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

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Published: February 4, 2020 5:01 PM

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.

Budget 2020, income tax, income tax slabs, income tax rates, income tax new regime, Union Budget 2020, Union Budget India, tax deductions, 80C, 80D, HRA benefit, standard deductionUnlike the 4 slabs in the old regime, the new regime has 7 slabs.

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.

Unlike the 4 slabs in the old regime – 0 per cent 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 per cent 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.

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