Know the key points about new tax regime – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/portfolio/personal-finance/know-the-key-points-about-new-tax-regime/article36916514.ece

WIDE

From this year onwards there is an option to choose between the old tax regime and a newer one

Getting ready to file your income tax return for the fiscal 2020-2021 (AY 21-22)? You must be aware that from this year onwards, there is an option to choose between the old tax regime and a newer one, which offers low tax rates but without the benefit of most deductions and exemptions.

There is no one size fits all solution to which regime will be more beneficial. The suitability for each individual is based on the exemptions and deductions that one is availing in the old tax regime.

Here are key points to note about the new tax regime before you make the choice.

Exemptions available

When opting for the new regime, needless to mention, one has to forego most of the deductions/exemptions including those under section 80C (maximum of ₹1.5 lakh) that can be claimed by investing in specified financial products, section 80D for health insurance premium paid, 80TTA for deduction on savings account interest earned from a bank; exemption for house rent allowance and leave travel allowance.

However, there are some categories still eligible for exemption under the new tax regime; subject to same conditions that have been applicable under the old tax regime.

The withdrawals from the long-term investment products- Employee Provident Fund (EPF) after five years, Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY) and from National Pension Scheme (NPS) up to 60 per cent of the proceeds falls under exemption category in the new tax regime as well. Further, employer contribution to the NPS/EPF account which are exempt in the hands of employees in the old tax regime will get the same benefit even in the newer tax regime. Even the interest from EPF (up to 9.5 per cent), PPF and SSY continue to be exempted in the lower tax structure. Ditto with interest earned on savings account from post-office.

Similarly, gratuity received (after five years of service) and the amount received under Voluntary Retirement Scheme (VRS) from employer on termination -subject to conditions – will not attract tax under both the tax structures. Leave encashment too is eligible for same tax break, irrespective of the tax structure you choose.

Responding to tax queries related to perquisites from the employer to perform official duties under the new tax regime, the government has clarified that any amount received as reimbursement for the cost of travel, daily expenses on transfer, tour allowance for travel for official purposes and conveyance allowance for meeting conveyance expenditure incurred in course of performing official duties will be tax-exempt. It has also clarified that the food coupons received by an employee who has opted for the new tax regime will be taxable in her/his hands.

Further, maturity proceeds from life insurance policies come under the exempt category.

As mentioned, the conditions applicable for the said categories to be eligible for exemption in the old tax regime will be applicable under the new tax regime as well. For example, exemption on gratuity received, which is limited to least of – a) last salary*number of years of service*(15/26) b) ₹20 lakh and c) actual gratuity received – under the old tax regime, will still continue to be applicable for gratuity payments to those opting for the new tax regime.

When to choose

If you are a salaried employee, you would have already received a communication from your HR department in early FY21 asking your preferred tax regime for the year. But you can definitely change your mind after that. The intimation given to the HR is only for the TDS purposes. Anybody – salaried or unsalaried – can opt for whatever tax structure they wish to while filing the return for FY21, which is due this year by December 31.

If you decide to go for the new tax regime and have income from business or profession, you also need to file Form 10IE – that requires digital signature or e-verification through the income tax portal, before filing your income tax return . If you don’t, the income will be taxable as if the new regime was not selected.

Option to switch

If you don’t have income from business or profession, you can choose a suitable regime every year. Resultantly, you can switch from one tax regime to another based on your income levels and the eligible exemptions and deductions.

For those having income from business or profession, the option of new tax regime, once selected will be applicable to the subsequent assessment years as well. But if he/she wants to withdraw from the scheme, they can do so only once. Thereafter, the person will never be eligible to exercise the new tax regime option until he/she ceases to have income from business or profession.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s