Friday, July 3, 2020

Deductions Allowed in New Tax Regime (Announced 26-Jun)

Section 115BAC was introduced in the Finance Act 2020, giving an option to individual and HUF assessees to opt for the lower tax rates as per the New Income Tax Regime.

Tax Rates as per New Tax Regime

Total IncomeRate of Tax
Upto Rs. 2,50,000Nil
From Rs. 2,50,000 to Rs. 5,00,0005 per cent
From 5,00,000 to Rs. 7,50,00010 per cent
From 7,50,000 to Rs. 10,00,00015 per cent
Rs. 10,00,000 to Rs. 12,50,00020 percent
Rs. 12,50,000 to R. 15,00,00025 per cent
Above Rs. 15,00,00030 per cent

Exemptions/Deductions Not Allowed

Under this regime, to compute the Total Income, the following exemptions and allowances as available in the old tax regime were not to be deducted.

a) Standard Deduction of Rs. 50,000/-
b) Deduction eligible up to Rs. 1,50,000 under section 80C for life insurance, PPF, ELSS, etc. 
c) NPS contribution as eligible up to Rs. 50,000 under section 80CCD(2)
d) House Rent Allowance (HRA)
e) Children Education Allowance
f) Conveyance Allowance
g) Leave Travel Allowance (LTA)
f) Professional Tax
g) Interest deduction in respect of income from house property
h) Any exemption or deduction for allowance or perquisite by whatever name called

Exemptions/Deductions Allowed

The government has issued Notification G.S.R. 415(E) dated 26-Jun-2020 by which the CBDT has allowed deduction with respect to the following:

a) Travelling Allowance: any allowance granted to meet the cost of travel on tour or on transfer;

b) Daily Allowance: any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;

c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit: Provided that free conveyance is not provided by the employer;

d) Transport allowance granted to an employee, who is blind or deaf and dumb or orthopedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty.


- This exemption is applicable to the whole of India and is restricted to Rs. 3,200 p.m.

- Free food and non-alcoholic beverages provided by the employer even during working hours at office or business premises shall be fully taxable in the hands of those employees who have opted for the new tax regime. Hence this benefit is only available to assessees opting for the old regime.