Which Tax Exemptions have been removed and which remain in the New Tax Regime

The Union Budget 2020 added three more income tax slabs to the existing tax structure. Moreover, there has been a removal of certain tax deductions in the new regime. This may undoubtedly make the tax process less tedious, but then for those who maximised the tax deductions will have to pay more tax if they choose to follow the new tax regime.

The new income tax slabs and rates are as follows -

Annual Income        Old Rate	            New Rate 



Up to INR 2.5 Lakh	Nil			Nil



Between INR 2.5-5 Lakh	5%			5%



Between INR 5-7.5 Lakh	20%			10%



Between INR 7.5-10 Lakh	20%			15%



Between INR 10-12.5 Lakh	30%			20%



Between INR 12.5-15 Lakh	30%			25%



Above INR 15 Lakh	30%			30%

As a matter of fact, if you earn INR 15 lakh annually and not avail any deductions, then you will have to pay INR 1.95 lakh in tax under the new regime as compared to INR 2.73 lakh in tax under the old one.

According to the new tax regime, some of the 70 exemptions and deductions that have been left out are as follows -
? Deductions under Section 80C investments
? House Rent Allowance
? Leave Travel Allowance
? Medical Insurance Premium
? Standard Deductions
? Savings Bank Interest
? Education Loan Interest

Also, some of the 50 exemption and deductions that remain in the policy include -
? Standard Deductions on Rent
? Agricultural Income
? Income From Life Insurance
? Retrenchment Compensation
? VRS Proceeds
? Leave Encashment on Retirement

All the taxpayers will be given an option to switch to the new tax structure. This means you have a choice to make in every financial year, which needs to depend on your financial situation.

For those who have been benefiting from several income tax exemptions such as the house rent allowance and 80C deductions will no longer benefit if they choose to switch to the new regime.

The Union Budget 2020 has, however, left the surcharges on tax unchanged. People earning an annual income between INR 50 lakh and INR 1 crore will continue to pay 10% surcharge on the tax. Furthermore, the surcharge is 15% for people earning between INR 1 crore and INR 2 crore, 25% for people earning between INR 2 crore and INR 5 crore, and 37% for people earning over and above INR 5 crore.

So, if you continue to follow the old tax regime, you can continue to avail the ULIP tax benefits under Section 80C of the Income Tax Act, 1961. Unit Linked Insurance Plan (ULIP) offers the dual benefits of insurance as well as investments under a single plan.

However, if you have a ULIP plan and have been availing the tax benefits under it, switching to the new tax regime will not benefit you. This is because the deductions under Section 80C investments have been removed from the new regime. Therefore, you must ensure that you consider all your investment plans before you make the switch to the new tax regime.