This blog talks about the new income tax regime with explained examples. Section 115 BAC discusses exemptions and deductions that are not claimable under the new law.
You can prefer to pay any income tax underneath an alternative new Income tax form 26s slab beginning in Financial Year 2020-21. Businesses and undivided Hindu families can benefit from the new taxation system, which has lower income taxes and fewer itemised deductions. We’ll go over the highlights of the new tax system and how you might profit from that too.
What is the proposed taxation system for the financial years 2020 and 2021?
Businesses and Household taxpayers will be able to pay taxable income at reduced premiums under a new administration introduced in Budget 2020 under paragraph 115BAC. The new taxation system will apply to revenue earned beginning April 1, 2020 (Financial Year 2020-21), corresponding to the calendar year 2021-22.
How Are The Future Income Taxes Going To Be
The following are the income taxes under the new and old tax regimes:
|New Rates||Existing rates|
|2.5 lakh to 5 lakh||5% income from new rates|
|5 Lakh to 7.5 lakh||10% income from new rates|
|7.5 Lakh to 10 Lakh||15% income from new rates|
The new tax system eliminates 70 itemised deductions. Before collecting reductions or exclusions, the tax paid under both new and old systems is as follows:
|Annual Income||Tax under old rate||Tax under new rate||Savings|
|Upto 7.5 Lakh||65k||39k||26k|
|Upto 10 Lakh||1.17Lakh||78k||39k|
According to the table figure, individuals who do not seek discounts or exclusions save money under the new tax system.
Exclusions And Deductions That Are No Longer Available Under The Tax Scheme
Below are some of the significant tax itemised deductions you will no longer be able to claim under the new regime:
- The itemised deductions, expert tax, and leisure exemption on salary under Section 80TTA/80TTB
- Mileage Reimbursement on Leave (LTA)
- HRA (House Rent Arrangement)
- Income support for minor children
- Payment for helpers
- subsidy for child’s schooling
- Other special benefits
- Income on a home mortgage for a home that is either inhabited or unoccupied (Section 24)
- Section 80C, 80D, 80E, and other exclusions in Chapter VI (excluding Section 80CCD(2) and Section 80JJAA)
- Any additional qualifications or perks are exempt or deducted.
- Earnings from a family retirement are deducted.
What Exclusions And Reductions Are Possible Under The New Tax Law?
You can get a tax breakage if you:
- Transportation expenses in the case of a disabled individual.
- Transportation payment received to cover transportation expenses involved in the job.
- Any remuneration paid to help defray the cost of a trip or relocation.
- Monthly stipend to cover common standard charges or expenses incurred due to his departure from his usual Custom duty station.
5.Section 80CCD(2) permits a deduction for a pension contribution to an NPS account.
- Increased worker cost reduction (Section 80JJA).
Is It Possible For Me To Pick Between The Future And Present Tax Regimes?
At the start of Financial Year 2020-21, an employed payer can pick the new taxation system and notify their employers. However, workers cannot modify their minds even during the financial year. However, they can change their opinions when submitting their federal return in July 2021.
The filing of taxes for Financial Year 2020-21 (The assessment Year 2021-22) is December 31, 2021.
If a worker does not elect the current taxation system at the start of the fiscal year, the business will continue to collect taxes (TDS) under the old regime. As a result, a salaried user can opt-in and out yearly. That signifies you can choose the new tax system one year and the traditional taxation system the following year.
When submitting a federal return, a non-salaried individual must select the new administration. Individuals are not required to announce or inform anyone of their decision throughout the year. Non-salaried individuals (those who earn money from a trade or business) cannot vote in and out of the new tax system every year. If a non-salaried person chooses out of the new tax system, they will not be allowed to pick in again during the foreseeable.
Learn more about Income Tax Slabs for 2021-2022
How Do I Decide On A New Tax System And Make A Tax Proposal
In terms of tax preparation, deciding on a taxation system at the start of the fiscal year is critical. A client must compare the current tax administration’s taxable income to the previous regime’s taxable income. The expenditures and TDS or progressive taxes due computations are made following the taxpayers’ money choice of the taxation system at the start of the year. In addition, if the person wishes to use the new taxation system, they must submit Form 10IE to the IRS before completing the report.
Case 1: In the case of tax outflows, the new system is preferable.
|Income||Amount||Old rate||New rate|
In the above example, the current tax structure is slightly favorable by र 1,851 for a revenue of र 12,50,000. Nevertheless, if you claim additional exemptions for medical insurance, NPS investments, student loans, and other expenses, the current tax system will save you money.
Case 2: In the case of tax outflows, the previous regime is preferable.
|Income||Amount||Old rate||New rate|
In Case 2, for a revenue of र 10 lakh, the current taxation system saves Rs 3,099.
Suppose a person claims more minor claims for tax benefits on medical insurance, NPS assets, and other tax-saving investment opportunities. In that case, the transitional government will favour those using income investment opportunities.
People in the र 5-10 lakh income group with fewer exclusion requests will also profit from the new system. Those individuals earning more than र 15 lakh per year, on the other hand, can take advantage of the current tax system and make income investments.
It’s crucial to remember that each person should estimate their taxable income, think about their income assets, and then pick an income system.
Underneath the new tax structure: https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1, there will be a decline in the value of your home.
In the event of an identity house, the new taxation system prevents you from deducting interest on a home mortgage. The former system’s exemption of र 2 lakh is no longer accessible under the tax reform law.
Additionally, you cannot deduct the net loss of र 2 lakh from your pay earnings.
You can claim a tax deduction for interest charged on a home loan if you have rented the home. Compared to the old taxation system, the new taxation system limits the deductible to the chargeable rent collected from the asset. Under the new rules, you can’t deduct a loss on a residence because of too much interest paid on the rental revenue. You also can’t carry over a loss from a home to a later year for predefined.
Underneath the new rules, there are no exemptions for business revenue.
Tax breaks and exclusions from business revenue are not permitted:
- Section 32 extra deduction
- Section 32AD Investing Deduction
- Section 33AB and 33ABA corporate deductions for specified industries
- Science research expenditures under section 35
- Section 35AD capital expenditures
- SEZ units are exempted under section 10AA.
Underneath the new paradigm will be indigestible fibre degradation and business losses. A person or Group cannot seek predefined of a start to bring lost revenue or undissolved capital in the case of commercial income. The discounts are no longer accessible under the new administration if they pertain to revoked discounts or exclusions.
The above blog is handy for anyone to understand the in-depth taxation system working for the upcoming financial years.
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- Process of Income Tax in India
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- ITR-3 Form for Year AY 2021-22