Budget 2021 Expectations for Income Tax: Although, the new income tax regime has lower tax rates on income between Rs 5 lakh to Rs 15 lakh, but no tax exemptions and deductions will be available in the new regime.
Income Tax representational image.
Union Budget 2021-22 Expectations for Income Tax: In the last year’s Union Budget, Finance Minister Nirmala Sitharaman had introduced a new income tax regime that contains seven tax slabs – Nil, 5 per cent, 10 per cent, 15 per cent, 20 per cent, 25 per cent and 30 per cent – in comparison to four tax slabs under the old income tax regime – Nil, 5 per cent, 20 per cent and 30 per cent.
Both the tax regimes will continue and it will be optional for the taxpayers to choose a regime, Sitharaman declared in her budget speech.
Although, the new income tax regime has lower tax rates on income between Rs 5 lakh to Rs 15 lakh, but no tax exemptions and deductions will be available in the regime.
As a result, a salaried taxpayer would lose the current benefits of over Rs 5 lakh in the forms of exemptions and deductions available under various sections in the old income tax regime by switching to the new income tax regime.
“I have to pay additional tax of over Rs 1 lakh if the old income tax regime is discontinued,” said Saral Dev (name changed), who is a government employee and had taken home loan to purchase a flat in 2019.
Under the old income tax regime, taxpayers get a deduction up to Rs 2 lakh u/s 24 of the Income Tax Act on interest paid on home loan in a financial year. Moreover, an additional tax benefit of up to Rs 1.5 lakh is also available u/s 80EEA of the Income Tax Act, if the interest is paid on home loan taken to purchase an affordable home, subject to some conditions.
Apart from the interest on home loan, a normal salaried taxpayer would also lose the benefits of HRA exemption, Standard Deduction, which was Rs 50,000 in the Financial Year (FY) 2019-20, deductions u/s 80C up to Rs 1.5 lakh, deduction up to Rs 50,000 u/s 80CCD(1B) on voluntary contributions to Tier-1 Accounts of National Pension System (NPS), deductions up to Rs 75,000 u/s 80D on health insurance premium paid for self and family, as well as the premium paid for senior citizen parents or expenses incurred on their treatment.
“Last year the new income tax regime was optional and I hope it will not become mandatory,” said Saral.
So, taxpayers hope that the Finance Minister will continue with the old income tax regime as an optional one this year and in future as well.