Income Taxpayers in India: Advantages and Disadvantages of New and Old Income Tax Regime

“The CBDT circular issued on April 13, 2020 has directed all employers to obtain a declaration from the employees, if they wish to opt for the new tax regime. However, employees will still have the right to choose between tax regimes when filing returns. Akash Kumar, Director and Co-Founder, Fincorpit Consulting Pvt Ltd said, “Individuals opting for the new regime have to forgo certain exemptions and deductions that were available with the old regime.

List of key exemptions and deductions that taxpayers will have to omit if they opt for the new regime.

(i) Leave Travel Allowance Waiver which is currently available to salaried employees twice in a block of four years

(ii) House Rent Allowance ordinarily paid to salaried persons as part of salary.

(iii). standard deduction of 50,000 currently available for salaried taxpayers

(iv) The deduction available under sections 80TTA/80TTB i.e. deduction in respect of interest on deposits in savings account) and 80TTB (deduction in respect of interest on deposits to senior citizens) will not be available to taxpayers.

(v) section 16. Deduction for entertainment allowance (for government employees) and employment/professional tax vested in

(vi) Tax benefit under section 24 on interest paid on housing loan taken for self-occupied or vacant house property.

(vii) deduction of 15000 allowed from family pension under clause (iia) of section 57.

viii) Deduction claimed for medical insurance premium under section 80D will also not be claimable

(ix) Tax benefits for disability under section 80DD and 80DDB will not be claimed

(x) Tax exemption on interest paid on education loan will not be claimable – section 80E

(xi) Tax exemption will not be available on donations to charitable institutions available under section 80G.

xii) All deductions under Chapter VIA (eg Section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E,80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80 – IB, 80-IBA, etc. will not be claimable for those opting for the new tax regime.

However, deduction under sub-section (2) of section 80CCD (employer’s contribution to employee’s account in notified pension scheme-mostly NPS) and section 80JJAA (for new employment) can still be claimed. Is.

Akash Kumar also listed some important pros and cons of choosing the new or old income tax regime.

professionals

Old Rule:

1) Incentive to inculcate the habit of saving.

2) Investment servings as a source of passive income.

3) Helps to beat inflation through investment.

the new order:

1) Lower tax rates and less compliance.

2) Greater disposable income.

3) Increase in liquidity.

4) Greater flexibility in building purpose-based investment portfolios.

Shortcoming

Old system:

1) The lock-in period of an investment affects the liquidity.

2) Less disposable income.

3) Limited options for tax saving investments.

4) The hassle of maintaining proof of deductions claimed.

the new order:

1) Non-availability of tax deduction.

2) Less flexibility in choosing new arrangements for those with business income.

3) Lack of automatic mechanism to inculcate the habit of saving.

to know which tax regime Better yet, the taxpayer should calculate and compare the income tax liability for both the arrangements and choose the one that is best suited for them.