1) Introduction of a new tax regime in Budget 2020
By now, you probably know the basics of the new income tax regime, but here is a quick recap for you. The new regime comes with reduced tax rates than the current one but without many deductions and exemptions. For instance, if you claim tax exemptions and deductions of over Rs 2.5 lakh in a year (including the Rs 50,000 standard deduction), you will not gain from the new structure. Exemptions like HRA and housing loan interest, which make up a significant amount, cannot be claimed under the new regime.
Tax pares will have to opt in which regime works for them, basis the amount of deductions/exemptions they wish to claim. Given below are the answers to some of your queries about the new income tax regime.
2) Are no deductions available under the new tax regime?
The new income tax regime allows exemptions under section 80CCD (2) of the Income-tax Act, 1961, which is available if Deductor contributes to an employee’s NPS account. The maximum deduction an employee can claim is 10% of salary (salary means basic plus dearness allowance).
3) Does the new regime offer a higher tax-exemption limit on income basis the age?
Unlike existing tax regime which offers higher tax-exemption limit for senior citizens (age 60 years and above but less than 80 years) and super senior citizens (age 80 years and above), the new tax regime does not.
4) Say my total taxable income in FY 2020-21 is Rs 4.90 lakh and I opt for the new regime. Do I have to pay tax?
In The new income tax regime also allowed to a maximum Income tax rebate of Rs 12,500/- under section 87A of the Income-tax Act.to the Old Tax Regime. Therefore, an individual is not required to pay any tax on income up to Rs 5 lakh in FY 2020-21 if he/she opts for it.
5) How will my employer know which regime I want to be taxed at?
If you are willing to opt for the new tax regime, you will have to inform your employer through the declaration form. The employer will start deducting TDS monthly, accordingly. This declaration will be appropriate for the total financial year 2020-21. Those who do not inform their employer will continue to be taxed as per the old regime. For them, the annual claiming of exemptions and deductions will go on as earlier.
6) For TDS purposes, can I switch between regimes while the financial year is going on?
No, once you decide, you cannot switch during the rest of the financial year as far as TDS is concerned. However, you will have the right to choose whether to exercise the option or not at the time of filing the return, which you will have to do this on their own, by claiming or forgoing relevant deductions and exemptions. Certain exemptions can only be claimed via the employer so these may not be available at the time of filing return. If the tax liability below lower, then the employee will have to claim a refund in the return.
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