regime or stay in old one for people who don’t claim for exemption or redemption if his income is above Rs 5lakh?
“Yes, for him new regime is better.” CA NUPUR
Ones who are claiming like services persons who don’t have their incomes above Rs 5lakhs?
“Yes for them old regime is beneficial as for services class old regime is better as salaried class gets extra benefit of Rs 50000 the deduction benefit this can be claimed only if they are in old regime and if they go in new regime the benefit will not be offered a person won’t get one more benefit under new regime that is i.e. if one has FD’s under current scenarios on FD’s no TDS is charged over Rs 40 thousand ad benefits are given for senior citizens it is Rs 50 thousand but in new regime this benefit cannot be taken.” CA NUPUR
“So as conclusion for some people new regime is beneficiary but for some old regime stays better so as suggestion for lower class and middle-class groups is that they should stay in old tax regime and take the benefits out of it as investments will be made rather than going in new regime and blocking us on a fixed amount.” CA NUPUR.
So, friends under the professional guidance we have understood that its better for middle class the most of the population should take the benefits of old regime tax slab rates. ADV. NISHANT.