All you need to know about the New Tax Regime
Indian Tax Laws are quite complex. And it is no different for the Income-tax. When it comes to Income-tax, there are more than a hundred exemptions and deductions of various nature are provided under the Income Tax Act, 1961.
In order to simplify this, the new simplified and no-frills tax regime has been introduced in this financial year 2020-21 under Section 115BAC of the Income-tax Act, 1961. The new tax regime is available for Individuals and HUFs (Hindu Undivided Family) with lower tax rates and zero exemptions as well as deductions. However, the new tax regime is optional and the taxpayer can choose to be under the existing tax structure if that seems to be appropriate. Let’s take a detailed look at the new Income-tax regime.
Tax Rates under the New Tax Regime
Tax rates under the new Income-tax regime are applicable under seven tier slabs in comparison to three-tier slabs of the existing tax structure. The following are the tax rates applicable under the new tax regime:
Income slabs under the new tax regime |
Tax rates |
Income below INR 2.5 lakhs |
0% |
Income from INR 2.5 lakhs to INR 5 lakhs |
5% |
Income from INR 5 lakhs to INR 7.5 lakhs |
10% |
Income from INR 7.5 lakhs to INR 10 lakhs |
15% |
Income from INR 10 lakhs to INR 12.5 lakhs |
20% |
Income from INR 12.5 lakhs to INR 15 lakhs |
25% |
Income above INR 15 lakhs |
30% |
Basically, the new tax regime removes most of the (around 70) types of exemptions as well as deductions provided under the Income-tax Act, 1961 and makes it simple for taxpayers to calculate tax along with giving the benefit of lower tax rates. If you are a taxpayer who doesn’t claim any exemptions and deductions, then the new tax regime is suitable. Let’s know in detail the exemptions as well as deductions of what type are not claimable under the new tax regime.
Exemptions as well as deductions that are not Claimable under the New Tax Regime
The following are the deductions that are not claimable under the new tax regime -
- Leave travel allowance exemption which is currently available to salaried employees twice in a block of four years
- The standard deduction available to salaried individuals
- Deductions allowed under Section 16 on professional/employment tax as well as an allowance for entertainment on the salaries
- Tax exemption on House rent allowance (HRA) paid to the salaried Individuals as a part of their salary which can be claimed up to a certain specified limit for rented accommodations
- Deductions available under Section 80TTA (deduction in respect of interest on a savings account) and Section 80TTB (deduction in respect of interest on senior citizen deposits)
- The deduction allowed for interest paid on a home loan taken for a property that is either self-occupied or vacant under Section 24
- The deduction allowed (for up to INR 15,000) from family pension under Section 57 (iia)
- Most commonly claimed deductions under Chapter VI-A deduction (80C, 80D, 80E and so on) (Except Section 80CCD (2) and 80JJAA). This includes life insurance premium, children school tuition fees, Public Provident Fund contributions, National Pension Scheme and Equity Linked Savings Schemes, donations to charitable institutions, etc.
- Helper allowance
- Minor child income allowance
- Children education allowance
- Other special allowances – Section 10(14) such as daily allowance, travel allowance and research allowance, etc.
Basically, all deductions allowed under chapter VI-A such as 80C, 80CCC, 80CCD, 80CCG,80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB and 80G, 80GG, 80IA, 80IAB, 80IAC, 80IB, etc are not claimable. Employer’s contribution to NPS under section 80CCD (2) and 30% salary of new employment under section 80JJAA are still claimable.
- Section 80C – Contributions made to various investments like life insurance, Equity Linked Savings Schemes (ELSS), EPF, PPF and NSC, etc. for up to a maximum of INR 1,50,000
- Section 80CCC – Contribution made towards pension plans
- Section 80CCD – Additional contribution to National Pension Scheme account
- Section 80D – Deduction for medical insurance premium for self and family
- Section 80DD – Deduction allowed for maintenance expenses (including medical treatment) for dependent person with a disability
- Section 80DDB – Deduction with respect to medical treatment of specific ailments
- Section 80E – Deduction on interest payment towards education loan
- Section 80EE – Deduction on interest payable on the home loan, etc.
Exemptions as well as deductions that are available under the New Tax Regime
The following are the exemptions as well as deductions allowed under the new tax regime -
- Exemption for transport allowances (applicable only for specially-abled person)
- Interest received on post office savings account under Section 10(15)(i) of the Income-tax Act for up to INR 3,500 per individual during the financial year
- Conveyance allowance received by the employees to meet the conveyance expenditure incurred as part of the employment
- Exemption on gratuity received by the employer. Gratuity is a lump sum benefit paid on serving in an organisation for more than five years. Exemption of up to INR 20 lakhs of gratuity received is allowed for non-government employees. And for government employees, the entire amount of gratuity received is tax-exempt.
- Tax exemption on life insurance maturity proceeds under Section 10(10D) of the Income Tax Act, 1961
- Exemption on interest and maturity amount received on Public Provident Fund
- Employer’s contribution to your National Pension Scheme
- Exemption on lump sum amount received on maturity from National Pension Scheme account
- Exemption on interest payment and maturity payouts from Sukanya Samriddhi Yojana
- Exemption on commutation of pension
- Leave encashment received on retirement
- Gift from the employer
- Monetary benefits received under voluntary retirement scheme
The new tax regime offers the benefit of lower tax rates for those who do not wish to claim exemptions as well as deductions under various sections of the Income-tax Act, 1961. Such Individuals and HUFs can save tax under the new tax regime in comparison to the existing tax regime. However, the new tax regime is optional. Individuals can make a choice between a new tax regime and the existing tax regime to be taxed.
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