Good news for taxpayers! CBDT exempts certain allowances in New Tax Regime

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Updated: Jun 29, 2020 6:22 PM

In a bid to give further relief to taxpayaers, the CBDT has notified that a salaried employee who opts for the new income tax regime can claim certain exempt allowances.

income tax, Good news for taxpayers, CBDT exempts certain allowances, New Tax Regime, CBDT amends Rule 2BB, Section 115BACSection 115BAC(2) prescribes the list of deductions /exemptions which are not available for deduction while computing total income if a taxpayer opts for the concessional tax regime.

The Union Budget 2020 had introduced a new income tax regime under Section 115BAC of the Income Tax Act, giving an option to individual taxpayers and Hindu Undivided Families (HUFs) to pay income tax at lower rates. The new system is applicable for income earned between April 1, 2020 and March 31, 2021 (FY 2020-21), which relates to AY 2021-22.

Now, in a bid to give further relief to taxpayaers, the CBDT has amended Rule 2BB, notifying that a salaried employee who opts for the new income tax regime can claim certain exempt allowances.

It may be noted that Section 115BAC(2) of the Income Tax Act prescribes the list of deductions /exemptions which are not available for deduction while computing total income if a taxpayer opts for the concessional tax regime. However, the provision empowers the CBDT to prescribe certain exemptions available under Section 10 which can be availed by the employees.

“Now exercising such power, the Board has allowed exemption of allowances granted to employees to meet their cost of travel on tour, ordinary daily charges incurred by them due to absence from normal place of duty and expenses incurred by them on conveyance while performing office duties. Further, blind, deaf and dumb or orthopedically handicap employees can also claim ad-hoc exemption of transport allowance of Rs 3,200 per month while computing salaried income,” said Naveen Wadhwa, DGM, Taxmann.

Sudhakar Sethuraman, Partner, Deloitte India, said, ““Under the new tax regime individuals were not eligible to claim certain exemptions/ deductions, including exemption under Section 10(14). With amendment to Rule 2BB, now allowances paid on (i) Tour / Transfer, (ii) Daily travel (iii) Conveyance and (iv) Transport allowance for handicapped can be claimed exempt. This comes as a sigh of relief to such individuals as allowances granted to meet the cost of expenses incurred in performance of official duty will be tax free.”

Typically, benefit is restricted to Rs 38,400 (Rs 3,200 per month) in the case of transport allowance for handicapped. Based on the tax slab in which the individual falls, there will be proportionate tax benefit.

The CBDT, however, has further clarified that while determining value of perquisites, no exemption shall be available in respect of free food and non-alcoholic beverage provided by the employer through paid vouchers.

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