In the budget 2020, FM Nirmala Sitharaman has introduced a new tax regime along with the old regime. The new regime comes with reduced tax rates of various income slabs as well as the removal of rebates and exemptions. Salaried individuals, who have no business income, will have to choose between the existing and new tax regimes every financial year, as per their convenience. However, individuals who have business income do not have a choice to opt between old and new regimes. They have to calculate their tax liability only under the new tax regime.
Although anyone opting for the new tax regime will have to forego most of the deductions or tax rebates and exemptions available under the old tax regime such as Standard deductions, tax exemptions for interest earned on bank deposits up to certain limits, and deductions under sections 80C, 80D, 80E, 87A, etc., there are various tax exemptions /deductions that are still available under the new tax regime. Hence, you can enjoy the lower tax rates of the new tax regime and also avail of the following tax exemptions:
- Conveyance allowance: CBDT via a notification dated June 26, 2020, has clarified that any amount received as reimbursement for the cost of travel, daily expenses on transfer, tour allowance for travel for official purposes, and conveyance allowance for meeting conveyance expenditure incurred in course of performing official duties will be tax-exempt under new tax regime. However, food coupons by an employee who has opted for the new tax regime will be taxable in his hands. Similarly, conveyance allowance earlier exempted up to Rs.1600 per month is not eligible for tax exemption in the new as well as old tax regime.
- Gift from Employer: Any forms of gifts you receive from your employer remain exempted under the new tax regime, provided the value of the gifts remains under Rs 5,000 is exempted under the new tax regime.
- Interest paid for Home Loan on Rented out Property: Interest paid for a home loan on a property that is rented out is still eligible for tax exemption under section 24(b). However, interest paid on a home loan taken out on a property that is self-occupied is not applicable for tax exemption under the new tax regime.
- Leave Encashment at the time of Retirement: The encashment of unused privilege leave/earned leave at the time of retirement of an employee is exempted under a new tax regime up to Rs.3 lakh.
- Monetary benefits received under VRS: Monetary benefit received at the time of taking voluntary retirement is exempted from tax under the new regime up to a maximum of Rs.5 lakh.
- Commutation of Pension: One-third of the commuted pension received by non-Government employees who also receive gratuity is exempted from tax. In the case of employees who have not received gratuity, half of the commuted pension received will be exempted from tax.
- Gratuity Amount: According to income tax laws, gratuity is tax-exempt up to Rs 20 lakh in a lifetime for non-government employees even under the new tax regime. For government employees, all gratuities received is tax-exempt, irrespective of the amount received by them.
- Interest received on post office savings account: Interest received on post office savings account up to Rs.3500 in case of the individual account and Rs.7000 under joint account is exempted under section 10(15)(i) of the Income-tax Act.
- Interest received from EPF: The interest received from the EPF account continues to be exempted from tax in the new tax regime as well, provided it does not exceed 9.5 percent.
- Maturity value of Life Insurance Policy: Though the life insurance premium paid is not eligible to claim deduction under the new regime, the maturity amount received by the policyholder is fully exempted from income tax under under section 10(10D) in the new tax regime.
- Interest or maturity amount received from the PPF account: Any interest or maturity amount received from your Public Provident Fund (PPF) account is exempted from tax under the new tax regime.
- Interest or maturity amount received from Sukanya Samriddhi Yojana: Any interest or maturity amount received from your Public Provident Fund (PPF) account is exempted from tax under the new tax regime.
- Withdrawal from National Pension Scheme: The lump-sum withdrawal (up to 60% of corpus) at the maturity of the NPS account or partial withdrawal from the Tier -1 NPS account is exempted from tax under the new tax regime.
- Employer’s Contribution to NPS or EPF account: The amount contributed by to employer to his employee’s NPS 10% of an employee’s basic salary, to the Tier-1 of his or her NPS.or the amount contributed by to employer to his employee’s EPF account 12% of an employee’s basic salary is exempted under the new tax regime.
While these are only the available exemptions under the new tax regime, you may compare Income Tax slabs and tax rates for FY 2021-22 for both under old and new regimes along with deductions or tax rebates and exemptions available under them and decide which tax regime best helps you lower your overall tax burden.