Should you go for the new tax regime for Individuals? what are the features, benefits and conditions?

From FY 2020-21, you can choose to pay income tax under an optional new tax regime. The new tax regime is available for individuals and HUFs. ‘Lower tax rates but no deductions/exemptions’ is the key feature. Provisions of the new tax regime is covered under section 115BAC of the Income-tax Act inserted by the Finance Act 2020. Let us discuss more about it in this article.

What is primarily covered in this article?

1. What is the NPTR (New Personal Tax Regime) of taxation for FY 2020-21 and what are the tax rates under new regime?

2. What are the deductions and Exemptions not eligible under the new regime?

3. How can I choose between new tax regime and existing provisions?

1. What is the NPTR (New Personal Tax Regime) of taxation for FY 2020-21 and what are the tax rates under new regime?

The Budget 2020 introduces a new regime under section 115BAC giving an option to individuals and HUF taxpayers to pay income tax at lower rates. The new system is applicable for income earned from 1 April 2020 (FY 2020-21), which relates to AY 2021-22.

The tax rates under the new tax regime and the existing tax regime are:

New slab rates Existing slab rates
Income from Rs 2.5 lakh to Rs 5 lakh 5% Income from Rs 2.5 lakh to Rs 5 lakh 5%
Income from Rs 5 lakh to Rs 7.5 lakh 10% Income from Rs 5 lakh to Rs 10 lakh 20%
Income from Rs 7.5 lakh to Rs 10 lakh 15% Income above Rs 10 lakh 30%
Income from Rs 10 lakh to Rs 12.5 lakh 20%
Income from Rs 12.5 lakh to Rs 15 lakh 25%
Income above Rs 15 lakh 30%

What are the deductions and Exemptions not eligible under the new regime?

You cannot claim the following deductions/exemptions/set off under the new tax system:

1. The standard deduction, professional tax and entertainment allowance on salaries;

2. Leave Travel Allowance (LTA)

3. House Rent Allowance (HRA)

4. Minor child income allowance

5. Helper allowance

6. Children education allowance

7. Other special allowances [Section 10(14)]

8. Interest on housing loan on the self-occupied property or vacant property (Section 24)

9. Business deductions, business expenditures on specified businesses under Income-tax Act.

10. Tax saving investments under Chapter VI-A deduction (80C,80D, 80E and so on)

11. Without exemption or deduction for any other perquisites or allowances

12. Deduction from family pension income

13. Set off of any loss or depreciation carried forward from earlier years in relation to the specified businesses.

14. Set off of loss under Income from House property with any other Income.

What can be claimed?

1. Transport allowance for specially abled person.

2. Conveyance allowance to meet the conveyance expenditure incurred as part of the employment.

3. Deduction for Notified Pension Scheme under section 80CCD(2)

4. Deduction for employment of new employees under section 80JJAA

5. Depreciation under section 32 of the Income-tax act except additional depreciation.

6. Any allowance granted to meet the cost of travel on tour or on transfer;

7. Any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;

8. Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit. However, if free conveyance is provided by the employer, the exemption will not be available.

9. Transport allowance granted to an employee, who is blind or deaf and dumb or orthopaedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty. However, this exemption shall be limited to INR 3,200 per month.

Source for Point No. 6  to 9- New Exemptions for taxpayers opting to be governed by New Tax Regime

How can I choose between new tax regime and existing provisions?

An employee can choose the new tax regime at the beginning of FY 2020-21 and intimate their employer. If the Income consists of any income except from Business or profession then, employee can withdraw the option for any year other than the year for which it was exercised, which means you can opt-in and opt-out for every year.

If you have opted for a new tax regime at the start of the year, then it cannot be changed anytime during the financial year for the purpose of TDS, however the option can be changed at the time of filing of Income-tax return.

If the Income consists of Business or profession and you opted for the new tax regime then, the option to withdraw is available only once, after which you can never be eligible to exercise the option again except when you cease to have income from Business or profession.

Kindly note:

1. The best option will depend on many aspects. Whether you have an existing housing loan whose benefit you would not want to leave, you have a business deductions available, you have mediclaim and other tax deductions available with you which can be beneficial.

2. What may be a tax benefit for others, may not be for you as an Individual. It is advisable to consult professionals before taking any stand.

3. These provisions are also available to Non-residents.

Author Bio

Qualification: CA in Practice
Company: Shivangi R and Associates
Location: Mumbai, Maharashtra, IN
Member Since: 07 Jul 2017 | Total Posts: 9
I am a member of the Institute of Chartered Accountants of India (ICAI), with professional experience of more than 6 years in assisting array of clients based in Solapur, Mumbai and outside India in areas of Domestic and International taxation, advisory and litigation support, Audit and certificati View Full Profile

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3 Comments

  1. shivangiagrawal says:

    While transport allowance is an allowance given to meet commuting expenses between place of residence and office or to meet personal expenditure of employee, conveyance allowance is an allowance granted to meet the expenditure on conveyance in performance of office duty.

    Further, while fixed amount of transport allowance is exempt i.e Rs.1600 pm irrespective of actual expenditure, conveyance allowance only to the extent of actual expenditure incurred is exempt from tax.

    Interim Budget introduced standard deduction of Rs 50,000 which replaced transport allowance of Rs. 1600 per month and also a medical allowance of Rs 15,000.

    Conveyance allowance was already there is old regime. It has now been allowed under new regime vide notification.

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