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June 29, 2020

Employees Opting for New Tax Regime can claim Income Tax exemption on conveyance allowance

Employees Opting for New Tax Regime can claim Income Tax exemption on conveyance allowance

CBDT amends Rule 2BB to provide more benefit to taxpayers

The 2020 Budget has introduced 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. The new tax rates will be applicable for income earned in the FY 2020-21. This new tax regime was proposed for individuals willing to forego certain specified deductions or exemptions while computing total income for tax purpose and paying taxes at a lower rate.

What are the tax rates in the optional new regime?

New slabs – IncomeTax RateExisting Slabs – IncomeTax Rate
From Rs 2.5 lakh to Rs 5 lakh5%From Rs 2.5 lakh to Rs 5 lakh5%
From Rs 5 lakh to Rs 7.5 lakh10%From Rs 5 lakh to Rs 10 lakh20%
From Rs 7.5 lakh to Rs 10 lakh15%Above Rs 10 lakh30%
From Rs 10 lakh to Rs 12.5 lakh20%  
From Rs 12.5 lakh to Rs 15 lakh25%  
Above Rs 15 lakh30%  

Exemptions/deductions not claimable under Section 115BAC:-

Section 115BAC(2) prescribes the list of deductions /exemptions which are not available for deduction while computing total income if a taxpayer opts for the concessional tax regime. The following are the deductions and exemptions you cannot claim under the new tax system:

  • The standard deduction, professional tax and entertainment allowance on salaries
  • Leave Travel Allowance (LTA)
  • House Rent Allowance (HRA)
  • Minor child income allowance
  • Helper allowance
  • Children education allowance
  • Other special allowances [Section10(14)]
  • Interest on housing loan on the self-occupied property or vacant property (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

However, the CBDT is empowered to prescribe certain exemptions available under Section 10 which can be availed by the employees. Exercising such power, the Board has made the following amendments.

Amendments by CBDT in Rule 2BB

CBDT has amended Rule 2BB, which prescribes allowances for the purposes of Sec. 10(14). Rule 2BB allows exemption claim under Section 10(14) in respect of salaried employees opting for new tax regime under Section 115BAC in certain cases.

  • Now conveyance & travel allowance will be available for exemption under Section 10(14) for employees opting for new tax regime.
  • However, meal coupons etc will be out of exemption.
  • Blind, deaf and dumb or orthopedically handicap employees can also claim ad-hoc exemption of transport allowance of Rs 3,200 per month while computing salaried income.
  • An assessee can claim exemption u/s. 10(14) only in respect of:-
  • Tour/Transfer allowance
  • Daily travel allowance
  • conveyance allowance
  • Transport allowance for handicapped, subject to the conditions.

Amendments by CBDT in Rule 3

  • CBDT has amended Rule 3 [dealing with perquisites valuation], which states “exemption provided in respect of free food and non-alcoholic beverage provided by such employer through paid voucher shall not apply to the employee, being an assessee, who exercised option under section 115BAC.

The new IT slabs would be for individuals not availing certain specified deductions or exemptions. The CBDT notification considers free meal/beverages provided by an employer to employees during office hours to be a personal benefit and not an expenditure for official purposes. Therefore, similar to other allowances withdrawn under the new tax regime, tax exemption of such free meals/beverages has been withdrawn as well. The amended rule shall come into force from April 1, 2021, and shall accordingly apply in relation to the assessment year 2021-22, financial year 2020-21 and subsequent assessment years.

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