FAQs on New Income Tax Regime u/s.115BAC

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What is new Income tax Slab for AY 2020-21?

-> Under existing regime the taxpayers (Individuals and HUF) were taxed @20% with taxable income in the range of Rs 5 lakh to Rs 10 lakh. There were expectations from government to slash the tax rates as it was too high.

Existing Regime

Net Income Range Rate of Income Tax
Upto Rs.2,50,000 —-
Rs.2,50,000 to RS.5,00,000 5%
Rs.5,00,000 to Rs.10,00,000 20%
Above Rs.10,00,000 30%

The Finance Minister in the Union Budget 2020 announced a new tax regime.

New Regime u/s. 115BAC

Total Income Rate of Income Tax
Upto Rs.2,50,000 —-
From Rs.2,50,001 to Rs.5,00,000 5%
From Rs.5,00,001 to Rs.7,50,000 10%
From Rs.7,50,001 to Rs.10,00,000 15%
From Rs.10,00,001 to Rs.12,50,000 20%
From Rs.12,50,001 to Rs.15,00,000 25%
Above 15,00,000 30%

Q. Is this new Income Tax slab will be beneficial for the taxpayer?

-> Under current tax system the tax rates are high but there are a lot of ways to reduce your tax liability. There are over 70 exemptions and deduction options available to taxpayers through which they can bring down their taxable income and hence pay less.

The new tax regime have more slabs and lower taxes but not many ways to reduces taxes i.e. through claiming deductions and exemptions as the taxpayer has to forgo the benefits of over 70  deductions and exemptions.

If taxpayers want to opt for the new tax regime, they should evaluate both the regimes. The income tax department has made a tax comparison utility, which is available on their web portal where an individual taxpayer can use to evaluate which option is better for him/her. The link to the same is as under: https://www.incometaxindiaefiling.gov.in/Tax_Calculator/

Pros and Cons of New Tax regime.

Pros:

  1. Reduced tax rates and compliance
  2. Tax payers have not invest compulsorily in the prescribed instruments for the specified period for the sake of lowering their taxes. Lower tax rates may help them in saving considerable tax amount.
  3. The new tax regime is optional for tax payers, they can evaluate their tax liability under both regime and can choose more beneficial regime from A.Y.2021-22 or any subsequent year. However, for the taxpayers having income from business or profession cannot switch between the new tax regime and regular tax regimes every year. Further, if the taxpayer having income from business or profession opts for the new tax regime, such taxpayers get only one chance in their lifetime to come back to the regular tax regime and will not be eligible for opting new tax regime again, unless the taxpayer’s business income ceases to exist.
  4. Tax payers are now free to formulate better investment and insurance strategies rather than depending on tax saving instruments for the purpose of saving taxes.
  5. In case of assessment proceedings before the tax authorities, documentation and proof of investments is required to be retained in the old regime, which may not be required in the new regime.

Cons:

  1. Non-availability of certain specified tax deductions.
  2. No classification of Individuals on the basis of the age. The basic exemption limit of Rs. 2,50,000/- will remain the same for all the taxpayer under new tax regime.
  3. One time option for the tax payer having business income.

Even though the new rates are lucrative, the old tax regime might be beneficial for some taxpayers, while it may not help others. This will depend on the income bracket one falls into.

Q- Which Exemptions And Deductions a taxpayer has to forego for new tax regime?

-> The following are the deductions and exemptions you cannot claim 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 [Section10(14)]
  8. Interest on housing loan on the self-occupied property or vacant property (Section 24)
  9. Chapter VI-A deduction (80C,80D, 80E,80CCC, 80CCD, 80D, 80DD, 80DDB,, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) (Except Section 80CCD(2) and 80JJAA)
  10. Without exemption or deduction for any other perquisites or allowances
  11. Deduction from family pension income

Q.  Treatment of Income from House property under new tax regime?

-> In case of a self-occupied property, the new tax regime does not allow to claim a deduction on interest for a housing loan. The deduction of Rs 2 lakh allowed in the existing system is not available in the new tax regime.

Also, the set-off of the loss of Rs 2 lakh from house property from salary income is not allowed.In case of let-out a house property, the deductions on municipal tax, standard deduction of 30% and interest paid on housing loan is restricted till the rental income. Therefore, the excess interest paid on housing loan will result in loss under the head income from house property. However, this loss cannot be set-off against any other head of income. Also, you cannot carry forward the loss from house property to future years for set off.

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