After the introduction of the new tax regime under section 115BAC by Budget 2020, a lot of confusion is grooming in the mind of taxpayers about which of the exemptions and deductions available under the proposed new tax regime. This article aims to provide an insight into the exemptions and deductions available to a taxpayer under the new tax regime introduced under section 115BAC.
One might have seen the computation of total income and the tax payable for a financial year in earlier year or years.
Computation of income statement is divided into three parts-
Part-I: Shows the Income from all the sources and heads. Under the Income Tax Act, 1961, there are five heads of income-
1. Income from Salary
2. Income from House Property
3. Business and Professional Income
4. Capital Gains
5. Income from Other Sources.
Income under each head is computed as per the provisions contained for determining such income and after allowing exemptions and deductions specifically allowable under the respective heads of income. For example, the standard deduction is allowed while computing the income from salary. Similarly, interest on home loan is allowed under the head 'income from house property'.
Once the income is computed for each head separately, all are aggregated and the aggregate of all the heads of income is called 'Gross Total Income'.
Gross Total Income is further subject to adjustment of clubbing of income and set-off of brought forward of losses.
Once the Gross Total Income is determined, the next step is to determine the Total Income. The nest part of the computation statement contains the Total Income.
Part-II: Shows the Total Income of the taxpayer. This is derived after the deduction of all the deductions claimed under Chapter VI-A of the Income Tax Act, 1961 from the Gross Total Income. Popular deductions viz., section 80C, section 80D for mediclaim, section 80E for interest on education loan, section 80CCD for NPS, section 80TTA, section 80TTB, etc. fall under Chapter VI-A.
Part-III: The next part finally computes the income tax liability of the taxpayer on the Total Income determined as stated above. The tax is further increased for surcharge, if any, and Health and Education Cess ("cess"). If any rebate u/s 87A is available, the same is allowed. Credit for prepaid taxes - TDS, advance tax paid, etc. is allowed in this part. If any interest is leviable u/s 234A (for late filing of return), u/s 234B (for failure to pay at least 90 percent of the advance tax), and section 234C (for deferment of payment of advance tax) and late fees, all are adjusted in this part and finally, the tax payable or refundable is determined for that financial year.
The parts of a computation sheet mentioned here are hypothetical and discussed for easy understanding only.
The Budget 2020 has introduced a new system of taxation for Individuals and Hindu Undivided Families (HUF), popularly known as the new tax regime, from the assessment year 2021-22. In other words, the same is applicable from the financial year 2020-21 that begins from April 1, 2020.
The Finance Bill, 2020 (which will become Fiannce Act, 2020 after President's assent) has introduced a new section 115BAC in the Income Tax Act, 1961 which provides for the computation of income under the new tax regime.
In a very nutshell, the new section 115BAC prescribes a lower or concessional rate of taxation for an Individual and a HUF if certain exemptions and deductions are foregone.
Since this article is relevant for a salaried Individual or an Individual having no business income, hence, the provisions under the new tax regime for business income are not discussed. The provisions which affect a salaried individual or a pension earner under the new tax regime are mainly focussed and discussed in this article.
The keynote to understand the confusing topic of the new tax regime is to note that the new tax regime only alters the Part-I and Part-II of the computation statement (as mentioned above) and which deals with computation of income under each head of income and the deduction under Chapter VI-A respectively.
The new tax regime in no way affects the Part-III of the computation statement which deals with the computation of tax liability of the taxpayer.
Before we discuss which exemptions and deductions have been withdrawn and which exemptions and deductions have been retained and available under the new tax regime, it is at first pertinent to discuss the provisions of the new section 115BAC which exclusively deals with the new tax regime.
Union Budget 2020 has introduced a new section 115BAC to amend the Income Tax Act, 1961. It provides for lower income tax rates for Individuals and HUF without claiming any deduction or exemption.
For this purpose, clause 53 of the Finance Bill, 2020 has proposed to insert a new section 115BAC to the Income Tax Act, 1961.
Clause 53 of the Finance Bill, 2020 reads as follows-
Tax on income of individuals and Hindu undivided family.
53. After section 115BAB of the Income-tax Act, the following sections shall be inserted with effect from the 1st day of April, 2021, namely:––
'115BAC. (1) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of a person, being an individual or a Hindu undivided family, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall, at the option of such person, be computed at the rate of tax given in the following Table, if the conditions contained in sub-section (2) are satisfied, namely:—
Sl. No.
|
Total income
|
Rate of tax
|
(1)
|
(2)
|
(3)
|
1.
|
Upto Rs 2,50,000
|
Nil
|
2.
|
From Rs 2,50,001 to Rs 5,00,000
|
5 percent
|
3.
|
From Rs 5,00,001 to Rs 7,50,000
|
10 percent
|
4.
|
From Rs 7,50,001 to Rs 10,00,000
|
15 percent
|
5.
|
From Rs 10,00,001 to Rs 12,50,000
|
20 percent
|
6.
|
From Rs 12,50,001 to Rs 15,00,000
|
25 percent
|
7.
|
Above Rs 15,00,000
|
30 percent
|
Provided that where the person fails to satisfy the conditions contained in sub-section (2) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and other provisions of this Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year:
Provided further that where the option is exercised under clause (i) of sub-section (5), in the event of failure to satisfy the conditions contained in sub-section (2), it shall become invalid for subsequent assessment years also and other provisions of this Act shall apply for those years accordingly.
(2) For the purposes of sub-section (1), the total income of the individual or Hindu undivided family shall be computed,—
(i) without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed under clause (14) (other than those as may be prescribed for this purpose) or clause (17) or clause (32), of section 10 or section 10AA or section 16 or clause (b) of section 24 (in respect of the property referred to in sub-section (2) of section 23) or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii), of sub-section (1) or sub-section (2AA), of section 35 or section 35AD or section 35CCC or clause (iia) of section 57 or under any of the provisions of Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or section 80JJAA;
(ii) without set off of any loss,—
(a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i);
(b) under the head “Income from house property” with any other head of income;
(iii) by claiming the depreciation, if any, under any provision of section 32, except clause
(iia) of sub-section (1) of the said section, determined in such manner as may be prescribed; and
(iv) without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.
(3) The loss and depreciation referred to in clause (ii) of sub-section (2) shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year:
Provided that where there is a depreciation allowance in respect of a block of assets which has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in the prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2021.
(4) In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in sub-section (2) shall be modified to the extent that the deduction under section 80LA shall be available to such Unit subject to fulfillment of the conditions contained in the said section.
Explanation.—For the purposes of this sub-section, the term "Unit" shall have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005.
(5) Nothing contained in this section shall apply unless option is exercised in the prescribed manner by the person,—
(i) having business income, on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2021, and such option once exercised shall apply to subsequent assessment years;
(ii) having no business income, alongwith the return of income to be furnished under sub-section (1) of section 139 for a previous year relevant to the assessment year:
Provided that the option under clause (i), once exercised for any previous year can be withdrawn only once for a previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise option under this section, except where such person ceases to have any business income in which case, option under clause (ii) shall be available.
The above provision is explained in simplified terms as under. The provisions related to business income are omitted since the primary focus is on a salaried individual.
1. Section 115BAC provides an option to an Individual and HUF.
2. On satisfaction of certain conditions, an individual or HUF shall, from the assessment year 2021-22 and onwards, have the option to pay tax in respect of the total income at the tax rates mentioned in the table below -
1. Section 115BAC provides an option to an Individual and HUF.
2. On satisfaction of certain conditions, an individual or HUF shall, from the assessment year 2021-22 and onwards, have the option to pay tax in respect of the total income at the tax rates mentioned in the table below -
Sl. No.
|
Total
income
|
Rate of
tax
|
1.
|
Upto Rs 2,50,000
|
Nil
|
2.
|
From Rs 2,50,001 to Rs 5,00,000
|
5 percent
|
3.
|
From Rs 5,00,001 to Rs 7,50,000
|
10 percent
|
4.
|
From Rs 7,50,001 to Rs 10,00,000
|
15 percent
|
5.
|
From Rs 10,00,001 to Rs 12,50,000
|
20 percent
|
6.
|
From Rs 12,50,001 to Rs 15,00,000
|
25 percent
|
7.
|
Above Rs 15,00,000
|
30 percent
|
3. The option shall be exercised for every previous year where the individual or the HUF has no business income.
4. The option shall become invalid for a previous year if the Individual or HUF fails to satisfy the conditions of section 115BAC.
In other words, if the taxpayer claims the deductions or exemptions which are restricted under the new tax regime, then the option exercised under the new tax regime shall be invalid for that previous year only. In such a case, the old regime shall apply for that previous year.
In the next and subsequent previous year, on satisfying the conditions for the new tax regime, the option for the new tax regime can be again exercised.
5. The condition for concessional rate shall be that the total income of the individual or HUF is computed-
(a) without the followings exemption or deduction -
Section
|
Particulars
|
Section
10(5)
|
Exemption
for Leave Travel Allowance
|
Section
10(13A)
|
Exemption
for House Rent allowance
|
Section
10(14)
|
Exemption
from any other allowance
|
Section
10(17)
|
Exemption
from allowance to MPs or MLAs
|
Section
10(32)
|
Exemption
of Rs. 1,500 in case of clubbing of minor child income
|
Section
10AA
|
Exemption
for newly established Units in Special Economic Zones
|
Section
16
|
Standard
Deduction of Rs. 50,000; Entertainment Allowance of Rs. 5,000 and
Professional Tax
|
Section 24(b) [in
respect of the property referred to in section 23(2)]
|
Interest paid on home loan |
Section
57(iia)
|
Deduction
from family pension income , equal to 33 1/3 per cent of such income or Rs.
15,000, whichever is less.
|
|
Except
section 80CCD(2) and section 80JJA
|
Section
80C, Section 80D, Section 80CCD(1B), Section 80G, et
|
(b) without set-off of any loss under the head house property with any other head of income;
(c) without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.
(d) the loss and depreciation shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year,
(e) the concessional rate shall not apply unless the option is exercised by the individual or HUF having no business income, along with the return of income to be furnished under section 139(1).
6. It may be relevant to point out that the new tax regime option is available to all the individual and HUF including non-residents.
Section 115BAC itself prohibits 10 categories of exemptions and deductions in the new tax regime. However, please note that the above list is not exhaustive. From the following extract of the Finance Minister's budget speech one can be assured that in coming years, the list will be enlarged to restrict more exemptions and deductions-
In order to simplify the income tax system, I have reviewed all the exemptions and deductions which got incorporated in the income tax legislation over the past several decades. It was surprising to know that currently more than one hundred exemptions and deductions of different natures are provided in the Income-tax Act. I have removed around 70 of them in the new simplified regime. We will review and rationalize the remaining exemptions and deductions in the coming years with a view to further simplifying the tax system and lowering the tax rate.
The condition listed above means that the individual or HUF opting for taxation under the newly inserted section 115BAC shall not be entitled to the following exemptions and deductions:
(i) Leave travel concession under section 10(5);
(ii) House Rent Allowance under Section 10(13A);
(iii) Some of the allowances under Section 10(14) read with Rule 2BB-to be notified later;
(iv) Allowances to MPs and MLAs as contained in clause (17) of section 10;
(v) Allowance for the income of minor as contained in clause (32) of section 10;
(vi) Standard deduction of Rs. 50,000, deduction for entertainment allowance and employment/professional tax as contained in section 16;
(viii) Interest under section 24(b) in respect of self-occupied or vacant property referred to in section 23(2). The deduction is limited to Rs. 2,00,000 per year.
(Loss under the head income from house property for the rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);
(Loss under the head income from house property for the rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);
(ix) Deduction of 33 1/3% of family pension upto a maximum of Rs. 15,000 under section 57(iia);
(x) Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.
As many allowances have been provided through notification of rules, it is proposed to carry out amendment of the Income-tax Rules, 1962 (the Rules) subsequently, so as to allow only following allowances notified under section 10(14) of the Act to the Individual or HUF exercising option under the proposed section 115BAC:
(a) Transport Allowance granted to a divyang employee to meet the expenditure for the purpose of commuting between place of residence and place of duty;
(b) Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office;
(c) Any Allowance granted to meet the cost of travel on tour or on transfer;
(c) Any Allowance granted to meet the cost of travel on tour or on transfer;
(d) Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.
From the whole income tax perspective, in case of the new tax regime, the list of all income tax exemptions and deductions that are allowed for each head of income under the new tax regime from FY 2020-21 (AY 2021-22) is given below-
Income from Salary
In the new tax regime, there is no change in the manner of compting the 'income' from salary. In other words, the basic salary, dearness allowance, house rent allowance, any other allowance, leave salary encashment, gratuity, etc. will be computed in the same manner as was computed in the old regime.
The changes in the new tax regime as compared to the old tax regime lies in the calculation of exemption and deduction only.
From the above discussion, it is to be noted that deduction available to salaried employees such as the standard deduction of Rs. 50,000 under section 16, deduction on account of leave travel allowance under section 10(5), deduction on account of house rent allowance under section 10(13A) shall not be available in case the individual opts to pay tax at rates prescribed under section 115BAC.
Since exemptions and deductions from the salary income are have been already discussed above, the same are not repeated here for the sake of brevity. A comparative table is being presented showing 'List of tax popular exemptions, deductions and allowances retained and disallowed in the New Tax regime (section 115BAC)'-
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Income from Salary
In the new tax regime, there is no change in the manner of compting the 'income' from salary. In other words, the basic salary, dearness allowance, house rent allowance, any other allowance, leave salary encashment, gratuity, etc. will be computed in the same manner as was computed in the old regime.
The changes in the new tax regime as compared to the old tax regime lies in the calculation of exemption and deduction only.
From the above discussion, it is to be noted that deduction available to salaried employees such as the standard deduction of Rs. 50,000 under section 16, deduction on account of leave travel allowance under section 10(5), deduction on account of house rent allowance under section 10(13A) shall not be available in case the individual opts to pay tax at rates prescribed under section 115BAC.
Since exemptions and deductions from the salary income are have been already discussed above, the same are not repeated here for the sake of brevity. A comparative table is being presented showing 'List of tax popular exemptions, deductions and allowances retained and disallowed in the New Tax regime (section 115BAC)'-
Sl. No.
|
Nature of Exemption/Deduction
|
New Tax regime u/s 115BAC
|
Old Tax Regime
|
General Overall
|
|||
1
|
Leave Salary u/s 10(10AA)
|
Allowed
|
Allowed
|
2
|
Gratuity
|
Allowed
|
Allowed
|
3
|
Commutation of Pension
u/s 10(10A)
|
Allowed
|
Allowed
|
4
|
VRS Compensation u/s
10(10C)
|
Allowed
|
Allowed
|
5
|
House Rent Allowance u/s
10(13A) and Rule 2A
|
Not
Allowed
|
Allowed
|
6
|
Standard Deduction
|
Not
Allowed
|
Allowed
up to Rs. 50,000
|
7
|
Entertainment Allowance
u/s 16(ii)
|
Not
Allowed
|
Allowed
|
8
|
Professional Tax
|
Not
Allowed
|
Allowed
|
Leave Travel Concession
U/s 10(5)
|
Not
Allowed
|
Allowed
|
|
Exemption u/s 10(14)(i)
and Rule 2BB
|
|||
9
|
Tour and Transfer
Allowance
|
Allowed
|
Allowed
|
10
|
Conveyance Allowance
|
Allowed
|
Allowed
|
11
|
Daily Allowance
|
Allowed
|
Allowed
|
12
|
Helper Allowance
|
Not
Allowed
|
Allowed
|
13
|
Any allowance granted for
encouraging the academic, research and training pursuits in educational and
research institutions
|
Not
Allowed
|
Allowed
|
14
|
Uniform Allowance
|
Not
Allowed
|
Allowed
|
Exemption u/s 10(14)(ii)
and Rule 2BB
|
|||
15
|
Study Allowance
|
Not
Allowed
|
Allowed
|
16
|
City Compensatory
Allowance
|
Not
Allowed
|
Allowed
|
17
|
Children Education
Allowance
|
Not
Allowed
|
Allowed
Rs.
100 p.m. per child up to 2 children
|
18
|
Hostel Allowance
|
Not
Allowed
|
Allowed
|
19
|
Travel Allowance to a
divyang employee
|
Allowed
Rs.
3,200 p.m.
|
Allowed
Rs.
3,200 p.m.
|
20
|
Travel Allowance to other
than divyang employees
|
Not Allowed
|
Allowed
|
Perquisites
|
|||
21
|
Free food and beverage
through vouchers provided to the employee
|
Not
Allowed
|
Allowed
up to Rs. 50 per meal
|
Read Also
Income from house property
The rules for the calculation of Income from House property have not been changed.
For self-occupied house property
Section 24(b): In the case of self-occupied house property, no deduction for interest on home loan is allowed. Under the old tax regime, the same is allowed up to Rs. 2,00,000.
In the case of individual taxpayers who have self-occupied the property for own residence or who cannot occupy the property owing to employment, business or profession carried on at any other place he has to reside at that other place in a property which does not belong to him, the annual value of the property shall be taken to be 'Nil'. This type of house property is known as 'self-occupied' house property and is covered by section 23(2). However, interest on money borrowed for acquiring or constructing the house property is deductible up to a maximum of Rs. 2 Lakh.
The claim of up to Rs. 2 Lakh in case of self-occupied house property will result in 'Loss from house property' and the same is allowed to be set-off or adjusted with Salary or other income of the taxpayer under the old tax regime. In the new tax regime, the 'Loss from house property' up to Rs. 2 Lakh is restricted and disallowed from adjusting (set-off) with the Salary or other income of the taxpayer in the new tax regime.
For a let-out house property
In case of a let-out house property, the taxpayer earns rental income. Against the rental income, deduction is allowed for the followings-
In the context of a let-out house property, the rental value is known as 'Gross Annual Value'. After deducting the municipal or property taxes, 'Net Annual Value' is derived. From the NAV, the standard deduction of 30 percent is allowed and from the resultant figure - Net Rental Income, interest on borrowed capital or home loan is deducted. If the interest amount is more than the net rental income, there will be a loss, known as 'Loss from house property'. This method of computation is the same under the new as well as the old tax regime.
The only change is with regard to the set-off of loss from house property with salary or other income.
In the old tax regime, the 'Loss from house property' is eligible to be set-off of from salary or other income up to Rs. 2 lakh in a year. The remaining or unabsorbed loss can be carried forward for the next assessment years to be set-off from income from house property only.
In the new tax regime, this 'Loss from house property' cannot be set-off from any other income. Section 115BAC has restricted the adjustment of 'Loss from house property' with any other heads of income. However, the unabsorbed or unadjusted portion of the 'Loss from house property' can be carried forward for the next assessment years to be set-off from income from house property only.
Income under the head Capital Gains
There is no change in the computation of capital gains even if an individual opts for the new tax regime. Section 115BAC does not prescribe any restrictions on the followings-
Computation of short term capital gains- There is no change in the method of computation of short term capital gains and remains the same as before.
Computation of long term capital gains- There is no change in the method of computation of long term capital gains and remains the same as before.
Set-off and carry forward of short term capital gains- There is no change in the method of set-off and carry forward of short term capital gains and remains the same as before.
Set-off and carry forward of long term capital gains- There is no change in the method of set-off and carry forward of short term capital gains and remains the same as before.
Special tax rate of 15 percent on short term capital gains u/s 111A arising from the transfer of equity shares and equity-oriented mutual fund units shall remain the same under the new tax regime.
Similarly, the special rate of tax of 20 percent (10 percent without indexation in certain cases) shall remain unchanged in the new tax regime.
Except for restriction on deduction from the family pension, no other changes is applicable under the new tax regime. For example, the dividend from shares or mutual fund schemes will be taxed under this head and no deduction can be claimed except for interest paid for earning such dividend income subject to a maximum of 20 percent of the dividend income. [link]
Interest on NSC: Interest on NSC is taxable under this head. Except for the last year, the interest accrued on NSC is eligible for deduction under section 80C. Since deduction u/s 80C is withdrawn under the new scheme, the interest on SC for every year will be taxable under the new tax regime.
All other normal provisions of the income tax shall apply for other incomes chargeable under this head except for family pension.
Deduction for family pension income: The deduction for family pension income is withdrawn in the new tax regime.
Under the old tax regime, deduction from the family pension is allowed under section 57(iia). The least of the following two conditions is allowed as a deduction from the family pension-
This deduction is also known as the standard deduction for family pension income.
Deduction under chapter VI-A
Deductions under Section 80C like Life Insurance Premium, Sum Paid towards deferred annuity plans, Employee's contribution to EPF, contribution to PPF, contribution to Sukanya Samriddhi Yojna, purchase of NSC, deposit in ELSS Mutual Funds, Tuition Fees, Principal Payment towards home loan, Tax Saving Fixed Deposits, contribution to Senior Citizens Savings Scheme, contribution to NPS u/s 80CCD(1), which are available under the old tax regime for a maximum amount of Rs. 1,50,000 are not available in the new tax regime.
Deduction under Section 80CCD(1B) and section 80CCD(2): Additional contribution to NPS under section 80CCD(1B) over and above Rs. 1,50,000 which is available up to Rs. 50,000 in a year in the old tax regime is also not available in the new tax regime.
However, the employer's contribution to NPS under section 80CCD(2) will continue to be eligible for deduction in the new tax regime. Please remember that this is the only deduction available under chapter VI-A to a salaried individual in the new tax regime.
Deduction under section 80D: Any deduction for mediclaim insurance premium for self or parents is not available in the new tax regime. Under the old tax regime, a deduction ranging from Rs. 25,000 to Rs. 75,000 can be claimed for payment of mediclaim premium.
Deduction under section 80DD: Deduction in respect of maintenance including medical treatment of a dependant who is a person with a disability is not available in the new tax regime. If the old tax regime is opted, deduction of Rs. 75,000 to Rs. 1,25,000 is available.
Deduction under section 80DDB: No deduction for any expenses actually paid for medical treatment of specified diseases and ailments is available in the new tax regime. In the old tax regime, a deduction from Rs. 40,000 to Rs. 1,00,000 is available.
Deduction under section 80E: Deduction for any amount paid out of income chargeable to tax by way of payment of interest on loan taken from a financial institution or approved charitable institution for pursuing higher education is not available in the new tax regime. In the old tax regime, deduction u/s 80E for full interest payment is allowed.
Deduction under section 80EE: Interest payable on loan taken up to Rs. 35 lakhs by the taxpayer from any financial institution, sanctioned during the FY 2016-17, for the purpose of acquisition of a new residential house property whose value doesn’t exceed Rs. 50 lakhs. No deduction is available in the new tax regime. In the old tax regime, a deduction up to Rs. 50,000 is allowed.
Deduction under section 80EEA: In order to boost the real estate sector, Budget 2019 has allowed an additional deduction up to Rs 1,50,000 for interest payable on loan taken for acquisition of a new affordable house valued up to Rs. 45 Lakh from any financial institution. The loan must have been sanctioned in FY 2019-20.
No deduction is available in the new tax regime. In the old tax regime, a deduction up to Rs. 1,50,000 is allowed.
The period of 31.03.2020 is extended to 31.03.2021 by Budget 2020. It is unclear when the government has introduced the new tax regime and wishes that every taxpayer will opt for the new tax regime without any deduction including the deduction under this section, then why the period for claiming the deduction u/s 80EEA is extended.
Deduction under section 80EEB: Interest payable on loan taken by an individual from any financial institution during the period beginning from April 1, 2019, and ending on March 31, 2023, to purchase an electric vehicle is allowed as a deduction up to Rs. 1,50,000.
No deduction is available in the new tax regime. In the old tax regime, a deduction up to Rs. 1,50,000 is allowed.
Deduction under section 80GG: Similar to disallowability of the deduction for rent payment to an individual who received HRA, any rent paid for residential accommodation by an individual who does not receive HRA from his employer, is also not available in the new tax regime. In the old tax regime, a deduction up to Rs. 60,000 per year can be claimed subject to satisfaction of the given conditions.
Deduction under section 80G and Section 80GGA: Deduction in respect of donations to certain funds, charitable institutions, etc. and deduction in respect of certain donations for scientific research or rural development is not available in the new tax regime.
Deduction under section 80GGC: Deduction in respect of contributions given by any person to political parties. In the old tax regime, the entire amount of donation is eligible for deduction. This deduction is withdrawn in the new tax regime.
Deduction under section 80TTA: Interest on deposits in savings account with a banking company, a post office, co-operative banks, etc. up to Rs. 10,000 is allowed as a deduction in the old tax regime whereas no deduction is allowed in the new tax regime.
Deduction under section 80TTB: Deduction for interest on deposits with a banking company, a post office, co-operative banks, etc. is allowed up to Rs. 50,000 to senior citizens in the old tax scheme. No such deduction is allowed in the new tax regime.
Deduction under section 80U: A resident individual who, at any time during the previous year, is certified by the medical authority to be a person with a disability is allowed a deduction from Rs. 75,000 to Rs. 1,25,000 in the old tax regime but not in the new tax regime.
Apart from the above, there is no change in the taxation of other nature of income and the normal provisions of the Income Tax Act will apply.
Other Exempt Income
Some of the income tax exemption in the new tax regime for certain popular incomes are discussed to clear the queries in the minds of many taxpayers-
1. Interest and maturity of PPF and EPF: Even though the deduction is disallowed or restricted under section 80C for contribution to PPF and EPF, however, there is no corresponding withdrawal of the exemption given to such interest income. Hence, even if a taxpayer opts for the new tax regime, the interest income on PPF and EPF shall remain exempt. In addition, the maturity amount continues to be tax-exempt.
2. Withdrawal from EPF account: Any withdrawal from employees PF account after 5 years of continuous service shall continue to remain exempt in the new tax regime.
3. Interest and maturity of Sukanya Samriddhi Account: The interest income on Sukanya Samriddhi Account and the maturity thereof shall remain exempt in the new tax regime also.
4. Maturity proceeds from Life Insurance Policies: The sum assured and any bonus received on maturity or surrender of a life insurance policy is tax-free. Such maturity proceeds continue to be exempt under Section 10(10D) even in the new regime. However, this exemption is subject to certain conditions.
It must be remembered that the Finance Minister in the budget speech in many press conferences reiterated that her government will eliminate all the available exemptions and deductions in the coming years in phases. Hence one should not be surprised if many exemptions are withdrawn in the future.
The rules for the calculation of Income from House property have not been changed.
For self-occupied house property
Section 24(b): In the case of self-occupied house property, no deduction for interest on home loan is allowed. Under the old tax regime, the same is allowed up to Rs. 2,00,000.
In the case of individual taxpayers who have self-occupied the property for own residence or who cannot occupy the property owing to employment, business or profession carried on at any other place he has to reside at that other place in a property which does not belong to him, the annual value of the property shall be taken to be 'Nil'. This type of house property is known as 'self-occupied' house property and is covered by section 23(2). However, interest on money borrowed for acquiring or constructing the house property is deductible up to a maximum of Rs. 2 Lakh.
The claim of up to Rs. 2 Lakh in case of self-occupied house property will result in 'Loss from house property' and the same is allowed to be set-off or adjusted with Salary or other income of the taxpayer under the old tax regime. In the new tax regime, the 'Loss from house property' up to Rs. 2 Lakh is restricted and disallowed from adjusting (set-off) with the Salary or other income of the taxpayer in the new tax regime.
For a let-out house property
In case of a let-out house property, the taxpayer earns rental income. Against the rental income, deduction is allowed for the followings-
(i) Municipal or property taxes paid
(ii) Standard Deduction of 30 percent
(iii) Full amount of Interest on borrowed capital taken for acquisition or construction of the house property
In the context of a let-out house property, the rental value is known as 'Gross Annual Value'. After deducting the municipal or property taxes, 'Net Annual Value' is derived. From the NAV, the standard deduction of 30 percent is allowed and from the resultant figure - Net Rental Income, interest on borrowed capital or home loan is deducted. If the interest amount is more than the net rental income, there will be a loss, known as 'Loss from house property'. This method of computation is the same under the new as well as the old tax regime.
The only change is with regard to the set-off of loss from house property with salary or other income.
In the old tax regime, the 'Loss from house property' is eligible to be set-off of from salary or other income up to Rs. 2 lakh in a year. The remaining or unabsorbed loss can be carried forward for the next assessment years to be set-off from income from house property only.
In the new tax regime, this 'Loss from house property' cannot be set-off from any other income. Section 115BAC has restricted the adjustment of 'Loss from house property' with any other heads of income. However, the unabsorbed or unadjusted portion of the 'Loss from house property' can be carried forward for the next assessment years to be set-off from income from house property only.
Deduction from House
Property income in the new tax regime in a nutshell
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Particulars
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For Self-Occupied House Property
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For Let-Out House Property
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||
Old Tax Regime
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New Tax Regime
|
Old Tax Regime
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New Tax Regime
|
|
Municipal Taxes
|
NA
|
NA
|
Allowed
|
Allowed
|
Standard Deduction of 30%
|
NA
|
NA
|
Allowed
|
Allowed
|
Interest
on Home Loan
|
Allowed
|
Not Allowed
|
Allowed
|
Allowed
|
Set-off
of Loss from other heads of income
|
NA
|
NA
|
Allowed
|
Not Allowed
|
Carry forward of loss
from house property
|
NA
|
NA
|
Allowed
|
Allowed
|
Income under the head Capital Gains
There is no change in the computation of capital gains even if an individual opts for the new tax regime. Section 115BAC does not prescribe any restrictions on the followings-
Computation of short term capital gains- There is no change in the method of computation of short term capital gains and remains the same as before.
Computation of long term capital gains- There is no change in the method of computation of long term capital gains and remains the same as before.
Set-off and carry forward of short term capital gains- There is no change in the method of set-off and carry forward of short term capital gains and remains the same as before.
Set-off and carry forward of long term capital gains- There is no change in the method of set-off and carry forward of short term capital gains and remains the same as before.
Special tax rate of 15 percent on short term capital gains u/s 111A arising from the transfer of equity shares and equity-oriented mutual fund units shall remain the same under the new tax regime.
Similarly, the special rate of tax of 20 percent (10 percent without indexation in certain cases) shall remain unchanged in the new tax regime.
Deduction from Capital
Gains income in the new tax regime in a nutshell
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Particulars
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Old Tax Regime
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New Tax Regime
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Expenses on transfer
|
Allowed
|
Allowed
|
Cost/Indexed cost of
acquisition
|
Allowed
|
Allowed
|
Income from other sources
Except for restriction on deduction from the family pension, no other changes is applicable under the new tax regime. For example, the dividend from shares or mutual fund schemes will be taxed under this head and no deduction can be claimed except for interest paid for earning such dividend income subject to a maximum of 20 percent of the dividend income. [link]
Interest on NSC: Interest on NSC is taxable under this head. Except for the last year, the interest accrued on NSC is eligible for deduction under section 80C. Since deduction u/s 80C is withdrawn under the new scheme, the interest on SC for every year will be taxable under the new tax regime.
All other normal provisions of the income tax shall apply for other incomes chargeable under this head except for family pension.
Deduction for family pension income: The deduction for family pension income is withdrawn in the new tax regime.
Under the old tax regime, deduction from the family pension is allowed under section 57(iia). The least of the following two conditions is allowed as a deduction from the family pension-
(i) 33 1/3% of the family pension income, or
(ii) Rs, 15,000.
This deduction is also known as the standard deduction for family pension income.
Deduction from Income
from Other Sources in the new tax regime in a nutshell
|
||
Particulars
|
Old Tax Regime
|
New Tax Regime
|
Deduction
from family pension income
|
Allowed
|
Not Allowed
|
Any Other Deduction
|
Allowed
|
Allowed
|
Deduction under chapter VI-A
Deductions under Section 80C like Life Insurance Premium, Sum Paid towards deferred annuity plans, Employee's contribution to EPF, contribution to PPF, contribution to Sukanya Samriddhi Yojna, purchase of NSC, deposit in ELSS Mutual Funds, Tuition Fees, Principal Payment towards home loan, Tax Saving Fixed Deposits, contribution to Senior Citizens Savings Scheme, contribution to NPS u/s 80CCD(1), which are available under the old tax regime for a maximum amount of Rs. 1,50,000 are not available in the new tax regime.
Deduction under Section 80CCD(1B) and section 80CCD(2): Additional contribution to NPS under section 80CCD(1B) over and above Rs. 1,50,000 which is available up to Rs. 50,000 in a year in the old tax regime is also not available in the new tax regime.
However, the employer's contribution to NPS under section 80CCD(2) will continue to be eligible for deduction in the new tax regime. Please remember that this is the only deduction available under chapter VI-A to a salaried individual in the new tax regime.
Deduction under section 80D: Any deduction for mediclaim insurance premium for self or parents is not available in the new tax regime. Under the old tax regime, a deduction ranging from Rs. 25,000 to Rs. 75,000 can be claimed for payment of mediclaim premium.
Deduction under section 80DD: Deduction in respect of maintenance including medical treatment of a dependant who is a person with a disability is not available in the new tax regime. If the old tax regime is opted, deduction of Rs. 75,000 to Rs. 1,25,000 is available.
Deduction under section 80DDB: No deduction for any expenses actually paid for medical treatment of specified diseases and ailments is available in the new tax regime. In the old tax regime, a deduction from Rs. 40,000 to Rs. 1,00,000 is available.
Deduction under section 80E: Deduction for any amount paid out of income chargeable to tax by way of payment of interest on loan taken from a financial institution or approved charitable institution for pursuing higher education is not available in the new tax regime. In the old tax regime, deduction u/s 80E for full interest payment is allowed.
Deduction under section 80EE: Interest payable on loan taken up to Rs. 35 lakhs by the taxpayer from any financial institution, sanctioned during the FY 2016-17, for the purpose of acquisition of a new residential house property whose value doesn’t exceed Rs. 50 lakhs. No deduction is available in the new tax regime. In the old tax regime, a deduction up to Rs. 50,000 is allowed.
Deduction under section 80EEA: In order to boost the real estate sector, Budget 2019 has allowed an additional deduction up to Rs 1,50,000 for interest payable on loan taken for acquisition of a new affordable house valued up to Rs. 45 Lakh from any financial institution. The loan must have been sanctioned in FY 2019-20.
No deduction is available in the new tax regime. In the old tax regime, a deduction up to Rs. 1,50,000 is allowed.
The period of 31.03.2020 is extended to 31.03.2021 by Budget 2020. It is unclear when the government has introduced the new tax regime and wishes that every taxpayer will opt for the new tax regime without any deduction including the deduction under this section, then why the period for claiming the deduction u/s 80EEA is extended.
Deduction under section 80EEB: Interest payable on loan taken by an individual from any financial institution during the period beginning from April 1, 2019, and ending on March 31, 2023, to purchase an electric vehicle is allowed as a deduction up to Rs. 1,50,000.
No deduction is available in the new tax regime. In the old tax regime, a deduction up to Rs. 1,50,000 is allowed.
Deduction under section 80GG: Similar to disallowability of the deduction for rent payment to an individual who received HRA, any rent paid for residential accommodation by an individual who does not receive HRA from his employer, is also not available in the new tax regime. In the old tax regime, a deduction up to Rs. 60,000 per year can be claimed subject to satisfaction of the given conditions.
Deduction under section 80G and Section 80GGA: Deduction in respect of donations to certain funds, charitable institutions, etc. and deduction in respect of certain donations for scientific research or rural development is not available in the new tax regime.
Deduction under section 80GGC: Deduction in respect of contributions given by any person to political parties. In the old tax regime, the entire amount of donation is eligible for deduction. This deduction is withdrawn in the new tax regime.
Deduction under section 80TTA: Interest on deposits in savings account with a banking company, a post office, co-operative banks, etc. up to Rs. 10,000 is allowed as a deduction in the old tax regime whereas no deduction is allowed in the new tax regime.
Deduction under section 80TTB: Deduction for interest on deposits with a banking company, a post office, co-operative banks, etc. is allowed up to Rs. 50,000 to senior citizens in the old tax scheme. No such deduction is allowed in the new tax regime.
Deduction under section 80U: A resident individual who, at any time during the previous year, is certified by the medical authority to be a person with a disability is allowed a deduction from Rs. 75,000 to Rs. 1,25,000 in the old tax regime but not in the new tax regime.
Apart from the above, there is no change in the taxation of other nature of income and the normal provisions of the Income Tax Act will apply.
Other Exempt Income
Some of the income tax exemption in the new tax regime for certain popular incomes are discussed to clear the queries in the minds of many taxpayers-
1. Interest and maturity of PPF and EPF: Even though the deduction is disallowed or restricted under section 80C for contribution to PPF and EPF, however, there is no corresponding withdrawal of the exemption given to such interest income. Hence, even if a taxpayer opts for the new tax regime, the interest income on PPF and EPF shall remain exempt. In addition, the maturity amount continues to be tax-exempt.
2. Withdrawal from EPF account: Any withdrawal from employees PF account after 5 years of continuous service shall continue to remain exempt in the new tax regime.
3. Interest and maturity of Sukanya Samriddhi Account: The interest income on Sukanya Samriddhi Account and the maturity thereof shall remain exempt in the new tax regime also.
4. Maturity proceeds from Life Insurance Policies: The sum assured and any bonus received on maturity or surrender of a life insurance policy is tax-free. Such maturity proceeds continue to be exempt under Section 10(10D) even in the new regime. However, this exemption is subject to certain conditions.
It must be remembered that the Finance Minister in the budget speech in many press conferences reiterated that her government will eliminate all the available exemptions and deductions in the coming years in phases. Hence one should not be surprised if many exemptions are withdrawn in the future.
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