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New Tax Regime For Individuals & HUF

With the introduction of Section 115BAC, Finance Act 2020 introduced a new tax regime for individuals and HUF. The new tax regime comes with a lower rate in return for the taxpayers to waive off certain deductions. In this article, we shall discuss the basics of the new tax regime, why it has been introduced, as well as the new section introduced. Since taxpayers are offered a choice between the new regime and the existing one, we shall also compare it with the old one to make it simpler for the taxpayers to decide which one to choose.

Basics of the new tax regime

An assessee is offered a choice between the new tax regime and the existing one. Therefore, to make it more systematic for the Income Tax Department, Form 10-IE has been introduced. Taxpayers opting for the new regime should inform the Income Tax Department beforehand as well. The due dates for filing of Form 10-IE are as follows:

AssesseeDue Dates
Assessee having business income Before due date of filing ITR, i.e., 31st July or as extended by the government
Assessee having salary incomeBefore or at the time of filing ITR

Details to be furnished in Form 10-IE

Individual and HUF are required to submit the following details in Form 10-IE:

  • Name
  • Address
  • PAN
  • Date of Birth
  • Financial Year
  • Nature of Business or Profession
  • In case of withdrawal of option – Whether new tax regime has been opted in any previous year and now being withdrawn.
New Tax Regime

Slab rates – old & new tax regime

Slab (in Rs)Old Tax RateNew Tax Rate
0-2500000%0%
250000-5000005%5%
500000-75000020%10%
750000-100000020%15%
1000000-125000030%20%
1250000-150000030%25%
>150000030%30%

Apart from the above tax rate, health and education cess @4% is also charged.

Deductions and exemptions – Not allowable under new tax regime

The following is the list of deductions that the taxpayers can not claim in order to avail the benefit of lower tax rate under the new tax regime:

  1. The standard deduction
  2. Professional tax
  3. Entertainment allowance
  4. Leave travel allowance
  5. House Rent allowance
  6. Minor child income allowance
  7. Children education allowance
  8. Food coupons
  9. Helper allowance
  10. Special compensatory allowance
  11. Border area/tribal area allowance
  12. Transport/Travelling allowance
  13. Uniform allowance
  14. Reimbursement of medical expenditure
  15. Hostel expenditure reimbursed to the employee
  16. Underground allowance to mineworkers
  17. Interest on housing loan of SOP
  18. Deduction of family pension income
  19. All deductions under Chapter VI A except section 80CCD(2) & 80JJAA
  20. Deduction of depreciation u/s 32
  21. Deduction with respect to scientific research u/s 35AD

Deductions and exemptions – allowable under new tax regime

However, the taxpayer can claim the following deductions:

  1. Deduction under Section 80CCD(2) & Section 80JJAA
  2. Exemption concerning gratuity u/s 10(10)
  3. Exemption of commuted pension u/s 10(10A)
  4. Interest on housing loan of LOP
  5. Exemption on maturity proceeds of Life Insurance u/s 10(10D)

Which to choose – old or new tax regime?

It is always advisable to compare the tax calculation as per both and then choose. However, analysis of old and new tax regimes is made through the following illustration:

Gross Total IncomeDeduction And ExemptionTax Calculation As Per Old RegimeTax Calculation As Per New Regime
<25000000
45000020000000
600000200000023400
8000002000003380046800
11000002000009620098800
1400000200000179400169000
1800000200000304200288600

Thus, we see that it depends on the income slab as well as the number of deductions whether the new scheme is beneficial or old. Also, kindly note that interest under Section 234 A, B, C, and rebate under Section 87A is applicable on both schemes.

Conclusion

The taxpayers should choose between the old and new tax schemes only after making the analysis. Also, it is advisable to seek professional opinions whenever necessary.

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CA Preksha Lalwani
A Chartered Accountant by profession, Preksha has a flair for writing descriptive and educative financial articles. She strongly believes in the “Passion to believe, and compassion to achieve” ideology!

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