For new tax regime, taxpayers have to forego deductions on PF, tuition fee, insurance1 min read . Updated: 01 Feb 2020, 06:00 PM IST
- The new income tax system is optional and a taxpayer can choose to remain in the existing regime with exemptions and deductions
- Under the new tax proposal, people with an annual income of up to Rs2.5 lakh will not have to pay any tax
NEW DELHI : A taxpayer opting for new income tax slabs and rates will have to forego a host of exemptions and deductions, including a standard deduction of Rs50,000, tuition fee of children, and contribution towards insurance premium and provident fund.
However, the new income tax system proposed by Finance Minister Nirmala Sitharaman in the Union Budget 2020-21 is optional and a taxpayer can choose to remain in the existing regime with exemptions and deductions.
Under the new tax proposal, people with an annual income of up to Rs2.5 lakh will not have to pay any tax.
For income between Rs2.5 lakh to 5 lakh, the tax rate (as earlier) is 5%.
Further, those with an income of Rs5 lakh to Rs7.5 lakh will have to pay a reduced tax rate of 10%; between Rs7.5 lakh and Rs10 lakh at 15%; between Rs10 lakh and 12.5 lakh at 20%; between Rs12.5 lakh and 15 lakh at 25%; and above Rs15 lakh at 30%.
As per the Budget document, an individual taxpayer opting for the new tax regime will not be entitled for deduction under 80C of the Income Tax.
Section 80C provides deduction for contribution towards insurance premium, deferred annuity, provident fund and certain type of shares.
Taxpayer will also have to forego deduction under 80CCC (contribution towards certain pension fund), Section 80D (health insurance), 80E (interest on loan for higher education), 80EE (interest on loan taken for residential property), 80EEB (purchase of electric vehicle), 80G (donation to charitable institutions), and 80G (rent paid).
Besides, a taxpayer opting for the new scheme will not get tax benefit for leave travel concession (LTC), allowances for income of minors, and certain allowances of MPs/MLAs.
The tax benefit will not be available in respect free food and beverages through vouchers provided to employees.
However, certain deductions are proposed to be retained in the new regime, like conveyance allowance for meeting expenses in performance of duty and allowance for travel on tour and transfers.