View on New Regime
A new income tax regime was introduced by our honourable Finance Minister - Smt. Nirmala Sitaraman in Budget 2020 with more tax slabs and lower tax rates. It was introduced to remove the dependency of citizens on tax consultants and simplify the tax structure. The new tax regime has reduced tax slabs for individual and HUF taxpayers with a condition to forgo certain tax deductions or exemptions.
Taxpayers will have a choice to opt between old or new tax regime. Even though the option must be exercised at the time of filing of return but for the purpose of payment of advance tax or TDS on salary this option has to be ascertained at the start of the financial year so that your employer can deduct TDS accordingly. However, the employee would still be able to choose to file the ITR no matter what option has been provided to the employer. Hence, you can switch between the new and old tax regime at the time of filing of the income tax return.
Comparison of slab rates in old and new regime
Deductions not allowed in new tax regime
It is to be noted that if the taxpayer chose the new tax regime, he cannot claim most of the deduction & exemptions which were enjoyed in the old tax regime. It will be an opportunity lost to the taxpayers as they will have to forego the aforementioned benefits of deductions and exemptions.
For a Salaried person
Standard deduction maximum deduction Rs. 50,000/-
House rent allowances depending upon salary structure and rent paid
Leave travel allowances & Perquisites
Professional Tax paid - maximum Rs. 2,500/-
Special Allowances provided u/s 10(14) except:
Transport allowance granted to a handicapped employee
Conveyance allowance
Any allowance granted to meet the cost of travel on tour or on transfer
Daily allowance
For Business or Profession
Exemption to Special Economic Zone u/s. 10AA
Deductions u/s. 32AD, 33AB, 33ABA, 35(1)(ii),35(1)(iia), 35(1)(iii), 35(2AA), 35AD and 35CCC and Additional depreciation u/s. 32(iia)
Carried forward or unabsorbed depreciation of earlier years
For All the Taxpayers
Interest paid on a home loan on self-occupied house Maximum deduction Rs. 2,00,000
All deductions provided under Chapter VIA (except 80CCD(2) and 80JJAA)
80-C: LIP, tuition fees, PPF, EPF, tax saving FDR, Repayment of home loan, mutual funds (ELSS), NSC etc. Maximum deduction Rs. 1,50,000
80-D: Mediclaim insurance premium maximum deduction Rs. 25,000 to 1,00,000
80-G: Donation
80-DD: Differently abled dependent maximum deduction Rs. 75,000 to 1,25,000
80-DDB: Expense for specified medical treatments
80-E: Interest on education loan
80-TTA: Interest on saving bank accounts
Deductions and exemptions still available
Below listed are the benefits still available under the new regime:
Interest received on post office saving account u/s 10(15)(i) Maxi Rs. 3,500
Employer contribution in NPS or EPF up to 12% of salary & Interest on EPF up to 9.5% P.A
Interest and maturity amount of PPF or Sukanya Samriddhi Yojna
Commutation of Pension
Gratuity received from employer Maximum Rs. 20 Lacs
Amount received from LIP on maturity u/s 10(10D)
Example
Mr. A receives salary of Rs. 7,92,816/- and perquisites of Rs. 7,000/- HRA included in the above salary is Rs. 1,10,400/- Mr. A also made investment of Rs. 1,50,000/- which is eligible under section 80C. Tax comparison under both old and new regime is worked out below.
*For readers understanding Interest under section 234 A, 234 B & 234 C is not considered.
End Note
The choice to select tax regime year on year basis is available to the taxpayers having income from salary, house property, capital gain or other sources. However, if a taxpayer has income from business or profession, he cannot select tax regime year on year basis.
Both old and new taxation regimes have their own advantages and disadvantages. The new taxation regime does not encourage investing habits in taxpayers. It is better for those taxpayers who have less income and less investments resulting in lesser deductions and exemptions. Each individual must evaluate which tax structure is best for him depending on his income level and deductions so that he can choose the most suitable regime accordingly.
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