Deductions Allowed Below the New Revenue Tax Regime

A brand new and non-compulsory earnings tax regime was introduced in Union Price range 2020. Below this new regime, the earnings tax slab charges have been considerably lowered. Nonetheless, the concessional slab charges come at the price of conventional earnings tax deductions that may be claimed beneath the outdated (present) tax regime. As issues stand proper now, each these tax regimes will co-exist in AY 2024-25 (FY 2020-21). So, let’s perceive the brand new slab charges and the relevant deductions on this article, to be able to make an knowledgeable determination and choose the appropriate tax regime for you.

New Revenue Tax Slab Charges

A person or a Hindu Undivided Household (HUF) has now has the choice to pay earnings tax as per the next new earnings tax slab charges for FY 2023-24: 

Whereas the brand new regime affords decrease earnings tax charges, the next circumstances needs to be met with a view to be eligible for fee of earnings tax as per the brand new (concessional) earnings tax slab charges: 

• The overall earnings of the person or HUF mustn’t embody enterprise earnings.
• The overall earnings of the person or the HUF needs to be calculated with out availing the notified exemptions and deductions allowed beneath totally different sections of the Revenue Tax Act. The listing of deductions which are now not allowed beneath the brand new taxation regime has been mentioned within the subsequent part.
• The overall earnings needs to be calculated with out setting off any losses, together with each carry ahead and depreciation-related losses. Furthermore, capital losses from sale of home property can’t be deducted from the entire earnings.
• The overall earnings needs to be calculated with none exemption/deduction for allowances or perquisites beneath every other legislation in power on the time.

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Deductions Not Allowed Below the New Revenue Tax Regime

Following is an inventory of key tax deductions that may be claimed beneath the present tax regime however can’t be claimed beneath the brand new earnings tax regime:

• Deductions beneath Chapter VI-A, similar to these beneath Sections 80C; 80CCC; worker contribution u/s 80CCD; 80D; 80DD; 80DDB; 80E; 80EEA besides these beneath 80CCD(2) and 80JJAA;
• Curiosity incurred on dwelling mortgage (Part 24b);
• Go away journey concession; 
• Home hire allowance ;
• Allowance for earnings of minor;
• Customary deduction; 
• Deduction for leisure allowance;
• SEZ unit exemption;
• Deductions beneath sections 32AD, 33AB, 33ABA;
• Deduction for donation or bills in scientific analysis;
• Deductions beneath sections 35AD and 35CCC;
• Deduction from household pension.

Deductions Allowed Below the New Revenue Tax Regime

Though most of tax deductions and exemptions can’t be claimed beneath the brand new tax regime, the next deductions are allowed beneath present guidelines:

• The employer’s contribution to notified pension account beneath Part 80CCD (2) of the Revenue Tax Act. Nonetheless, this deduction can not exceed 10% of the worker’s earlier yr’s wage. 
• As much as 30% of extra worker value as per Part 80JJAA of Revenue Tax Act.
• Transport allowance given to differently-abled staff (divyang) to commute between the place of residence and the place of business.
• Conveyance allowance given for efficiency of workplace duties.
• Any allowance given to satisfy the price of tour/ journey.
• Day by day allowance given to an worker to satisfy the abnormal day by day prices when he/she has to work at a spot totally different from the conventional place of obligation.

Which is best – Outdated or New Revenue Tax Regime?

Whereas the brand new regime comes with decrease earnings tax slab charges, it takes away most of the tax advantages. As an example, you can’t declare a number of the main tax deductions accessible beneath Chapter VI-A of the Revenue Tax Act. Furthermore, it’s a must to let go of the usual deduction which beneath the outdated tax regime could possibly be availed by any salaried particular person or pensioner regardless of their annual earnings. 

Thus, the reply to which is best relies on two elements, specifically – your complete annual earnings and the deductions and exemptions you’ll be able to declare beneath the outdated tax regime. In case your complete tax outgo is lesser beneath the outdated (present) tax regime, file ITR as per the outdated slab charges. In any other case, you’ll be able to comply with the brand new tax regime. 

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