The finance minister has introduced new tax regime in the Union Budget 2020 with reduced tax rates for those who are ready to forgo 70 tax – exemptions and deductions under a simplified tax regime.
The new tax system introduced by the government is absolutely optional and cannot be enforced on anyone in anyway. It co exist with the old tax system with the three slabs and various exemptions and deductions.
The new tax system have come into effect from April 1, 2020.
The new tax system is as follows :
|TOTAL INCOME (Rs)||INCOME TAX RATE|
|UP TO 2.5 lakh||Nil|
|From 2.5 lakhs to 5 lakhs||5 %|
|From 5 lakhs to 7.5 lakhs||10 %|
|From 7.5 lakhs to 10 lakhs||15 %|
|From 10 lakhs to 12.5 lakhs||20 %|
|From 12.5 lakhs to 15 lakhs||25 %|
|Above 15 lakhs||30 %|
A tax rebate of Rs. 12,500 is available to individuals with a net taxable income up to Rs. 5 lakhs under section 87A in both , the new and the old tax regime, which means that the individuals with the net taxable income of up to Rs. 5 lakhs will continue to pay zero tax in both tax system.
The tax calculated under the new tax system will be subject to Health and education cess of 4%.
Individuals who choose to opt for the new tax system have to give up certain exemptions and deductions.
The exemptions and deductions are as follows :
- House and rent allowance (HRA)
- Leave and travel allowance (LTA)
- Daily expenses in the course of employment
- Relocation allowance
- Helper allowance
- Children education allowance
- Other special allowance [ section 10(14)]
- Standard deduction
- Professional tax
- Interest on housing loan ( section 24 )
- Chapter VI – A deduction