A tax regime is a set of laws governing the levy and the computation of taxation. Tax regimes are based on the types of taxes, tax bases, exemptions, deductions, and tax computation methods. Before the Financial Year 2019–20, taxpayers had no choice about the taxation regime and were obligated to calculate their taxes on their total income according to the rates set forth in the Finance Act of the year. The provisions of the new section 115BAC are applicable from April 1, 2021, that is, from the assessment year 2021-22 & onwards. The new tax regime is applicable to all taxpayers. Through the new tax regime, the government proposed a simplified tax structure with reduced tax rates for taxpayers. Due to the implementation of the New Tax Regime for the calculation and payment of income taxes, tax knowledge is crucial from the standpoint of the taxpayer. The government has made it optional so that even groups with higher incomes can benefit. According to the computation, if someone is claiming several deductions under the current system, he can probably save more money by sticking with the present tax system. If any taxpayers who is looking for flexibility in the investment options and does not want to invest in the stated entitled tools, may consider selecting for the new tax system.
The majority of earlier studies show the advantages of choosing a new tax regime from multiple aspects, such as simple compliance, lower tax rates, and system simplification. With the aid of case studies, prior research has argued that the new tax structure is most suitable for elderly, high-earners, and newcomers. The majority of research solely took the salaried class into account. When contrasting the old and new tax regimes, other societal groups including the self-employed, businesspeople, and professionals are not taken into consideration. The majority of publications examine the advantages of the new tax system from the viewpoint of the government. The bulk of blogs discussing the advantages of the new tax system were found throughout literature search, but research papers and articles were hard to come by. Therefore, there is a larger requirement to produce a qualitative research paper on India’s new tax system. The present paper studies its conceptual foundation, the comparison between old and new tax regimes, and the pros and cons of the new tax regime. However, there is still a lack of a clear picture that demonstrates a more concrete solution, portraying the more suitable and appropriate option to choose. The present study attempted to fill this gap by analyzing sec 115BAC in detail for all sections of society. Furthermore, the present study also explores the section-wise detail of all the exemptions which are offered and withdrawn in new tax regime. In this case, it is also important to study Section 115BAC. Therefore, the study’s next section examines the concepts that underlie the new tax structure created by Section 115BAC. The selection standards for a new regime were also considered. The current research attempt would also assist the taxpayer in choosing the appropriate tax structure in light of the limited data that has thus far been provided.
It is optional for all taxpayers to decide whether to go for a new or existing tax regime. Taxpayers are allowed to go for selection of and switch over from new to existing and existing to new Tax Regime for every year. They have the option of selecting a tax regime every year. Business taxpayers are allowed to select the tax regime only once. After selecting one in AY21-22, they can switch over only one time and then after they have to compulsorily continue with the selected tax regime.
The following table shows the list of deductions and exemptions which are still continued under new tax regime as per Section 115BAC.
Table 1 List of Deductions and Exemptions continued in new tax regime
| SECTION | DEDUCTION/EXEMPTION |
| [Section 10 (5)] | Travel Concession to an Indian Citizen employee |
| [Section 13A] | House Rent Allowance |
| [Section 14] | Allowance for meeting business expenditure |
| [Section 17] | Allowances to M.P/M.L.A/M.L.C |
| [Section 32] | Income of minor child clubbed |
| [Section 10AA] | Special provisions in respect of newly established Units in Special Economic Zones. |
| [Section 16] | Standard deduction, Entertainment Allowance, Professional Tax |
| [Section 24 (2) of Sec 23] | Interest on Home Loan on let-out property |
| [Section 32 (iia) of sub-section (1) ] | Depreciation |
| [Section 32AD] | Investment in new plant or machinery in notified backward areas in certain States |
| [Section 33AB] | Tea & Coffee Rubber Development Account |
| [Section 33ABA] | Site Restoration Fund |
| [Section 35] | Expenditure on Scientific Research |
| [Section 35AD] | Expenditure incurred, wholly and exclusively, for the purposes of any specified business |
| [Section 54] | Exemption for capital gains arising on transfer of residential house property |
| [Section 35CCC] | expenditure on Agricultural Extension Project notified by the Board |
| [Section 57 (iia) ] | Standard deduction out of family pension |
| [Section 80CCD] | employer’s contribution to NPS account |
| [Section 80CCH] | amount paid or deposited in the Agniveer Corpus Fund |
| [Section 80JJAA] | additional employee cost |
(Source: Income Tax Laws 2020-2023)
The following table shows the list of deductions and exemptions which are discontinued under new tax regime or prevalent as per old tax regime.
Table 2 List of Deductions and Exemptions discontinued in new tax regime/present in old tax regime
| SECTION | DEDUCTION/EXEMPTION |
| [Section 10 (1)] | Agricultural Income |
| [Section 10 (2)] | Receipts by a member of Hindu Undivided Family from family income |
| [Section 10 (2A)] | Share of Income from Firm |
| [Section 10 (4) (1)] | Interest paid to Non-resident |
| [Section 10 (4) (ii)] | Interest to Non-resident on Non-Resident External Account |
| [Section 10(4B)] | Interest paid to a person of Indian origin and who is Non-resident |
| [Section 10(6)] | Certain income received by an individual who is not a citizen of India |
| [Section 10 (7)] | Perquisites and Allowances paid by Govt. to its employees serving outside lndia |
| [Section 10(8)] | Employees of foreign countries working in India under Co-operative Technical Assistant Programme |
| [Section 10(8A)] | Income of a consultant |
| [Section 10 (8B)] | Income of Employees of Consultant |
| [Section 10(9)]
|
Income of family members of an employee serving under a co-operative technical assistance programme |
| [Section 10 (10)] | Gratuity |
| [Section 10(10A)] | Commuted Value of Pension Received |
| [Section10(10AA)] | Amount received as Leave Encashment on Retirement |
| [Section 10 (10B)] | Retrenchment compensation paid to workmen |
| [Section 10 (10BB)] | Payment received under Bhopal Gas Leak Act 1985 |
| [Section 10(10BC)] | Compensation received in case of any disaster |
| [Section 10(10C)] | Retirement Compensation from a Public Sector Company or any other Company |
| [Section 10(10CC)] | Income by way of tax on perks |
| [Section 10 (10D)] | Any sum received under a Life Insurance Policy |
| [Section u/s 10 (11)] | Payment from Statutory Provident Fund |
| [Section ]10 (12) | Payment from Recognised Provident Fund |
| [Section 10 (13)] | Payment from Superannuation Fund |
| [Section 10(l 3A)] | House Rent Allowance |
| [Section 10 (14)] | Any Allowance given for Meeting Business Expenditure |
| [Section 10(15) ] | Interest Incomes on Securities Section |
| [Section 10(15A)] | Payment made by an Indian Company engaged in the business of operation of aircraft |
| [Section 10(16)] | Educational Scholarships |
| [Section 10 (17)] | Daily Allowance of Legislators or Members of Parliament |
| [Section 10 (17A)] | Awards |
| [Section 10(18)] | Pension received by winners of Gallantry Award |
| [section 10 (19)] | Family pension of war widow |
| [Section 10(19A)] | Income from one palace of a former ruler |
| [Section 10(20)] | Income of a Local Authority |
| [Section 10(21)] | Income of approved Scientific Research Association |
| [Section 10(22B)] | Income of a News Agency |
| [Section 10(23A)] | Income of association encouraging certain Professions |
| [Section 10 (23AA) | Income of Regimental Fund or Non-Public Fund |
| [Section 10(23AAA)] | Income of Fund set-up for the welfare of employee or their dependents |
| [Section 10(23AAB)] | Income of a pension fund set up by LIC or other Insurer |
| [Section 10(23B] | Income of Institutions established for development of Khadi and Village |
| [Section 10(23BB)] | Income from Khadi or Village Industries Boards |
| [Section 10 (23 BBA)] | Income of Statutory Bodies for the administration of Public Charitable Trust |
| [Section 10 (23 BBB) | Income of European Economic Community |
| [Section 10(23BBC)] | Income of a SAARC Fund for Regional Projects |
| [Section 10 (23BBE)] | Any Income of Insurance Regulatory and Development Authority |
| [Section (23 BBG)] | Any Income of Central Electricity Regulatory Commission |
| [Section 10 (23 BBH) | Income of Prasar Bharati |
| [Section 10 (23C)] | Income of Certain National Funds, Educational Institutions and Hospitals |
| [Section 10 (23D)] | Income of a Mutual Fund |
| [Section 10 (23DA)] | Income of Securitization Trusts |
| [Section 10(23EA)] | Income of Investor Protection Fund |
| [Section 10 (24) | Income of Registered Trade Unions |
| [Section 10 (25)] | Income of Provident and Superannuation Funds |
| [Section 10 (25A)] | Income of Employees’ State Insurance Fund |
| [Section 10 (26)] | Income of Member of Scheduled Tribe |
| [Section 10 (26AAB)] | Income of an Agricultural Produce Marketing Committee |
| [Section 10 (26B)] | Income of Body for Promoting Interest of SC/ ST |
| [Section 10 (26BB)] | Income of national Minorities Development and Finance Corporation |
| [Section 10 (26BBB)] | Income of Ex-serviceman Corporations |
| [Section 10 (27)] | Income of Cooperative Societies looking after the interest of Scheduled Castes or Scheduled Tribes or both |
| [Section 10 (29A)] | Exemption of Commodity Boards |
| [Section 10 (30)] | Amount received as subsidy from or through the Tea Board |
| [Section 10(31)] | Amount received as subsidy from or through the concerned Board |
| [Sec. 10 (32)] | Income of Minor Child from his manual work or profession |
| [Sec. 10(33)] | Income from Transfer of Capital assets of UTI |
| [Section 10 (34)] | Dividend from an Indian Company |
| [Section 10(36)] | Long term capital gains on transfer of listed Equity Shares |
| [Section 10(37)] | Capital Gain on Compulsory Acquisition of Urban Agricultural Land |
| [Section 10(38)] | Long term Capital Gain on transfer of shares and securities covered under Security Transaction Tax |
| [Section 10(43)] | Reverse Mortgage |
| [Section 10(44)] | Income of New Pension System Trust |
| [Section 10(45)] | Perquisites/ allowances to Chairman/ Members of UPSC |
| [Section 10(46)] | Exemption of specified income of certain Bodies or Authorities |
| [Section 10(47)] | Exemption of income of notified Infrastructure Debt Fund |
| [Section 10(48)] | Exemption of income of foreign company from sale of crude oil in India |
| [Section 10(48A)] | Exemption of income of foreign company on account of storage of crude oil in a facility in India and sale of crude oil there from to any person resident in India subject to specified conditions |
| [Section 10(48B)] | Exemption of any income of a foreign company on account of sale of leftover crude oil from a facility in India after the expiry of the agreement subject to specified conditions |
| [Section 10(49)] | Exemption of income of National Financial Holdings Company |
| [Section 10(50)] | Exemption of income arising from specified services chargeable to equalization levy |
| [Section 10A) | Special provisions in respect of newly established Units in Free Trade Zones |
| [Section 10AA) | Special provisions in respect of newly established Units in Special Economic Zones |
|
[Section 10B) |
Special provisions in respect of newly established hundred per cent. export-oriented undertakings |
| [Section 10BA) | Special provisions in respect of export of certain articles or things |
| [Section 10C | Special provision in respect of certain industrial undertakings in North-Eastern Region |
| [Section 24 (a)] | Deductions from income from house property. |
| [Section 24 (b) ] | Interest on loan taken for House Property |
| [Section 30] | Rent, rates, taxes, repairs and insurance for buildings. |
| [Section 31] | Repairs and insurance of machinery, plant and furniture. |
| [Section 32A] | Investment allowance |
| [Section 33AC] | Reserves for shipping business. |
| [Section 33B] | Rehabilitation allowance. |
| [Section 35] | Expenditure on Scientific Research |
| [Section-35 ABB] | Amortization of Telecom License Fee |
| [Section 35AC] | Expenditure on Eligible Projects or Scheme |
| [Section 35 CCA] | Expenditure made to Associations/Institutions carrying out Rural Development Programmes. |
| [Section 35CCD] | Expenditure incurred on Skill development |
| [Section 35D] | Deduction of Preliminary Expenses |
| [Section 35DD] : | Expenditure in case of Amalgamation/Demerger |
| [Section 35DDA] | Expenditure under Voluntary Retirement Scheme |
| [Section 35E] | Expenditure on prospecting or developing or certain minerals |
| [Section 36 (1) (i)] | Expenditure on Insurance Premium paid on the destruction of Stock |
| [Section 36 (1) (ib)] | Expenditure on Insurance Premium paid on the health of employees |
| [Section 36 {1} {ii}] | Bonus or Commission to Employees |
| [Section 36 {1} {iii}] | Interest on Borrowed Capital |
| [Section 36 (1)(iv)] | Employer’s contribution to Recognised Provident Fund and Approved Superannuation Fund |
| [Section 36 (1) (iva)] | Contribution made towards Notified Pension Scheme |
| [Section (1) (v)] | Contribution made towards Approved Gratuity Fund |
| [Section (1) (va)] | Contribution of Employees towards Staff Welfare Schemes |
| [Section (1)(vi)] | Deduction for Writing off loss of animals used in the business |
| [Section 36 (i) (vii)] | Deduction for writing off of Bad Debts |
| [Section 36 (1) (viii)] | Amount Transferred to Special Reserve |
| [Section 36 (1) (ix)] | Family Planning Expenditure |
| [Section 37 (1)]
|
General Deduction for any expenditure not being expenditure of the nature discussed in sections 30-36, laid out wholly or exclusively for the purpose of the business or profession shall be allowed |
| [Section 57(i)] | Commission or remuneration for realizing dividend |
| [Section 57(i)] | Commission or remuneration for realising interest on securities |
| [Section 57(ia)] | Deduction in respect of employees’ contribution towards staff welfare
schemes |
| [Section 57 (iii)] | Any other expenses for earning income |
| [section 57 (iv) ] | Deduction from Interest on Compensation or Enhanced compensation |
| [Section 80C] | Deduction in respect of Life Insurance Premium, Deferred Annuity, Contribution to Provident Fund subscription etc. |
| [Section 80CCC] | Deduction for Contribution made to Pension Fund |
| [Section 80CCG] | Deduction in respect of investment made under any Equity savings scheme |
| [Section 80D] | Payment of Health Insurance Premium and Expenditure on Preventive Health Check-up and |
| [Section 80DD] | Expenditure on Medical Treatment of a Person having 40 % Disability/80 % Disability |
| [Section 80DDB] | Expenditure on Medical Treatment of Severe Disease |
| [Section 80E] | Interest on Loan taken for Higher Education |
| [Section 80EE] | Interest paid on Housing Loan, if the loan is sanctioned in the year 2016 and amount of loan is less than 35,00,000 |
| [Section 80G] | Donations to Relief Funds and Charitable Institutions |
| [Section 80GG] | Deduction in respect of House Rent paid (if Individual does not have a residential house, and not receives HRA) |
| [Section 80GGA] | Deduction for Donation given towards scientific research or rural development. |
| [Section 80GGB] | Deduction allowed with respect to rent paid |
| [Section 80GGC] | Expendiutre realted to contribution to Political Party |
| [Section 80IA] | Deduction from profits of industrial undertakings engaged in infrastructure development. |
| [Section 80IAB] | Deduction from profits of an undertaking engaged in special economic zone. |
| [Section 80IAC] | Deduction for Eligible Start up. |
| [Section 80IB] | Deduction from profits of industrial undertaking engaged in other
than infrastructure development. |
| [Section 80IBA] | Deduction on Profits from Housing Projects |
| [Section 80IC] | Deduction from profits of undertakings set up in certain states. |
| [Section 80ID] | Deduction from profits of hotels and convention centres |
| [Section 80IE] | Deduction from profits of business set-up in North Eastern states |
| [Section 80JJAA] | Deduction for payment made to new workmen. |
| [Section 80LA] | Deduction on income of offshore Banking Units & International Financial services centre. |
| [Section 80QQB] | Deduction in respect of royalty income of authors |
| [Section 80RRB] | Deduction in respect of royalty on patent |
| [Section 80TTA] | Interest on Deposits in Savings Account with a Bank, Co-operative Society or Post Office |
| [Section 80TTB] | Interest on Deposits in Savings Account with a Bank, Co-operative Society or Post Office (for senior citizen) |
| [Section 80U] | Additional Deduction, if a Person (Assessee) is Physically Disabled |
(Source: Compiled by Author from Income Tax Act)
A lengthy list of incomes that are completely exempt from tax is provided in Section 10 of the Income Tax Act, and these incomes are not included in the assessee’s gross total income. These incomes are totally tax-free. In computing the total income of any previous year of any person, any income falling within any of these shall be exempted if an assessee stays in old tax regime. Out of eighty-seven exemptions of section 10, only one exemption of section 10(5) w.r.t. Travel Concession to an Indian Citizen employee is still prevalent in new tax regime. Furthermore, the long-term consequences resulting from the disallowance of these exemptions must be carefully looked into. It is also adversely impact demand for affordable and preferred financial products.
Section 30-37 of the Act provides for the deductions to be allowed while computing profit under the head ‘Business or Profession’. There are numerous types of expenses varying from business to business and according to the nature of the unit. Under these sections, an effort was made to enlist every type of expense. But this list is not the final list; any other expenditure if at all incurred for earning a particular income, the same shall be allowed as deduction to calculate the real profit. In new tax regime Section 32, 32AD, 32AB, 32ABA, 35, 35CCC, 35AD are allowed deductions to businessman. Tax deductions and exemptions allowed for businessman are similar in many ways to tax planning for individual. This is so, because businessman is assessed through owner (who is individual itself) at the rate applicable to that individual. The businessman’s income will suffer under the new tax system since he will be unable to deduct expenses under sections 80C, 80IA, 80IAB, 80IB, 80IC, 80ID, 80IE, 80JJA, and 80JJA. This will increase his overall tax obligation. Additionally, since such losses cannot be carried over and deducted in later years, it would be disastrous for people already experiencing company losses (Gupta, 2022).
The most crucial aspect of social welfare in a nation is health care. Public health and access to medical care whenever necessary are in the best interests of a nation. To promote the health advantages of its inhabitants, the government offered a number of tax breaks under the previous tax system. However, under the new tax system, health-related tax benefits under sections 80D, 80DD, and 80DDB are no longer permitted.
House construction has remained one of the main socio-economic objectives of the government. An assessee can avail various types of Tax Saving Schemes for housing i.e., deduction u/s 80C, 24B, 80EE, 80GG. In this context, section 80EE (w.e.f. A.Y. 2017-18) related to deduction in respect of interest on loan for residential house property to first time buyer was granted. After that section 80EEA (w.e.f. A.Y. 2019-20) related to deduction in respect of interest on loan for residential house property who does not have own house property was added. However, in new tax regime all these newly inserted deduction also withdrawn. It is also adversely impact demand for affordable housing loans by making expensive.
Education plays an important role in the sustainable economic development of a nation. Under the Income Tax Act certain incentives are available for the promotion of education such as Tax benefits against i) tuition fees paid; and ii)repayment of a loan for higher education. Earlier, there were only areas of educational benefits. In spite offering more educational benefits, earlier benefits also discontinued under new regime.
Contributions made to certain relief funds and charitable institutions helps to promote social welfare and could be claimed as a deduction under Section 80G of the Income Tax Act. This deduction can only be claimed when the contribution has been made by way of cheque or draft or in cash, whereas the deduction is not allowed for donations made in cash exceeding Rs 10,000. In-kind contributions such as food material, clothes, medicines, etc. do not qualify for deduction under section 80G.Apart from that contributions made by an individual to designated pension plans provided by life insurance also discontinued in new tax regime. Tax benefit related to contribution made to pension fund is available to employees (govt. or non-govt. and self-employed) in new tax regime under section 80CCD upto certain extent. It seems that investment made in pension plans offered by LIC is not more longer beneficial for tax planning and investment purposes.
Conclusion: The shift from the old to the new tax regime in India has brought about significant changes in how individual taxpayers plan their finances. This article has aimed to provide a detailed analysis of the impact of the new tax regime on various sections of society, highlighting the pros and cons of each system. Ultimately, the choice between the old and new tax regimes should align with an individual’s financial goals and preferences.
Author Bio
Marginal Relief is not available for the OTR, whereas the same is given for NTR and by this the Government wishes to encourage NTR. But NTR discourages savings which is not good for growing economy and all of a sudden those who are following OTR cannot switch over to NTR because of their long-term commitments such as premium for LIC policy, repayment of housing loan etc., which the Government ignores.