Dear Sir, I plan to shift to the new tax regime starting this financial year. I am a salaried person. Please let me know whether I will be entitled to a standard deduction. Also, what about the HRA exemption, as I pay a huge monthly rent?
Shelly
Reply by Rajiv Bajaj, Chairman & MD, BajajCapital Ltd.
The Indian Budget of 2020 introduced a New Tax Regime, an alternative to the existing system, aimed to simplify the tax structure. This regime offers lower tax rates against the removal of certain exemptions and deductions available in the old regime, such as the standard deduction and home rent allowance (HRA).
I wanted to clarify the provisions regarding standard deduction for salaried employees, regardless of whether they have opted for the Old or New Tax regime. Under both tax regimes, a standard deduction of Rs 50,000 is permitted for all salaried employees, irrespective of their gross salary income. This also applies to pensioners. However, it’s important to note that if you shift to the New Tax regime, the exemption for House Rent Allowance (HRA) will not be applicable.
Currently, HRA exemption under section 10(13A) of the Income Tax Act is a relief for individuals paying substantial house rents. This exemption is the least of the following: actual HRA received, 50% of salary (for metro cities), or rent paid in excess of 10% of salary. The HRA exemption’s removal may push up the effective tax rate for those paying hefty rents.
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It is always recommended to perform a thorough analysis of both the old and new income tax regimes before making an informed decision.
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