Six income tax slabs in, 70 exemptions out: Impact on taxpayers

The Budget 2020 has made the tax structure more complicated by adding three tax slabs. The removal of tax exemptions and deductions certainly makes compliance less tedious, but avid tax planners who maximised their tax deductions will probably pay more tax under the new tax regime. The budget has tried to put more money in the hands of taxpayers by curtailing the incentives to save.

Even the claim that taxpayers will save tax under the new regime raises questions. Finance Minister Nirmala Sitharaman said in her speech that a taxpayer earning Rs 15 lakh will save Rs 78,000 in tax under the new regime. “A person earning Rs 15 lakh in a year and not availing any deductions and exemptions will pay only Rs 1.95 lakh tax as compared to Rs 2.73 lakh in the old regime,” said the Finance Minister.

But this is without any deductions under various sections of Chapter VI-A. If the taxpayer claims deductions for Rs 2.5 lakh (Rs 50,000 standard deduction, Rs 1.5 lakh under 80C and Rs 50,000 contribution to NPS), his tax will not change. If he also claims house rent allowance (HRA) exemption or home loan interest deduction of Rs 2 lakh, his tax in the old regime would be lower by Rs 46,800 (see graphics).

Salaried taxpayers who opt for the new regime will have to forgo the standard deduction as well as the exemptions under chapter VI-A, including the HRA, investments under Section 80C, medical insurance premium and even the leave travel allowance which is tax free if claimed once in a block of two years.

What’s out
Some of the 70 exemptions and deductions you won’t get in new regime.

  • Section 80C investments
  • House rent allowance
  • Housing loan interest
  • Leave travel allowance
  • Medical insurance premium
  • Standard deduction
  • Savings bank interest
  • Education loan interest

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