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fipro-finacial-advisor · 2 years

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MAKE THE WISE DECISION BY LEARNING THE DIFFERENCE BETWEEN NEW & OLD TAX REGIME IN INDIA

Effective from April 1, 2020 in India, an individual salaried taxpayer has been given the option to continue with the old tax regime and avail deductions/tax exemptions such section 80C, 80D deductions, HRA, LTA tax exemptions etc. or to opt for the new tax regime and forgoing approximately 70 deductions and tax exemptions. The new tax regime offers lower tax rates as compared to the old tax regime.

The new tax regime is different in two ways from the old one. Firstly, it has more slabs with lower tax rates. And secondly, all the major exemptions and deductions available to taxpayers in the existing (old) tax regime are not allowed if the new tax regime is chosen.

Choosing an old or new tax regime is completely your own decision and it will depend on your income structure, available deductions, and circumstances. While deciding to choose between the old & new tax regimes, one should look at the pros and cons of both regimes in order to make a wise decision.

To avoid the cumbersome procedure of choosing which tax regime is best suited, a financial planner may offer specialized services in tax planning and asset allocation. A Certified Financial Planner also helps clients in risk management; retirement and estate planning to meet their current money needs and long-term financial goals. They use a structured process to guide clients toward careful financial decisions to maximize their potential for meeting life goals. Using their knowledge of personal finance, taxes, budgeting, and investments—combined with analytical tools and data that can illustrate potential outcomes—financial planners make recommendations, which help clients make informed decisions.

Under both income tax regimes, tax rebate of up to Rs 12,500 is available to an individual taxpayer under section 87A of the Income-tax Act, 1961. This would effectively mean that individuals having net taxable income of up to Rs 5 lakh would not pay any income tax irrespective of the tax regime chose by them.

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

Leave travel allowance exemption which is currently available to salaried employees twice in a block of four years.

House rent allowance normally paid to salaried individuals as part of salary.

Standard deduction of ₹50,000 currently available to salaried tax payers.

Deduction available under section 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 the taxpayers.

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

Tax benefit u/s 24 on interest paid on housing loan taken for a self-occupied or vacant house property.

Deduction of ₹15000 allowed from family pension under clause (iia) of section 57.

The deduction claimed for medical insurance premium under section 80D will also not be claimable.

Tax benefits for disability under sections 80DD and 80DDB will not be claimable.

Tax break on interest paid on education loan will not be claimable-section 80E.

Tax break on donations to charitable institutions available under section 80G will not be available.

All deductions under chapter VIA (like 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 by those opting for the new tax regime.

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

Income level (INR)Old tax rate regime*New tax rate regime Up to 2,50,0000%0% 2,50,001 to 5,00,0005%5% 5,00,001 to 7,50,00020%10% 7,50,001 to 10,00,00020%15% 10,00,001 to 12,50,00030%20% 12,50,001 to 15,00,00030%25% Above 15,00,00030%30%

To ensure you’re making the right decision, thorough learning about both the tax regimes is as paramount as staying updated about new amendments proposed by the government. A financial consultant in Bangalore will help you decide what’s best for you, making sure you make the right decision.

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taxaaram · 4 years

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Income Tax Planning and Compliances/Online Compliances - Taxaaram

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When is the New Personal Tax Regime u/s 115BAC Beneficial? An In-depth Break-Even Point Analysis

1. The new FY 2020–21 corresponding to the AY 2021–22, has already started w.e.f 1.4.2020. So, it is very essential on our part to be equipped and ready with an informed, wise and timely decision concerning the opting or not of the new personal tax regime u/s 115BAC of the Income Tax Act, 1961.

A lot has already been written about the new personal tax regime u/s 115BAC of the Income Tax Act, 1961, but the silver-lining of this article is its “Break-Even Point Analysis”, between the New Personal Tax Regime of Reduced Tax Rates with No Deductions and the Old Personal Tax Regime with Higher Tax Rates with Deductions, in terms of Specified Deductions, at all levels of incomes of Individuals & HUFs, which has been very comprehensively discussed in para nos. 1.5 onwards of this piece of writing. GET FULL INFORMATION HERE

However, before that, some basic and fundamental insights concerning this new section 115BAC are also being deliberated upon as under:

1.1 Incorporation of New Personal Taxation Regime of Reduced Tax Rates with No Deductions in Case of Individuals & HUFs (applicable w.e.f. AY 2021–22).

In line with the new regime of reduced corporate tax rates, introduced by the Taxation Laws (Amendment) Act 2019, the Finance Act 2020, has inserted a new section 115BAC, providing for a new personal taxation regime in the cases of individuals and HUFs (hereinafter referred to as ‘assessees’), wherein the ‘assessees’ have been given the option to either continue with the existing personal tax rates with availment of full specified deductions, or to opt for the new regime of reduced personal tax rates with restrictions on approximately 70% of the specified deductions, currently available to them under different chapters and sections.

1.2 New Personal Tax Slabs

The newly inserted reduced personal tax rates in the case of individuals & HUFs u/s 115BAC, in the Finance Act 2020, applicable w.e.f. AY 2021–22, are as under:

*Surcharge and cess shall be continued to be levied at the existing rates.

1.3 ‘Specified Deductions’ Not Allowed under New Personal Tax Regime of Reduced Taxes:

In order to avail the benefit of reduced tax rates u/s 115BAC, an individual/HUF assessee has to forgo the ‘specified deductions’ available to him under various chapters and sections of the Income Tax Act.

So, there is a big catch to this prima-facie ‘assessee-beneficial’ regime, and that is the restriction/denial of the most common and recurring deductions like deductions u/s 80C, 80CCD, 80D, HRA, LTA, Standard Deduction, interest on self-occupied/let out property, to name a few.

To be more specific, an individual or HUF opting for the new taxation regime under the newly inserted section 115BAC of the Act shall not be entitled to the following exemptions/ deductions (hereinafter referred to as the “specified deductions”):

Leave travel concession as contained in clause (5) of section 10;

House rent allowance as contained in clause (13A) of section 10;

Some of the allowance as contained in clause (14) of section 10;

Allowances to MPs/MLAs as contained in clause (17) of section 10;

Allowance for income of minor as contained in clause (32) of section 10;

Exemption for SEZ unit contained in section 10AA;

Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in section 16;

Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);

Additional deprecation under clause (iia) of sub-section (1) of section 32;

Deductions under section 32AD, 33AB, 33ABA;

Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;

Deduction under section 35AD or section 35CCC;

Deduction from family pension under clause (iia) of section 57;

Any deduction under chapter VIA (like 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). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.

For ready reference and benefit of the worthy readers, the maximum permissible amounts of the above mentioned “specified deductions”, which are available to an individual/HUF assessee, under various sections, and which are required to be forgone, in order to avail the benefit of reduced taxation u/s 115BAC, have been tabulated as under:

S. No.

Deduction

Remarks

Available to

1 Leave Travel Concession u/s 10(5)

The value of any travel concession or assistance received or due.

Salaried Individual

2 House Rent Allowance u/s 10(13A)

Least of: Salaried Individual

a. Actual HRA received;

b. 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or

c. Actual rent paid less 10% of basic salary + DA

3 Other Allowances u/s 10(14)

Actual amount of such Allowance received

Salaried Individual

4 Allowances to MPs/MLAs u/s 10(17)

Actual amount of such Allowance received

Salaried Individual

5 Allowance for income of minor u/s 10(32)

Rs.1,500/- per child

Individual

6 Standard Deduction u/s 16

Rs.50,000/-

Salaried Individual

7 Interest u/s 24 in respect of self-occupied or vacant property

Rs.200000/-

Individual/ HUF

8 Additional Depreciation u/s 32(1)(iia)

Allowed to eligible assessee: 20% of the actual cost of Plant and Machinery (35% in case of Notified Backward Areas)

Individual/ HUF

9 Deduction from family pension u/s 57(iia)

Least of: One-third of such income or Rs.15,000/-

Individual

10 Any deduction under chapter VI-A (deduction u/s 80CCD(2) and 80JJAA are allowable in both the Regimes):-

a. 80C, 80CCC, 80CCD(1): For investments in specified schemes

Rs.1,50,000/-

Individual/ HUF

b. 80CCD(1B): Deduction for the deposit under NPS

Rs.50,000/-

Individual

c. 80D: Amount invested in Health Insurance

Rs.25000/- for self, spouse and dependent children;

Individual/HUF

Rs.25,000/- for parents (Rs.50,000/- if parents are Senior citizen/ Very Senior Citizen);

Rs.5,000/- for preventive health check-up of self, spouse, dependent children, father and mother; and

Rs.50,000/- for Medical Expenditures on the health of a super senior citizen if Medi-claim insurance is not paid on the health of such person.

d. Section 80DD: Expenditure incurred for the medical treatment of a dependent

Rs.75,000 (Rs.1,25,000 in case of severe disability)

Individual/ HUF

e. Section 80DDB: Expenditure incurred for medical treatment of specified diseases

Up to Rs.40,000/- and Rs.1,00,000/- for Senior/ Very Senior Citizen

Individual

f. Section 80E: Interest paid on Educational Loan

The amount of interest paid during initial year and 7 immediately succeeding assessment years

Individual

g. Section 80G: Deduction for donations to certain funds, charitable institutions, etc.

Deduction up to 100%/50% of the aggregate amount of donation

Individual/ HUF

h. Section 80GG: Rent paid for residential accommodation

Least of the following:

Individuals not receiving HRA

a) Rent paid in excess of 10% of total income;

b) 25% of the Total Income; or

c) Rs.5,000/- per month.

i. Section 80QQB: Royalty income of books

Least of the following:

Individual

a) In case of Lump sum payment — maximum of Rs.3,00,000/-

b) In other cases — amount of such income subject to maximum of 15% of value of books sold during the previous year.

j. Section 80RRB: Royalty of patents

Rs.3,00,000/-

Individual

k. Section 80TTA: Interest on Savings Bank accounts

Rs.10,000/-

Individual/ HUF

l. Section 80 TTB: Interest on deposits with Post Offices, Banks, Co-operative banks

Rs.50,000/-

Senior and Super Senior Resident Individuals

m. Section 80U: Persons with Disability

Rs.75,000/- (Rs.1,25,000/- in case of severe disability)

Individual

11 Exemption for SEZ unit u/s 10AA

Deduction to eligible persons as per the provisions of said section.

Individual/

HUF

12 Deductions u/s 32AD, 33AB, 33ABA

Deduction to eligible persons as per the provisions of said section.

Individual/ HUF

13 Deduction for donation or expenditure on scientific research u/s 35(1)(ii)/(iia)/(iii) or sec 35(2AA)

Deduction to eligible persons as per the provisions of said section.

Individual/ HUF

14 Deduction u/s 35AD or section 35CCC

Deduction to eligible persons as per the provisions of said section.

Individual/ HUF

Get Tax Planning and Compliances Services at www.taxaaram.com

#Tax Planning and Compliances #Online Compliances

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kylernadr280-blog · 6 years

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