Is Rebate Applicable in New Tax Regime

In the new tax regime introduced in India, rebates are no longer applicable. Rebates were previously available for individuals with incomes below a certain threshold, allowing them to reduce their tax liability. However, under the new regime, the tax rates are lower, and the tax slabs are wider, eliminating the need for rebates to provide relief to low-income earners. The new regime offers a simplified and straightforward tax structure, with reduced tax rates and fewer deductions and exemptions.

Old Tax Regime vs. New Tax Regime: Understanding the Applicability of Reimbursement

With the introduction of the New Tax Regime (NTR) in the Indian Income Tax Act, taxpayers now have the option to choose between the old tax regime and the new one. One of the key differences between the two regimes is the applicability of Reimbursement.

Applicability of Reimbursement in Old Tax Regime

In the Old Tax Regime (OTR), reimbursements are not taxable. This means that any expenses incurred by an employee on behalf of their employer are not included in their salary for tax purposes. The reimbursements are reimbursed by the employer, and no tax is deducted from them.

Applicability of Reimbursement in New Tax Regime

Under the NTR, reimbursements are taxable unless they are specifically exempted. This means that any expenses incurred by an employee on behalf of their employer are added to their salary for tax purposes. As a result, the employee will have to pay tax on the total amount of their salary, including the reimbursements.

However, there are certain types of reimbursements that are exempt from tax under the NTR. These include:

  • Medical reimbursements up to Rs. 15,000 per year
  • Transport allowance up to Rs. 19,200 per year
  • Daily allowance up to Rs. 50 per day

The table below summarizes the applicability of reimbursements in the Old Tax Regime and the New Tax Regime.

Type of ReimbursementOld Tax RegimeNew Tax Regime
Medical reimbursementsNot taxableTaxable unless exempt
Transport allowanceNot taxableTaxable unless exempt
Daily allowanceNot taxableTaxable unless exempt

Rebate under Section 87A

The rebate under section 87A is available to individuals and HUFs with a total income up to Rs. 5 lakhs in the new tax regime. The rebate is calculated as follows:

  • For total income up to Rs. 3.5 lakhs: Full rebate of Rs. 12,500
  • For total income between Rs. 3.5 lakhs and Rs. 5 lakhs: Partial rebate as per the following formula:
Total Income (Rs.)Rebate (Rs.)
3,50,001 to 4,00,00011,250
4,00,001 to 4,50,00010,000
4,50,001 to 5,00,0008,750

House Rent Allowance (HRA) Exemption

Under the new tax regime, HRA exemption is available to salaried individuals who do not claim deductions under Chapter VIA (exemptions and deductions).

The HRA exemption is calculated as the least of the following three amounts:

  1. Actual HRA received
  2. 50% of basic salary (40% in case of metro cities)
  3. Rent paid minus 10% of basic salary
Metro CitiesNon-Metro Cities
Basic Salary₹50,000₹50,000
HRA Received₹15,000₹15,000
Rent Paid₹20,000₹20,000
HRA Exemption₹12,500 (50% of Basic)₹10,000 (40% of Basic)

Deductions and Exemptions in the Old Regime

Under the old tax regime, taxpayers could avail various deductions and exemptions to reduce their taxable income. These included:

  • Standard deduction of ₹50,000
  • House rent allowance (HRA) exemption
  • Leave travel allowance (LTA) exemption
  • Section 80C deductions for investments and insurance premiums
  • Section 80D deductions for health insurance premiums
  • Section 80E deductions for interest paid on education loans

These deductions and exemptions significantly lowered the taxable income and, consequently, the tax liability of the taxpayer.

Deduction and Exemptions in the New Tax Regime

The new tax regime introduced in the Union Budget 2020 discontinued several deductions and exemptions available under the old regime. However, it offered lower tax rates compared to the old regime.

The key differences between deductions and exemptions in the old and new regimes are summarized in the following table:

Old Tax RegimeNew Tax Regime
Various deductions and exemptions availableMost deductions and exemptions discontinued
Higher tax ratesLower tax rates

Well, there you have it, folks! We’ve navigated the complexities of rebates in the new tax regime. Remember, the government’s intentions are to simplify taxes, but it can get a bit tricky at times. If you’re still feeling a little lost, don’t fret. Just give your friendly neighborhood tax professional a call. They’ll be more than happy to guide you through the maze. Thanks for tuning in, and be sure to drop by again for more tax-related adventures!