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| Capitalstars Investment Advisor |
An individual taxpayer opting for the new tax regime would have to forgo 70 tax exemptions and deductions. These include deductions under section 80C for a maximum of Rs 1.5 lakh claimed by investing in specified financial products, section 80D for health insurance premium paid, 80TTA for a deduction on savings account interest earned from a bank or post office, etc.
However, there are certain tax-exemptions that have been left unchanged in the Finance Bill, 2020.
Given below is the list of incomes that are exempted from income tax under the new tax regime as proposed in Budget 2020:
Interest received on post office savings account balances
The interest received on post office savings account balance is exempted under section 10(15)(i) of the Income-tax Act up to a certain limit. Interest received from post office savings account was exempted from tax via a notification dated June 3, 2011, for up to Rs 3,500 in case of individual accounts and Rs 7,000 in case of joint accounts per financial year.
Chartered Accountant, Naveen Wadhwa says, "In the optional new tax structure, individual will not be able to avail deduction under section 80TTA, i.e., deduction on interest received from savings account held with bank and post office. However, taxpayers having post office savings account can still avail exemption on post office savings account interest up to the specified extent."
The exemption on post office savings account can be availed before arriving at the final figure of gross taxable income. Wadhwa says, "To avail this exemption, a taxpayer would be required to deduct the interest received from post office savings account (as per the savings account held by them) from income under the head other sources before arriving at his/her gross taxable income."
Gratuity received from your employer
If you receive gratuity from your employer, then the amount received by you will be exempt from tax as per specified limits. An employee is eligible to receive gratuity if he/she has worked for more than five years in an organization.
According to income tax laws, gratuity is tax-exempt up to Rs 20 lakh in a lifetime for non-government employees. For government employees, all gratuity received is tax-exempt, irrespective of the amount received by them.
"In FY 2020-21, if an individual receives gratuity, then maximum tax-exempt gratuity will be Rs 20 lakh in his/her lifetime for non-government employees. Gratuity received due to death of an employee will remain tax-exempt in the new tax structure as well without any maximum limit," says Wadhwa.
Amount received on maturity of life insurance
The tax benefit on paying life insurance premiums to lower the tax liability under section 80C is not available in the new income tax slab structure. "However, maturity proceeds received from a life insurance company continues to be exempted from tax under section 10(10D) in the new tax regime," says Wadhwa.
Employer's contribution to your EPF/NPS account
As per the Budget proposals, from FY 2020-21, contributions made by the employer to the employee's EPF, NPS and/or superannuation account will be exempted from tax provided the annual contribution to all the accounts (with reference to the employee) does not exceed Rs 7.5 lakh in a financial year.
According to current income tax laws, an employer can contribute an amount equal to 12 percent of the employee's basic monthly salary to his/her EPF account. Similarly, an employer can contribute an amount equal to 10 percent of the employee's basic salary to the Tier-I account of NPS. In a superannuation account, an employer can contribute a maximum of Rs 1.5 lakh exempted from tax in a financial year.
Wadhwa says, "The budget has proposed to restrict the tax-exempt superannuation, NPS and EPF account contribution by the employer to a maximum of Rs 7.5 lakh in a financial year. Further, the budget proposal states that any interest or gains earned from the excess contribution will also be taxable in the hands of an employee."
The restriction on the amount of contribution to EPF and NPS account which will be tax-exempt is likely to impact those employees whose basic salary is more than Rs 60 lakh in year. To explain this with an example, for someone earning Rs 80 lakh per annum as basic salary will cross the threshold level of Rs 7.5 lakh towards NPS contribution.