New tax regime (section 115BAC): you cannot avail these deductions!

If you choose the new tax regime (section 115BAC) you cannot avail the following deductions.

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Published: February 1, 2020 at 2:18 pm

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If you choose the new tax regime (section 115BAC) you cannot avail the following deductions.

Also see List of tax deductions in New tax regime (section 115BAC)

List of deductions excluded from New Tax Regime (Section 115BAC)

(i) Leave travel concession as contained in clause (5) of section 10;
(ii) House rent allowance as contained in clause (13A) of section 10;
(iii) Some of the allowance as contained in clause (14) of section 10;
(iv) Allowances to MPs/MLAs as contained in clause (17) of section 10;
(v) Allowance for income of minor as contained in clause (32) of section 10;
(vi) Exemption for SEZ unit contained in section 10AA;
(vii) Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in
section 16;
(viii) Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23.
(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);
(ix) Additional deprecation under clause (iia) of sub-section (1) of section 32;
(x) Deductions under section 32AD, 33AB, 33ABA;
(xi) Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause
(iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;
(xii) Deduction under section 35AD or section 35CCC;
(xiii) Deduction from family pension under clause (iia) of section 57;
(xiv) Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA,
80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However, deduction under
sub-section (2) of section 80CCD (employer contribution on account of the employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.
NPS employer contributions still applicable.

Source: Budget memorandum

New Tax Regime vs Old Tax Regime which should I choose?

You will have to calculate for your case and check like in these examples. Moving to the new regime may provide 5% relief in some case for those earning between 6.5L to 15L or no relief at all. Suppose the total deduction 80C 1.5L + 0.5L (NPS)  + 0.25L (80D)  = 2.25L (HRA and others not included for simplicity)

Example 1

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Salary  = 11L  (before deductions).
New Tax Regime: Slab = 20%

Old Tax regime. Salary  = 11L – 2.25L = 8.75L. Slab = 20%. So there is no change in this case!

Example 2

Salary  = 8 L  (before deductions).
New Tax Regime: Slab = 15%

Old Tax regime. Salary  = 8L – 2.25L = 5.75L. Slab = 20%.
So there is a 5% relief if you move to the new tax regime.

The article will be updated with more details as and when available.

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12 Comments

  1. If i have a taxable income of 7 lacs, with exemption of 80c it becomes 5.5 lacs with a tax liability of 12500+10000(20%) equalling 22500. If I opt for new regime, the exemption isn’t available and tax bracket is 10% but tax liability is 12500+20000(10% on the difference between 7 and 5 lacs) which equals 32500. Who is foolish to take the new regime?

  2. Professor,

    why HRA is not included for calculation, around 1lakh we can fairly assume . Either HRA or Interest under section.24 may be considered for calculation is my opinion?

    Am i missing something here ?

  3. Sir, Can you confirm if the PF contributions (by Employee) are tax exempt, or it is also included in the list of non-exempt under 80C?

  4. More practical eg.
    Deductions considered PF- 30k, Std Deduction- 50k, Food allowance- 36k, HRA- 50k, Total = 1.65 Lac.
    Ex 1- Salary 6 Lac
    Old Tax- 0 (Taxable inc- 6L-1.65L = 4.35L)
    New Tax- 12.5k + 10k = 22.5k
    Ex 2- Salary 8 Lac
    Old Tax- 12.5k + 13.5k = 26k
    New Tax- 12.5k + 25k + 7.5k = 45k
    Ex 3 – Salary 10 Lac – PF hiked to 50k – So deductions = 1.85L
    Old Tax- 12.5k + 63k = 75.5k
    New Tax- 12.5k + 25k + 37.5k = 75k

    Someone with just expenses and no investments have no gain in the new tax regime.
    Now consider if the same person has education loan, child tuition fee, PPF contribution, insurance premiums, etc, he will sure pay lower taxes under old regime. Add home loan, NPS, etc, tax benefits get better in old regime.
    So new regime is only for headlines.
    My real worry though is if govt starts removing the exemptions from old regime or scraps old regime altogether, all those having home loans, child tuition fee, etc will have to pay higher taxes and this might happen from next year onwards.
    Future looks scary.

  5. I think the new tax regime will basically benefit those who can’t (or don’t want to) invest money. I mean those who have a very low savings ratio as they basically spend all their money. They will get a tax break.
    The other big beneficiaries would be pensioners /retired persons who will not be forced to lock up their money in PPF/LIC etc just to save tax. To that extent all people above 60 should be very grateful to Nirmalaji.

  6. For people who are availing maximum deductions like 80C, Housing Loan, I think there will be zero benefit inspite of where their current tax slab is.

  7. You have missed out adding 50k standard deductions that almost everyone universally claims. Also the 36k food allowance that most private sector employees and even LIC employees have access to.
    Adding HRA and the 10k FD interest exemptions which i claim, I can see no scenario where the new regime is favourable over the old one (For people who spend more than a minute a day of their lives learning personal finance).
    It does feel like the government is punishing investors and incentivizing consumers. I intended to start NPS for 80CCD1 benefit but have put it on hold due to lack of clarity on the exemption phase outs. If the new regime is going to be forced upon me in a few years, no point in going through NPS’s lengthy lock-in and annuity requirements.

  8. At a first instance, it looks like a loss to the well planned tax payers who make savings in PPF, Home loan interest, LTA , mediclaim etc. , If opt for new scheme. Didn’t understand the logic of introducing new scheme without deductions when we are looking for large economy where taxpayer is spending / contributing a lot by investing in tax saving instruments & spending on travel by LTA, Insuring family for medical expenses etc. Is FM don not wish to promote all this instruments.
    Rather , FM should have promoted GST exemptions to salaried taxpayers to boost sales of white goods, automobiles, etc. … Once again this government has proved that they just wish to keep the common people of this country like fox jumps over to take the 🍇 which it can not reach

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