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Tax calculator for Financial Year 2020-21 – Current Tax Regime vs Optional New Tax Regime

The key features of the optional new provisions (Section 115BAC of the Act) are summarised below:

  • The optional new regime was introduced by the Finance Act, 2020 for individuals and HUF with modified tax slabs and rates. On satisfaction of certain prescribed conditions, an individual or HUF may opt to compute tax in respect of total income (without considering the prescribed exemptions/deductions) as per the new slab rates instead of the existing tax regime.
  • The choice of the optional new regime, albeit, comes with a few prerequisite conditions such as the following:

Foregoing the prescribed exemptions:

(i) Leave travel concession (section 10(5) of the Act)

(ii) House rent allowance (section 10(13A) of the Act)

(iii) Allowances prescribed under section (section 10(14) of the Act) of the Act, which illustratively includes children education allowance, children hostel allowance, etc. However, the following list of allowances  continue to be exempted, subject to conditions and notification in Rules:

(a)    Transport allowance granted to specified employee to meet expenditure for the purpose of commuting between place of residence and place of duty

(b)    Conveyance allowance granted to meet the expenditure on conveyance in performance of duties of an office

(c)    Any allowance granted to meet the cost of travel on tour or on transfer

(d)    Daily allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty

(iv) Allowance for income of minor (section 10(32) of the Act);

(v) Exemption such as towards free food and beverage through vouchers  provided to the employee.

Foregoing prescribed deductions:

(i) Standard deduction, deduction for entertainment allowance and employment/professional tax (section 16 of the Act)

(ii) Interest under section 24 of the Act in respect of self-occupied or vacant property referred to in section 23(2) of the Act

(iii) Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law

(iv) Deduction from family pension (section 57(iia) of the Act)

(v) Specified deductions under chapter VI-A of the Act (such as section 80C, section 80D, Section 80G) except deduction on account of employer’s contribution toward new pension scheme (section 80CCD(2) of the Act)

  • The optional new regime (subject to the above prescribed conditions and compliances) can be exercised every year if the individual or HUF does not have business income. In case of individual or HUF having business income, option once exercised would be applicable for all subsequent years (with a one-time option to change), except where such person ceases to have any business income.