New Tax Regime & Is It More Profitable?

In the budget 2020, the government has announced the “New Income Tax Regime.”

The new income tax regime means availing the benefits of lower tax rates without any deductions or exemptions.

The individuals and HUFs have the option to opt for section 115BAC, i.e., the new income tax regime From the Financial year 2020-21 itself. However, if your income includes any income other than business or profession, then you can have the option to opt-in or opt-out from this regime every year.

On the other hand, if your income consists of business or professional income, then you can opt-out from the scheme only once. Afterwards, you are not eligible to exercise this scheme again until you don’t have any business or professional income.

Benefits Of New Income Tax Regime

One who wants to continue availing exemptions can opt for the old regime. Whereas the new scheme has brought the various benefits such as

• Simplified return filing process
• Reduced tax rates and compliances
• Increased liquidity of funds
• Opening the other investment alternatives (other than specified under the Income-tax act)

Income Tax Slab Rates Under New Tax Regime

Income up to Rs 2.5 Lakhs- NIL TAX
Income from Rs 2.5 lakhs up to Rs. 5 lakhs- 5%
Income from Rs. 5 lakhs- Rs 7.5 Lakhs-  10%
Income from Rs 7.5 lakhs – Rs 10 Lakhs-  15%
Income from Rs 10 lakhs – Rs. 12.50 Lakhs-  20%
Income from Rs. 12.5 lakhs- Rs. 15 Lakhs-  25%
Income above Rs. 15 Lakhs-  30%

Various Exemptions & Deductions Not Allowed Under The New Income Tax Regime:

Deductions which are not allowed under the new regime are as follows:

• Leave Travel Allowance
• House Rent Allowance
• Helper allowance
• Children education allowance
• Minor child income allowance
• Other special allowances [Section 10(14)]
• Standard deduction of Rs. 50000 on salary, entertainment allowance, and professional tax
• Interest on housing loan on the vacant and self-occupied property (Section 24)
• Deduction under Chapter VI-A deduction (80C,80D, 80E and others, except Section 80CCD(2))
• Deduction from family pension income
• Set off any loss or depreciation carried forward from earlier years
• Set off a loss under income from house property with any other income.
• Exemptions and deductions allowed under the new income tax regime
• Transport allowance, only in case of an especially disabled person
• Conveyance allowance, only if receives as a part of the employment
• Any allowance to meet the travel cost on transfer

Conclusion

From FY 2020-21, the taxpayers (individuals and HUFs) can choose between the old tax regime or the new income tax regime.

However, it is advisable to determine whether you should go with the new income tax regime or not; after analyzing the tax benefits, you have to forgo various exemptions and deductions in this scheme.