Speech by Nirmala Sitharaman on Exemptions and Deductions allowed by CBDT under new Income Tax regime for FY 2020-21
On February 1, 2020,
through Budget Speech Nirmala Sitharaman informed about exemption and deductions covered under new Income tax regime.
In the new tax regime, substantial tax benefit will accrue to a taxpayer depending upon exemptions and deductions claimed by him. The new tax regime shall not be compulsory for the taxpayers i.e. it will remain optional. An individual may choose to continue to pay tax in the old regime if they are currently availing more deductions & exemption under the Income Tax Act.
In order to simplify income
tax system, all the exemptions and deductions which got incorporated in the
income tax legislation over the past several decades have been reviewed and
found that currently more than one hundred exemptions and deductions of
different nature are provided in the Income-tax Act and around 70 of them have
been removed in the new simplified regime
Let us have a look on some of the exemption and deduction which are still allowed under new Tax regime for the FY 2020-21 (AY 2021-22)
i. Employee Provident Fund (EPF) withdrawal-
ii. Interest accrued or maturity amount received from the Public Provident Fund (PPF)
iii. Amount withdrawal from National Pension Scheme (NPS)
iv.Maturity proceed or Surrender value from Life Insurance plan.
v. Interest accrued or maturity amount received from the Sukanya Samridhi Scheme.
vi. Employee receiving value of any gift, or voucher, or token in lieu of which such gift from employer up to Rs. 5000 is still remain exempt from tax as per Section 17(2)(viii) of the Income Tax Act, 1961 read with Rule 3(7)(iv) of the Income Tax Rules, 1962.
vii. As per memorandum to the finance Bill 2020, it is stated that the amount reimbursed for meeting the expenses in performance of duties of an office; cost of travel on tour or on transfer, ordinary daily charges incurred by an employee on account of absence from his normal place of duty will be tax-exempt.
However, free food and nonalcoholic beverage provided by such employer through paid voucher will be taxable as per Notification No. 38/2020/F. No.370142/15/2020-TPL dated June 26, 2020 issued by CBDT. The removal of this exemption was in fact earlier proposed in memorandum by amending Rule 3
viii. Interest received from post office saving account balance up to Rs.3500 annually and Rs 7000 in case of joint account per financial year.
ix. Scholarship granted to meet education costs
x. Employee receiving gratuity from employer up to Rs. 20 Lakh after rendering 5 year of continuous service.
xi. Employee receiving leave encashment at the time of resignation or retirement up to 3 Lakh is tax exempt, in case of non-government employee.
xii. One-third of commuted pension in case gratuity received or half of commuted pension in case gratuity not received by employee is still exempted from tax.
xiii.Employee receiving monetary benefit from employer by opting Voluntary Retirement Schemne (VRS) for maximum up to Rs.5 Lakh
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