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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 Tax | New Tax |
|---|---|---|
| Upto 2.5 Lakhs | 0 | 0 |
| 2.5 Lakhs – 5 Lakhs (If net taxable income < 5 Lakhs) | 0 | 0 |
| 2.5 Lakhs – 5 Lakhs (If net taxable income > 5 Lakhs) | 5% | 5% |
| 5 Lakhs – 7.5 Lakhs | 20% | 10% |
| 7.5 Lakhs – 10 Lakhs | 20% | 15% |
| 10 Lakhs – 12.5 Lakhs | 30% | 20% |
| 12.5 Lakhs – 15 Lakhs | 30% | 25% |
| > 15 Lakhs | 30% | 30% |
| Exemptions/Deductions | Yes | No |
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).