Opted for the New Tax Regime? You Can Claim Tax Exemptions on Travel and Conveyance Allowances
Listen to Opted for the New Tax Regime? You Can Claim Tax Exemptions on Travel and Conveyance Allowances
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The new tax regime under Section 115BAC of the Income Tax Act announced by the finance ministry during the Union Budget 2020 comes into effect from this year, i.e. financial year 2020-21.Taxpayers now have the option to either remain in the old tax regime or opt for the new lower tax regime, subject to certain conditions. If the taxpayer decides to opt for a lower tax slab, they will have to forego any relief and tax exemptions.
This means that if you opt for the new tax regime, you will have to forgo some of the common and popular deductions/ exemptions such as Leave Travel allowance (LTA), House Rent Allowance (HRA), and deduction under chapter VI-A (80C, 80D, 80E, 80G, etc.), standard deduction, deduction under Section 24(b), etc. Around 70 exemptions and deductions have been removed in the New Tax Regime.
The Central Board of Direct Taxes (CBDT) recently notified the Income Tax (13th Amendment) Rules to provide relief to employees opting for the new tax regime. Taxpayers under the new regime will be able to claim income-tax exemptions for travel and conveyance allowances.
This new amendment will be applicable from the current financial year 2020-21 (assessment year 2021-22). It will cover expenses incurred on the following:
Please note that differently-abled employees can claim ad hoc transport allowance exemption of up to Rs 3,200 per month.
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In case your employer has already treated these expenses as taxable (as per your income slab) for the first three months of the year (April-June), adjustments can be made and tax computation revised in the ensuing months.
Since employees incur these expenses to discharge their official duties, it is the employer's responsibility to provide transport to employees. Therefore, CBDT has decided to allow these expenses as exempt under the new tax regime as well.
However, CBDT has clarified that meal coupons/vouchers for food and beverages employees receive will not be eligible for tax exemption. Since meals/beverages during office hours are for the personal benefit of the employee and not an expense for official purpose, it is non-exempt expenditure under the new regime.
Should you opt for the new tax regime?
It is best to do your own assessment and determine which tax regime will be more beneficial to you. The decision about which tax regime offers better tax benefits depends on various factors such as your income, deductions and exemptions availed, applicable income tax bracket, your age bracket, etc.
[Read: Budget 2020 and Its Impact on Your Personal Finance]
[Read Also: Here's What Changed for Senior Citizens after Budget 2020]
Broadly, if you are currently availing significant deductions and exemptions under various provisions of the Income Tax Act, it would make sense to continue with the old tax regime.
Table: Income tax rates under the old and new regime
| Income slab |
Tax rate (existing) |
Tax rate (w/o exemption) |
| Upto 2.5 lakh |
Nil |
Nil |
| 2.5-5 lakh |
5% |
5% |
| 5-7.5 lakh |
20% |
10% |
| 7.5-10 lakh |
20% |
15% |
| 10-12.5 lakh |
30% |
20% |
| 12.5-15 lakh |
30% |
25% |
| Above 15 lakh |
30% |
30% |
(Source: indiabudget.gov.in)
The new tax regime aims to simplify the tax structure. However, one needs to carefully evaluate tax outgo under the new and old tax regime and make a sensible choice to maximise the tax benefit.
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Warm Regards,
Divya Grover
Research Analyst
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