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June 15, 2021

Which is better option Old Regime or New for Tax saving?

by Mahesh Mara in Income Tax

Which is better option Old Regime or New for Tax saving?

The Finance Act 2020 announced a new tax regime under Section 115BAC in order to make taxation simpler for people. This new tax regime has given an option to individuals and HUF taxpayers to pay income tax at lower rates. This was long demanded by most taxpayers, however, the option for this concessional tax regime came with a cost, it required the taxpayer to forego certain specified deductions. To add to this confusion, the finance minister gave taxpayers a choice between the new regime and existing one, leaving it to them to decide which they would like to opt for. In this article, let us look at the new regime in detail, its benefits and compare it to the existing tax system.

How can assessee opt for new or old regime?                              

  • If an individual/HUF opts for new tax regime for FY 2020-21, then form 10IE has to be filed at the time of filing ITR for FY 2020-21 to inform the tax department that they are choosing the new tax regime.
  • As per the income tax laws, an individual having business income shall submit this form before the due date of filing ITR i.e. July 31 (unless extended by the government).
  • The due date of filing ITR for FY 20-21 has been extended till 30th September, 2021.
  • For salaried individuals, the form can be submitted before/at the time of ITR filing, even if ITR is filed after the due date.

What information is required to be furnished in Form 10-IE?

The individual/HUF is required to furnish the following information in Form 10-IE:

  • Name of the individual/HUF
  • Address
  • PAN
  • The financial year for which option is exercised
  • If the individual/HUF has income under business or profession
  • Date of birth
  • Nature of business/profession, (mandatory if an individual is having income from business and profession)
  • Whether the individual/ HUF has any Unit in International Financial Services Centre (IFSC), as referred to in section 80LA(1A)
  • Whether option under clause section 115BAC(5)(i) has been exercised in Form 10-IE for any earlier previous year/ years and is now being withdrawn (to be activated if withdrawal option is selected)

What deductions are not allowed in the new tax regime?

The following are the deductions and exemptions you cannot claim under the new tax system:

Sr noDeductions or Exemptions not allowedAmount of deduction/ Exemptions
1House rent allowance u/s 13ALower of 40%/ 50% Of (Basic+ DA+ Turnover commission) or Actual amount received or Rent paid Minus 10% of (Basic+ DA+ Turnover commission)
2Leave travel allowanceExemption is available only on the actual travel costs i.e., the air, rail or bus fare incurred by the employee
3Food couponsUpto Rs. 50 Per meal is exempt the excess is taxable under salary
4Children Education allowanceMax Rs. 100 per month per child upto Maximum 2 child
5Helper allowanceFully Exempt
6Special compensatory allowanceFully Exempt
7Border area allowanceFully Exempt
8Tribal areas allowanceRs. 200 per month
9Transport allowance for employees of transportLower of amount received X 70% or Rs. 10000 pm
10Travelling allowanceFully Exempt
11Island duty allowanceFully Exempt
12Uniform allowanceFully Exempt
13Research allowanceFully Exempt
14Leave encashment benefitLower of Rs. 3,00,000 per annum or Annual leave encashment amount or Average salary of last 10 months or Salary per day X untilised leave (Considering maximum 30 days allowed leave per year)
15Reimbursement of medical expense u/s 17(2)Amount of expense incurred on treatment in government hospital or Employers hospital or Government recognised hospital
16Any allowance granted to an employee to meet the hostel expenditure on his childMax Rs. 300 per month per child upto Maximum 2 child
17Compensatory Field Area AllowanceFully Exempt
18Compensatory Modified Field Area AllowanceFully Exempt
19Underground Allowance for mine workersMax Rs. 800 per month
20Daily allowance by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof u/s 10(17)Fully Exempt
21Entertainment allowance u/s 16For government employees only: Lower of 20% of Basic salary or Actual amount received or Maximum Rs. 5000
22Profession tax u/s 16Maximum Rs. 2,500
23Interest on Housing loan u/s 24(2) with respect to self-occupied propertyMaximum Rs. 2,00,000
24Standard deduction u/s 16Maximum Rs. 50,000
25Deduction with respect to Specified investment under 80CMaximum Rs. 1,50,000
26Deduction with respect to Contribution to NPS u/s 80CCD(1B)Maximum Rs. 50,000
27Deduction with respect to mediclaim premium or medical expenses u/s 80DMaximum Rs. 50,000 / Senior Citizen then Rs 75,000
28Deduction with respect to medical treatment of handicapped relative u/s 80DDMaximum deduction Normal disability =75,000 and for Severe disability = 1,25,000
29Deduction with respect to treatment of specified disease u/s 80DDBMaximum deduction Lower of Actual expenses or Maximum Rs. 40000 for other and 100000 for senior citizen
30Deduction with respect to Interest on Education Loan u/s 80EInterest amount for 8 consequtive years
31Deduction with respect to donation to trust or political parties under section 80GAmount of donation
32Deduction with respect to donation to trust or political parties under section 80GGC100% of Donation made
33Deduction with respect to interest on savings account u/s 80TTALower of Amount of saving interest or Rs. 10,000
34Deduction with respect to interest on Deposits to senior citizens u/s 80TTBLower of Amount of interest or Rs. 50,000
35Additional Deduction for Interest on Home Loan u/s 80EEMaximum Rs. 50,000
36Additional Deduction for Interest on Home Loan u/s 80EEAMaximum Rs. 1,50,000
37Deduction for Interest on electric vehicle loan u/s 80EEBMaximum Rs. 1,50,000
38Deduction for handicapped assessee under section 80UNormal= 75,000 or Severe= Rs. 1,25,000
39Deduction for Royalty from books under section 80QQBLower of Eligible royalty or Rs. 3,00,000
40Deduction for Royalty from patent under section 80RRBLower of Eligible royalty or Rs. 3,00,000
41Deduction for donation to scientific research Organisation under section 80GGA100% of Amount of donation
42Deduction under section 80GG for rent paid other than HRALower of Rs. 5000 per month or 25% of Adjustment gross total income or Rent paid- 10% of Adjustment gross total income
43Deduction u/s 80JJA with respect to Income from collecting and processing biodegradable waste100% of profit of business
44Deduction under section 57 with respect to family pensionLower of Rs. 15,000 or 1/3 rd of the amount of pension received
45Deduction u/s 10(32) In Case of Income from Minor ChildMaximum deduction of Rs. 1500 per child
46Deduction u/s 10AA with respect to income of SEZ unitMaximum deduction is 100% of profits for 1st 5 years of business and 50% of profits for the next 5 years of business
47Deduction of deprecation as per section 32Amount of depreciation as per rate schedule of income tax act
48Deduction u/s 32AD for investment in new Plant and Machinery in notified backward area15% of the Actual cost of new plant and machinery installed
49Deduction with respect to specified business under section 35AD100% of the profit from specified business
50Deduction with respect to expenditure on agricultural extension project u/s 35CCC150% of the expenditure allowed on agricultural extension
51Deduction with respect to tea, coffee, rubber business u/s 33ABLower of Actual amount deposited in NABARD a/c or 40% of PGBP before this deduction
52Deduction with respect to petroleum and natural gas business u/s 33ABALower of Actual amount deposited in site restoration account or 20% of PGBP (before the deduction)
53Deduction with respect to contribution to outsiders to IIT national laboratory for scientific research under section 35(2AA)150% of the contribution paid
54Deduction with respect to expenditure on scientific research u/s 35100% deduction for Revenue and capital expenditure incurred for scientific research

What deductions can one claim if they switch to the new tax regime?

Assesses can claim the following deductions if they opt for the new tax regime:

Sr noDeductions or Exemptions not allowedAmount of deduction/ Exemptions
1Exemptions with respect to gratuity under section 10(10)Lower of Last drawn salary X no of years employed X 15/26 or Rs. 20 Lakhs or Actual gratuity received
2Exemptions with respect to commuted (lumpsum) pension u/s 10(10A)For government employees= Fully exempt and other employees= if gratuity is received by the employee then 1/3 rd of the commuted pension is exempt else 50% of the commuted pension is exempt
3Exemptions on Maturity proceeds of Life insurance u/s 10(10D)Fully exempt
4Deduction under section 80CCD(2) with respect to Contribution by employer to NPSLower of employer contribution or Maximum 10% of the Salary
5Interest on Housing loan u/s 24(2) with respect to let out propertyWhole amount of interest on housing loan
6Deduction under section 80JJAA with respect to additional employees costMaximum 30% of additional employee cost incurred during the year

What are the slab rates in case assessee is opting for new tax regime u/s 115BAC?

If assessee is opting for new tax regime the following are the slab rates applicable:

Slabs of IncomeTax Rate
0 to 2,50,0000%
2,50,001 to 5,00,0005%
5,00,001 to 7,50,00010%
7,50,001 Rs. 10,00,00015%
10,00,001 to 12,50,00020%
12,50,001 to 15,00,00025%
Above Rs. 15,00,00030%

Apart from above health and education cess at the rate of 4% is charged on the total tax calculated.

What are the slab rates in case assessee is opting for old tax regime?

If assesee is opting for old tax regime the following are the slab rates applicable:

Slabs of IncomeTax Rate
0 to 2,50,0000%
2,50,001 to 5,00,0005%
5,00,001 to 10,00,00020%
Above Rs. 10,00,00030%

Apart from above health and education cess at the rate of 4% is charged on the total tax calculated.

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