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2020

Disallowed Deductions / Exemptions under New Income Tax Regime

Disallowed Deductions Exemptions under New Income Tax Regime

The Budget 2020 has introduced a new Income Tax structure having six different slab rates. The current tax slab rates will also remain in place. This move will make tax structure more complex. If the tax payers wish to avail new structure, he/she will not be able to avail benefit of many of the deductions and exemptions available at present in old tax structure.The removal of tax exemptions and deductions certainly makes compliance less tedious, but tax planners who maximized their tax deductions will probably pay more tax under the new tax regime.

Refer to below table for the new tax rates:

 

Slab

Tax Rate

From

Up To

Existing Scheme

New Scheme

Re. 0

Rs. 2,50,000

0

0

Rs. 2,50,001

Rs. 5,00,000

5%

5%

Rs. 5,00,001

Rs. 7,50,000

20%

10%

Rs. 7,50,001

Rs. 10,00,000

20%

15%

Rs. 10,00,001

Rs. 12,50,000

30%

20%

Rs. 12,50,001

Rs. 15,00,000

30%

25%

Rs. 15,00,001

No Limit

30%

30%

 

Disallowed Deductions and Exemptions under New Regime:

As discussed, many of the deductions will not be available to the tax payers’ disposal if he/she opts for new slab rates. Individuals will have to forgo almost all tax breaks they were claiming in the current tax structure.Some 70 out of 100 deductions/exemptions will not be available under new scheme. Let us discuss them briefly.

  • Deductions under Chapter VIA: All deductions under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) will not be claimable by those opting for the new tax regime.
  • Tax breaks for the disabled and for charitable donations also go.
  • Leave Travel Allowance exemption which is currently available to salaried employees twice in a block of four years.
  • House Rent Allowance normally paid to salaried individuals as part of salary. This could be claimed as tax exempt upto certain specified limits if the individual was staying in rented accommodation.
  • Standard Deduction of Rs 50,000 currently available to salaried tax payers.
  • Entertainment Allowance: Deduction for entertainment allowance and employment/professional tax as contained in section 16.
  • Interest on House Loan: Tax benefit of interest paid on housing loan taken for a self-occupied or vacant house property will also not be claimable. However it is allowable up to Rs. 200000 under the existing tax regime. This comes under section 24, of the Income tax Act, 1961.
  • Deduction from Family Pension: Deduction of Rs 15,000 allowed from family pension under clause (iia) of section 57.
  • Set off of Losses on Let out Property: If the interest paid on the property loan in a financial year exceeds the rental income earned, then it would result in a loss under the head of income from house property. This loss cannot be set-off against any other head of income such as salary, interest income and capital gains etc. as per the new tax regime. Under the existing tax regime, however, set-off of losses from house property for up to Rs 2 lakh is allowed. This comes under section 71, of the Income Tax Act, 1961.

Allowed Deductions and Exemptions under New Regime:

Some of the deductions and exemptions are still available in new regime as well.

  • Deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme—mostly NPS). and
  • Deduction under Section 80JJAA (for new employment) can still be claimed.
  • Standard deduction on rent.
  • Agricultural income.
  • Income from life insurance.
  • Retrenchment compensation.
  • VRS proceeds.
  • Leave encashment on retirement.

Note: No changes have been made in Surcharge and Cess rates.

Read more income tax blogs here.

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