We can choose to pay income tax under an optional new tax system beginning in FY 2020-21. Individuals and HUFs will benefit from the new tax regime, which has lower tax rates and no deductions or exemptions. We’ll go over the highlights of the new tax system and how you will profit from it.

Individuals and HUF taxpayers will be able to pay income tax at lower rates under a new regime introduced in Budget 2020 under section 115BAC. The new framework will apply to income received beginning April 1, 2020 (FY 2020-21), which corresponds to the fiscal year 2021-22.

The tax rates under the new tax regime and the existing tax regime are:

New slab ratesExisting slab rates
Income from Rs 2.5 lakh to Rs 5 lakh5%Income from Rs 2.5 lakh to Rs 5 lakh5%
Income from Rs 5 lakh to Rs 7.5 lakh10%Income from Rs 5 lakh to Rs 10 lakh20%
Income from Rs 7.5 lakh to Rs 10 lakh15%Income above Rs 10 lakh30%
Income from Rs 10 lakh to Rs 12.5 lakh20%  
Income from Rs 12.5 lakh to Rs 15 lakh25%  
Income above Rs 15 lakh30%  

Exemptions and deductions which cannot be claimed under the new tax regime

The deductions and exemptions a tax payer can no longer assert under the new tax code are listed below:

  • The standard deduction, professional tax, and entertainment allowance on salaries
  • Leave Travel Allowance
  • House Rent Allowance
  • Minor child income allowance
  • Helper allowance
  • Children education allowance
  • Other special allowances u/s Section10(14) of Income Tax Act, 1961
  • Interest on housing loan on the property which is either self-occupied or vacant (Section 24)
  • Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJAA)
  • Without exemption or deduction for any other perquisites or allowances
  • Deduction from family pension income

House property loss under the new tax regime

Under the current tax regime, you cannot demand a deduction for interest on a mortgage loan if you own a self-occupied home. The current system’s allowance of Rs 2 lakh is no longer valid under the new tax regime. You would not be able to deduct the loss of Rs 2 lakh from your salary profits. You can take a deduction for interest paid on a mortgage loan if you have rented out a home. A taxpayer has to keep in mind that under the new tax law, the deduction is limited to the taxable rent earned from the house. You cannot deduct the loss from the house property due to interest charged in excess of rental income. You still can’t roll over a loss from a house to a future year for set-off.

Deductions for business expenditure not allowed under the new regime

Company revenue is not eligible for deductions or exemptions:

  • Additional depreciation under section 32.
  • Investment allowance under section 32AD.
  • Sector-specific business deductions under sections 33AB and 33ABA.
  • Expenditure on scientific research under section 35.
  • Capital expenditure under section 35AD.
  • Exemption for SEZ units under Section 10AA.

Conclusion

People who make small investments will benefit from the new income tax regime. Anyone paying taxes without seeking tax exemptions will benefit from the new tax regime’s seven lower income tax slabs, which will result in them paying a lower rate of tax. For example, under the old scheme, an assessee with total income before deduction up to Rs 12 lakh will have a higher tax liability if their investments were less than Rs 1.91 lakh. As a result, if you spend less in tax-saving strategies, you can opt for the new regime.

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