1) INTRODUCTION

In Budget 2020 Hon’ble Finance Minister Nirmala Sitharaman proposed to bring new tax slab rates for Individual taxpayers wherein income tax rates was reduced for Individuals and HUF earning income upto 15 lacs. The new tax regime is said to be beneficial for middle class persons. But taxpayers have to forgo certain deductions and exemptions mainly very popular deduction of Rs.1.5 lakhs claimed u/s section 80C of Income-tax Act, 1961. The assessee can opt new tax regime from financial year 2020-21.

2) WHAT IS NEW TAX REGIME?

Under new tax regime tax has been significantly reduced by forgoing certain exemptions and deductions. The rates of tax, amount of tax and savings under new regime is as follows-

a) If Popular deduction of Rs.1,50,000/- is not claimed by individual u/s 80C

Total Income and Taxable Income(In lakhs) Old Tax Rate New Tax Rate Tax at Old Rates(Including Cess @4% Tax at New Rates (Including Cess@4%) Savings in new tax regime
0-2,50,000
2,50,000-5,00,000 5% 5% No tax because of Rebate u/s 87A
5,00,000-7,50,000 20% 10% 65000 39000 26000
7,50,000-10,00,000 15% 117000 78000 39000
10,00,000-12,50,000 30% 20% 195000 130000 65000
12,50,000-15,00,000 25% 273000 195000 78000
Above 15,00,000 30% Calculated Accordingly

b) If Popular deduction of Rs.1,50,000/- is claimed by individual u/s 80C but have to forgo if he opts new regime, then savings in tax is-

Total Income(In lakhs) Deduction u/s 80C Taxable Income Tax at Old Rates(Including Cess @4% Tax at New Rates (Including Cess@4%) Savings in New Tax regime
250000 150000 100000
500000 150000 350000 No tax because of Rebate u/s 87A
750000 150000 600000 33800 23400 10400
1000000 150000 850000 85800 54600 31200
1250000 150000 1100000 148200 98800 49400
1500000 150000 1350000 226200 156000 70200
Above 15,00,000 Calculated Accordingly

There is savings in tax if you opt new tax regime even when you forgo deductions allowed u/s 80C. But there are many more deductions and exemptions claimed by taxpayer and answer may not be positive every time

3) IS NEW TAX REGIME OPTIONAL OR MANDATORY

1. OPTIONAL-New tax regime is optional. Individual and HUF can opt for new tax regime as per their wish every year.

2. ONCE WITHDRAWN CANNOT OPT IN SUBSEQUENT YEARS FOR BUSINESS INCOME-But for Individuals and HUF who has business income they are allowed to decide in F.Y.2020-21 whether to opt for new tax regime or not. Once he opts for new tax regime then he can withdraw next year and then in subsequent years he will not be allowed to enter into new tax regime.

4) DEDUCTIONS AND EXEMPTIONS NOT TO BE CLAIMED IN NEW TAX REGIME

1. Standard Deduction, Entertainment Allowance and Professional Tax

2. Leave Travel Allowance

3. House Rent Allowance

4. Exemption u/s 10(14) i.e. Helper Allowance, Uniform allowance, etc.

5. Exemption of Rs.1500/- in case of clubbing of minor child income

6. Exemption for newly established units in Special Economic Zones

7. Interest paid on Home loan

8. Deduction under Chapter VIA i.e. All of the deduction claimed u/s 80C,80CCC,80D,80DD,etc except 80JJA(for new employment) and 80CCD(2) i.e. employer contribution on account of employee in notified pension scheme.

9. Allowance to MP and MLA

10. Additional Depreciation

11. Deduction from Family Pension

12. Donations for Scientific research

13. Deduction given to promote business in backward areas, tea coffee rubber business and business engaged in production of petroleum and natural gas.

14. Deduction given for investment made in specified business i.e. cold Storage, Hospitals, Hotels, etc.

15. Deduction of expenditure incurred on Agricultural extension project notified by board.

5) DEDUCTIONS AND EXEMPTIONS ALLOWED IN NEW TAX REGIME

1. Transport Allowance granted to Divang Employee

2. Conveyance allowance granted to meet expenditure on conveyance in performance of duties.

3. Any allowance granted to meet cost of travel on tour or travel.

4. Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.

6) ARE LOSSES ALLOWED TO BE SET OFF AND CARRY FORWARD

1. In the case of a business income, an individual or HUF cannot claim set-off of the brought forward business loss or unabsorbed depreciation. The deductions not available under the new regime to the extent they relate to deductions/exemptions withdrawn.

2. Losses under head Income from House Property cannot be set off with any other head income.

7) WHICH TAX REGIME TO OPT?

As such there is no specific answer to this question. It depends on income earned, exemptions and deductions claimed by tax payer. At times new regime may be beneficial or may not be beneficial. After computing of income and taxes you can reach on conclusion which tax regime to opt.

8) PURPOSE OF GOVT. TO INTRODUCE NEW TAX REGIME

Govt. said that in order to simplify tax system, many deductions and exemptions are removed and tax rate has been lowered. It also said that individuals have been given option to opt new tax regime and tax returns have also been auto populated so that taxpayers can ascertain tax without help of expert.

OUR COMMENTS-

New tax regime does not simplify tax system but makes it even more complex. Every year tax is required to be calculated on the basis of both the regimes. It now mandatorily requires expert help. Any layman may not be aware about all the provisions and if any mistake occurs in filing of return then notices will be sent to taxpayers. Moreover, deductions and exemptions not allowed are regularly used by salaried persons and individual business. It may be beneficial for the persons who do not claim any deductions or exemptions. But as a whole it is now even more complex tax structure and requires complex calculation every time by an Expert. It is always advised to take help of expert while calculating tax. Laws are more changing now and each and every person should take advice of Expert. 

*****

The above comments do not constitute professional advice. The Author can be reached at companyfinancialtree@gmail.com. My name is CA Divya Agrawal and I am Practising Chartered Accountant. You can visit our website www.financialtreecompany.com.  I also upload educational videos in You tube and name of my channel is FINANCIAL TREE COMPANY. My aim is to help people in improving their financial health by spreading knowledge and love. Stay Healthy and Wealthy.

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