If you are an individual taxpayer who wants to opt for the new tax regime announced in the Union Budget this year, you will have to forgo 70 tax exemptions and deductions. These will include deductions under Section 80C where you can claim a tax deduction of up to Rs 1.5 lakh, Section 80D that you use for getting tax deduction for health insurance premium and 80TTA that gave you tax deductions on the interest earned from your bank/post office savings account.
However, there are still various tax exemptions that have been left unchanged in the Finance Bill, 2020. Here is the list of incomes that are exempted from income tax under the new tax regime.
Your employer’s contribution to your EPF/NPS
Under the new tax regime, contributions made by an employer to an employee’s Employee Provident Fund (EPF), National Pension Scheme (NPS) and/or superannuation accounts will be exempted from tax. However, the condition is that the annual contribution to all of these accounts of an employee should not exceed Rs. 7.5 lakh in a financial year. This exemption is applicable from Financial Year 2020-21.
According to present tax laws, employer contribution to an employee’s EPF account can be up to 12% of the employee’s basic monthly salary. In case of the NPS Tier-I account, an employer can contribute up to 10% of the employee’s basic salary. For a superannuation account, an employer’s contributions of up to Rs. 1.5 lakh are exempted from tax in a financial year. So, the new tax regime actually restricts the tax exemption for employer’s contribution to all of these accounts.
The budget also proposes to tax gains from such contribution. The new tax laws state that any interest or gains earned from the excess contribution will be taxable in the hands of an employee. However, these restrictions will affect only those who have basic salary that is higher than Rs. 60 lakh in a year. For instance, an individual earning a basic salary of Rs. 80 lakh per year will need to pay tax as the employee contribution will cross the threshold level of Rs. 7.5 lakh.
Note that your contribution to the NPS account has no tax benefit under the new tax regime. Under the old tax regime, you could get a tax-break of Rs. 1.5 lakh under section 80CCD (1) and an additional Rs 50,000 under section 80CCD (1B) for your contribution to the NPS account.
The interest received from your EPF account will remain exempted from tax even under the new tax regime. However, the interest should not exceed 9.5% per annum.
Payments from NPS account
The maturity amount received from your NPS account will remain tax-free under the new tax regime. According to the present tax rules, up to 60% of the accumulated corpus in your Tier-I NPS account can be withdrawn tax-free on maturity. The remaining 40% has to be mandatorily used for buying annuity plans. Also, any partial withdrawals made from the Tier-I NPS account will continue to remain tax-exempt under the new tax regime.
According to present tax laws, an individual can withdraw up to 25% of his/her own contribution from the NPS account. This will be exempted from tax.
Income earned from Public Provident Fund (PPF)
Even though you cannot avail tax benefit under section 80C for the contribution made to your PPF account, any interest accrued or maturity amount received from your PPF account will remain tax exempted under the new tax regime too.
Payment from Voluntary Retirement Scheme
Any monetary benefit that you might receive at the time of taking voluntary retirement is exempted from tax under the new tax regime. A maximum of Rs 5 lakhs will be exempt from tax.
Income earned from Sukanya Samriddhi Yojana
If you invest in Sukanya Samriddhi Yojana for your girl child, the interest earned from your account will remain exempted under the new tax regime. Also, the payment proceeds received from your account will be exempted from tax. Note that investment that you make will not get any tax-breaks under section 80C in the new tax regime.
Interest earned from post office savings account
Even though you cannot avail deduction under section 80TTA for interest received from savings account. You could avail exemption on post office savings account interest under section 10(15)(i) of the Income-tax Act, 1961. As per this section, interest earned on post office savings account will be exempted from tax up to a certain limit. The limit is up to Rs. 3,500 for individual accounts and Rs. 7,000 for joint accounts. These limits are for a financial year.
To avail this tax exemption, you need to deduct the interest earned on your post office savings account from your ‘income from other sources’. You will then get your taxable income.
If you get gratuity from your employer, it will be exempt from tax as per specified limits even under the new tax regime. You are eligible to receive gratuity if you have worked for more than five years in an organisation. According to the present tax laws, gratuity of up to Rs. 20 lakhs is exempt from tax for non-government employees. For government employees, all gratuity received is tax-exempt.
Life insurance maturity amount
While you can’t claim tax deduction for the premium paid for your life insurance policy under the new tax regime, the maturity proceeds received from your life insurance policy will remain tax exempt.
At present, food coupons of up to of Rs. 50 per meal for 2 meals a day are exempt from tax. The Budget 20-21 states, “It is also proposed to amend rule 3 of the Rules subsequently, so as to remove exemption in respect of free food and beverage through vouchers provided to the employee, being the person exercising option under the proposed section, by the employer.” Until the government clarifies its stance, food coupons will remain exempt from tax.
The government is expected to clarify all the tax deductions that need to be forgone under the new tax regime, once the Finance Bill is passed in the Parliament.