For lower income tax rates, complete list of exemptions you need to give up

At a Press conference after she presented the budget proposals in the Lok Sabha, Sitharaman said the intention was to reduce the rate as much as to simplify the tax structure.

Finance Minister Nirmala Sitharaman on Saturday announced an optional new income tax regime that levies a lower tax rate on people who do not want to claim any of the specified exemptions or deductions. At a Press conference after she presented the budget proposals in the Lok Sabha, Sitharaman said the intention was to reduce the rate as much as to simplify the tax structure.

Finance Minister Nirmala Sitharaman holding the Budget folder along with Minister of State in the Ministry of Finance Anurag Thakur and other senior officials. (Photo by Ajay Aggarwal/ Hindustan Times)

“We wanted to be sure that the money is in the hands of people so we brought down tax for the middle class and the lower middle class,” she said.

Under the new tax regime announced by the finance minister in her budget speech, the tax rate on income in the range of Rs 5-7.5 lakh will be halved to 10%.

Income in the range of Rs 7.5-10 lakh will attract 15% tax in the new regime, down from the existing 20%. There is no change in tax rate for people who earn over Rs 15 lakh annually.

But the lower tax rates can be availed by people only on the condition that they do not seek the specified exemptions or deductions.

According to the memorandum listing changes to the income tax law, these are the exemptions that people will not be entitled to if they want to be taxed at a lower rate.

1. Leave travel concession [Clause (5) of section 10] of Income Tax Act

2. House rent allowance [Clause (13A) of section 10]

3. Some of the allowance as contained in clause (14) of section 10

4. Allowances to MPs/MLAs as contained in clause (17) of section 10

5. Allowance for income of minor as contained in clause (32) of section 10

6. Exemption for SEZ unit contained in section 10AA

7. Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in section 16

8. Interest under section 24 in respect of self-occupied or vacant property

9. Additional depreciation

10. Deductions under section 32AD, 33AB, 33ABA of Income Tax Act

11. 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

12. Deduction under section 35AD or section 35CCC;

13. Deduction from family pension under clause (iia) of section 57;

14. 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).

Deduction for employer contribution on account of employee in notified pension scheme) and for new employment can be claimed.

The memorandum said the government is going to amend the income tax rules to allow individuals and Hindu Undivided Family to continue to receive these allowances.

Transport Allowance granted to a divyang employee to meet expenditure for the purpose of commuting between place of residence and place of duty

Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office

Any Allowance granted to meet the cost of travel on tour or on transfer

Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.

The finance ministry document also made it clear that income tax rules would be amended to remove exemption in respect of free food and beverage through vouchers provided to the employee.