A taxpayer opting for new income tax slabs and rates will have to forego a host of exemptions and deductions, including a standard deduction of Rs 50,000, tuition fee of children, and contribution towards insurance premium and provident fund.
However, the new income tax system proposed by Finance Minister Nirmala Sitharaman in the Union Budget 2020-21 is optional and a taxpayer can choose to remain in the existing regime with exemptions and deductions.
Under the new tax proposal, people with an annual income of up to Rs 2.5 lakh will not have to pay any tax.
For income between Rs 2.5 lakh to 5 lakh, the tax rate (as earlier) is 5 per cent.
Further, those with an income of Rs 5 lakh to Rs 7.5 lakh will have to pay a reduced tax rate of 10 per cent; between Rs 7.5 lakh and Rs 10 lakh at 15 per cent; between Rs 10 lakh and 12.5 lakh at 20 per cent; between Rs 12.5 lakh and 15 lakh at 25 per cent; and above Rs 15 lakh at 30 per cent.
Section 80C provides deduction for contribution towards insurance premium, deferred annuity, provident fund and certain type of shares.
Taxpayer will also have to forego deduction under 80CCC (contribution towards certain pension fund), Section 80D (health insurance), 80E (interest on loan for higher education), 80EE (interest on loan taken for residential property), 80EEB (purchase of electric vehicle), 80G (donation to charitable institutions), and 80G (rent paid).
Besides, a taxpayer opting for the new scheme will not get tax benefit for leave travel concession (LTC), allowances for income of minors, and certain allowances of MPs/MLAs.
The tax benefit will not be available in respect free food and beverages through vouchers provided to employees.
However, certain deductions are proposed to be retained in the new regime, like conveyance allowance for meeting expenses in performance of duty and allowance for travel on tour and transfers.