FINANCE

From old income tax regime to new: What deductions you would lose and what would still be available?

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In her second Budget, Finance Minister Nirmala Sitharaman has proposed a new income tax regime with lower income tax slab rates and fewer deductions, which will be available along with the old income tax regime and a taxpayer would be free to choose if he/she wants to continue in the old regime or shift to the new one.Click to expand00:1404:28   LO The new personal income tax regime explained

Unlike the 4 slabs in the old regime — 0% on income up to Rs 2.5 lakh, 5 per cent on income over Rs 2.5 lakh to Rs 5 lakh, 20 per cent on income over Rs 5 lakh to Rs 10 lakh and 30 per cent on income over Rs 10 lakh, the new regime has 7 slabs — 0% on income up to Rs 2.5 lakh, 5 per cent on income over Rs 2.5 lakh to Rs 5 lakh, 10 per cent on income over Rs 5 lakh to Rs 7.5 lakh, 15 per cent on income over Rs 7.5 lakh to Rs 10 lakh, 20 per cent on income over Rs 10 lakh to Rs 12.5 lakh, 25 per cent on income over Rs 12.5 lakh to Rs 15 lakh and 30 per cent on income over Rs 15 lakh.

Although, the new income tax regime has lower slab rates, but it allows very few deductions as well, which is a major deterrent in adopting the new regime.

The major deductions available for individuals under the old regime are:

1. Sec 10(5)- Leave Travel concession/assistance

2. Sec 10(6)- Remuneration received as an official, by whatever name called, of an Embassy, High Commission etc.

3. Sec 10(7)- Allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering services outside India

4. Sec 10(10)- Death-cum-retirement gratuity received

5. Sec 10(10A)- Commuted value of pension received

6. Sec 10(10AA)- Earned leave encashment on retirement

7. Sec 10(10B)(i)- Retrenchment Compensation received in respect of schemes not approved

8. Sec 10(10B)(ii)- Retrenchment Compensation received in respect of approved scheme

9. Sec 10(10C)- Amount received/receivable on voluntary retirement or termination of service

10. Sec 10(10CC)- Tax paid by employer on non-monetary perquisite

11. Sec 10(13A)- House rent allowance

12. Sec 10(14)(i)- Prescribed allowances or benefits specifically granted to meet expenses incurred in performance of duties of office or employment

13. Sec 10(14)(ii)- Prescribed allowances or benefits granted to meet personal expenses in performance of duties of office or employment or to compensate for increased cost of living.

14. Sec 16(ia)- Standard Deduction

15. Sec 16(ii)- Entertainment allowance

16. Sec 16(iii)- Professional tax

17. Sec 24- Interest on Home Loan on self-occupied and rented out properties

18. Sec 57(iia)- Deduction on family pension

Apart from the above, the major deductions available under Chapter VI-A are:

19. Sec 80C- Life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, tution fee of children, home loan principal repayment etc.

20. Sec 80CCC- Contribution to certain Pension Funds

21. Sec 80CCD(1)- Contribution to pension scheme of Central Government (NPS and EPF)

22. Sec 80CCD(1B)- Voluntary contribution to pension scheme of Central Government (NPS)

23. Sec 80CCD(2)- Contribution of employer to pension scheme of Central Government (NPS and EPF)

24. Sec 80CCG- Investment made under an equity savings scheme

25. Sec 80D- Health insurance premia

26. Sec 80DD- Maintenance including medical treatment of a dependent who is a person with disability

27. Sec 80DDB- Medical treatment of specified diseases

28. Sec 80E- Interest on loan taken for higher education

29. Sec 80EE- Interest on loan taken for residential house property

30. Sec 80G- Donations to certain funds, charitable institutions, etc.

31. Sec 80GG- Rents paid

32. Sec 80GGA- Donations for scientific research or rural development

33. Sec 80GGC- Contributions given by any person to Political parties

34. Sec 80TTA- Interest on deposits in savings account

35. Sec 80TTB- Interest on deposits in case of senior citizens

36. Sec 80U- Deduction in case of a person with disability

The deductions that would not be available under the new regime are Sec 10(5), Sec 10(13A), Sec 10(14), Sec 10(17)- DA to MPs and MLAs, Sec 10(32)- minor’s income up to Rs 1,500 per child, Sec 16, Sec 24(b) i.e. interest on home loan in reference to Sec 23(2)- self occupied property or where rental value is nil, Sec 57(iia).

Apart from the above deductions, all the deductions under Chapter VI-A will not be available under the new income tax regime, except the provisions under section 80CCD (2).

So, the following major deductions that would still be available for individuals under the new income tax regime: 

  1. Sec 10(6)- Remuneration received as an official, by whatever name called, of an Embassy, High Commission etc.
  2. Sec 10(7)- Allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering services outside India
  3. Sec 10(10)- Death-cum-retirement gratuity received
  4. Sec 10(10A)- Commuted value of pension received
  5. Sec 10(10AA)- Earned leave encashment on retirement
  6. Sec 10(10B)(i)- Retrenchment Compensation received in respect of schemes not approved
  7. Sec 10(10B)(ii)- Retrenchment Compensation received in respect of approved scheme
  8. Sec 10(10C)- Amount received/receivable on voluntary retirement or termination of service
  9. Sec 10(10CC)- Tax paid by employer on non-monetary perquisite
  10. Sec 24- Interest on Home Loan on rented out properties only
  11. Sec 80CCD(2)- Contribution of employer to pension scheme of Central Government (NPS and EPF)

So, is it beneficial to switch to the new income tax regime from the old regime?

“Taxpayers who claim a large number of tax exemptions to avail interest on housing loan, LTA, HRA, etc. under Section 80C, 80D should better continue with the old income tax regime. It is reckoned that taxpayers to claim higher tax exemptions will be able to reap fewer benefits under the new personal tax regime,” said Ankit Agarwal, MD Alankit Ltd.


Source :

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