You all know that a ‘New Tax Regime’ has been introduced from FY 2020-21 that says individual can reduce their taxes if they are not availing deductions or exemptions. You are provided an option where you can either go for the old tax structure or choose the new tax structure. Now the people are confused that if you go for the old tax regime, which investments are required to be made to claim deductions under Chapter VIA. It is a very common confusion everybody is facing.
Through this attempt, answers to these common confused questions is given. Let’s discuss the common questions and their answers:
What is new tax regime offering?
You are getting concessional tax rates in new tax regime but you are required to forgo deductions or exemptions. You can enjoy standard deduction of 50000/-, 1.50 lacs worth deductions under section 80C, and interest on self-occupied property of 2lacs. You can say the maximum benefit you will get is of 75000/- in terms of tax savings. Moreover, it will benefit the people who fall under lower income brackets. The documentation required to be submitted is lesser that makes filing of return easier for the taxpayer.
Which deductions are not available under new tax regime?
Can you change the tax regime once selected?
Yes, this choice can be exercised every year. You can compare the tax liability under both tax structure every year and adopt the one which is beneficial to you. But this switching is not provided for those who are into business or profession. They are given only one chance to make the selection and once the selection is made, they cannot switch back or change their tax regime.
Where can you compare the tax liability between both the tax regimes?
The income tax portal has provided a comparison utility on their web portal. The link to such utility is https://www.incometaxindiaefiling.gov.in/Tax_Calculator/. You can evaluate through this link as which tax regime is beneficial to you.
No tax liability arises if income is up to 500000/-. Rebate under section 87A can be availed under both the tax structures. However, if we talk about senior and very senior citizens their tax exemption will be same as 3 lacs and 5 lacs respectively in existing tax regime. I hope the above discussion has clarified many confusions however, no legal opinion should be formed in any matter.