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Income Tax : Things you must know before opting New Tax Regime

New Tax Regime

New Tax Regime: Many a times, a thought popped in our mind! How to be aware about so many deductions and sections to lower the tax burden whenever we were to pay tax; can’t it be simpler by any means? So, Government has tried to fulfill this thought of us. They’ve introduced new tax regime which is optional at the end of assesses. This was introduced under the section 115BAC. Let us understand this.

Q. From which financial year is 115BAC is applicable?

The new system is applicable from the Financial Year 2020-21, Assessment Year 2021-22. In basic terms it will be applicable on income earned from April, 2020 to March, 2021. Now, we have been given an option to choose between two so there must be something different in new income tax regime. They’re discussed here-

Q. What’s new in New Tax Regime?

In the new regime of tax, following changes have been introduced-

  1. New tax rates
  2. One slab rate for all age groups
  3. Non – Availability of Exemptions and Deductions, except some
  4. Restriction in case of setting – off loss from house property
  5. Deduction in case of business expenditure is also not allowed.
  6. Change in the treatment of Business Loss and Unabsorbed depreciation
  7. No Standard deduction and Professional tax deduction for salaried employees.

These are some of the changes enlisted above, by seeing these we can group these into 3 broad categories to get an overall picture. That is-

  1. Non-business Individual and HUFs
  2. Business Individual and HUFs
  3. Salaried person

Q. What are New tax rates?

 

Old rate

%

New rate

%

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 10 lakh

20

Income from Rs 5 lakh to Rs 7.5 lakh

10

Income above Rs 10 lakh

30

Income from Rs 7.5 lakh to Rs 10 lakh

15

   

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

Now, we will see some of the exemptions and deductions which are removed in new tax regime and its impact in tax calculation.

Q. What are the Exemptions and Deductions not available?

1. These deductions can’t be claimed in case of Individual or HUF-

  1. Section 24 interest on housing loan on self – occupied property
  2. Section 80 deductions popularly known as Chapter VI A deduction, except 80 CCD(2) and 80 JJAA

 

2. In case of business, following things are inserted in this section

  1. FORM No. 10-IE –. As per Section 115BAC, an individual or HUF having business income wants to opt new tax regime and pay tax at lower rate needs to submit the form by the due date of filing Income Tax Return.
  2. Business can opt this new tax regime only once. If they opt out anytime from the new tax regime, they cannot opt again, unlike salaried or other individuals.
  3. In addition to above deductions not available to individuals, following deductions are also not available for the businesses:
    1. Additional depreciation of 20% of Actual Cost of New plant and machinery (Section 32(1)(iia))
    2. Additional depreciation of 15% in respect of investment made in notified backward areas (Section 32AD)
    3. Rebate in respect of amount deposited in Tea/Coffee/Rubber development A/c or Site Restoration Fund (Section 33AB and 33ABA)
    4. Deduction in respect of amount paid for the purpose of scientific research as mentioned in section 35(ii), 35(iia) and section 35(iii)
    5. Deduction in respect of any specified business as mentioned in section 35AD
    6. Deduction in respect of Agriculture Extension Activities (Section 35CCC)
    7. Deduction in respect of family pension (Section 57(iia))

 

3. In case of Salary, Following exemptions and deductions are also not available under New Tax Regime:

  1. Leave Travel Concession (Section 10(5))
  2. House Rent Allowance (Section 10(13A))
  3. Daily Allowance in Section 10(14)
  4. Helper allowance
  5. Standard deduction of Rs 50,000/- which is available to salaried employees
  6. Deduction of entertainment allowance
  7. Deduction of professional tax
  8. Exemption of Rs 1,500/- in respect of clubbing of minor child’s income (Section 10(32))
  9. Interest on housing loan (Section 24)
  10. Deduction under Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2))
  11. Brought forward business loss or unabsorbed depreciation from old tax regime cannot be setoff in the new regime.
  12. Section 24 interest on housing loan on self – occupied property
  13. Section 80 deductions popularly known as Chapter VI A deduction, except 80 CCD(2) and 80 JJAA

List of deductions “allowed” under new Tax rate regime :

  1. Transport allowance for specially abled people
  2. Conveyance allowance for expenditure incurred for travelling to work
  3. Investment in Notified Pension Scheme under section 80CCD(2)
  4. Deduction for employment of new employees under section 80JJAA
  5. Depreciation u/s 32 of the Income-tax act except additional depreciation.
  6. Any allowance for travelling for employment or on transfer

Let us understand the impact if these changes for Salary Individual. Assume BabaTax is an employee in TCS and its Salary is Rs 10 lakh p.a. So here is the illustration stating the impact.

 

Particulars

Old Tax Regime

New Tax Regime

Salary Income

10,00,000/-

10,00,000/-

Less – Standard Deduction

50,000/-

Less – Profession Tax

2,500/-

Taxable Salary Income

9,47,500/-

10,00,000/-

Less – Interest On Housing Loan (24(b))

2,00,000/-

Interest On Saving Account

13,000/-

13,000/-

Interest On Fixed Deposits

20,000/-

20,000/-

Gross Total Income

7,80,500/-

10,33,000/-

Deduction under Chapter VIA

   

80C

1,50,000/-

80CCD(1B) (New Pension Schme)

50,000/-

80D (For Self & Spouse Mediclaim)

25,000/-

80D (For Senior Citizen Parents Mediclaim or Expenditure incurred for their health)

50,000/-

80TTA

10,000/-

Total Income

4,95,500/-

10,33,000/-

Tax Payable

81,600/-

Education Cess

3,264/-

Total Tax Liability

NIL

84,864/-

The author of the above article is Sneha Bhalotia.

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Tags: INCOME TAX

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