New Tax Regime 2021-22 India

What is new tax regime for FY 2020-21?

The Budget 2020 introduces a new regime under section 115BAC giving an option to individuals and HUF taxpayers to pay income tax at lower rates. The new system is applicable for income earned from 1 April 2020 (FY 2020-21), which relates to AY 2021-22.

From FY 2020-21, Taxpayers can choose to pay income tax under an optional new tax regime. The new tax regime is available for individuals and HUFs with lower tax rates and zero deductions/exemptions.

This article will help you to understand what is new tax regime, what are new tax slabs, who can choose new tax regime, which exemptions / deductions are removed and which can be still claimed, Pros and Cons of new tax regime.

New tax regime vs Old tax regime

Income in Rs.Old TaxNew Tax
Upto 2.5 Lakhs00
2.5 Lakhs – 5 Lakhs
(If net taxable income < 5 Lakhs)
00
2.5 Lakhs – 5 Lakhs
(If net taxable income > 5 Lakhs)
5%5%
5 Lakhs – 7.5 Lakhs20%10%
7.5 Lakhs – 10 Lakhs20%15%
10 Lakhs – 12.5 Lakhs30%20%
12.5 Lakhs – 15 Lakhs30%25%
> 15 Lakhs30%30%
Exemptions/DeductionsYesNo

Who can choose New Tax Regime ?

  • Individual with Salary Income
  • Individual with Business Income
  • HUF (Hindu Undivided Family)

Exemptions & deductions removed under new tax regime

The following is the comprehensive list of deductions and exemptions which you can not claim under the new tax system.

  • Standard deduction of Rs 50,000 for salaried individuals
  • Leave Travel Allowance (LTA)
  • House Rent Allowance (HRA)
  • Professional Tax (PT)
  • Deductions available under Section 80TTA and 80TTB (Interest from Savings Account/Deposits)
  • Tax deduction on entertainment allowance and deduction on professional tax For government employees
  • Interest amount payable on home loan for a self-occupied or any vacant property.
  • Deduction of Rs 15,000 allowed from family pension under clause (ii) (a) Section 57
  • Special Allowances that are provided under Section 10(14) except
  • Transport allowance granted to a disabled employee
  • Conveyance allowance, Daily Allowance
  • Any allowances granted for meeting the cost of travel on tour or transfer of an employee
  • Business owners and professionals will lose the exemption to Special Economic Zones under Section 10AA.
  • Deductions under Section 32AD, 33AB, 33ABA, 35(1)(ii),35(1)(ii( (a), 35(1)(iii), 35(2AA), 35AD and 35CCC of the Income Tax Act.
  • Options of additional depreciation under Section 32(ii) (a) of the Income Tax Act
  • The option to carry forward or unabsorbed depreciation of earlier years
  • Tax-saving investment deductions under Income Tax Act , Chapter VI-A 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.

Also see : What is deadline for ITR filing AY 2021-22 ?

Exemptions you can claim under new tax regime

  • Interest received on Post Office Savings Account under Section 10(15)(i) the maximum amount of Rs. 3,500. 
  • Gratuity received from employer up to a maximum amount of Rs. 20 Lacs.
  • Amount received from Life Insurance Policy on maturity under Section 10(10D).
  • Employer contribution in NPS or EPF up to 12% of salary and interest on EPF up to 9.5% p.a. 
  • Income from Life Insurance.
  • Income from agricultural farming.
  • Standard reduction on rent. 
  • Retrenchment compensation.
  • Leave encashment on retirement.
  • VRS proceeds up to Rs 5 lacs.
  • Retirement cum death benefit. 
  • Money received as a scholarship for education. 
  • Interest and maturity amount of PPF or Sukanya Smriddhi Yojna.
  • Commutation of Pension. The new tax regime offers you to claim deductions u/s 80CCD(2) (employers contribution in notified pension scheme) and 80JJAA (for new employment).