Budget 2021 Expectations: Taxpayers want the old income tax regime to continue

In the last year’s Union budget, Finance Minister Nirmala Sitharaman proposed a new income tax regime that included seven tax slabs – Nil, 5%, 10%, 15%, 20%, 25%, and 30% – compared to four tax slabs under the old income tax regime – Nil, 5%, 20%, and 30%. Both tax regimes will proceed and it will be optional for taxpayers to pick a regime.

Since the new income tax system has lower income tax rates between Rs 5 lakh and Rs 15 lakh, there will be no tax exemptions and deductions will be available in the regime.

budget 2021

As a result, the existing benefits of Rs 5 lakh in the form of exemptions and deductions applicable under different provisions of the old income tax system will be lost to the salaried taxpayer by moving to the new income tax regime.

Under the old income tax system, taxpayers are entitled to a deduction of Rs 2 lakh u/s 24 of the Income Tax Act on interest charged on home loans in the financial year. In addition, an extra tax gain of up to Rs 1.5 lakh is also applicable to U/S 80EEA of the Income Tax Act, if the interest is charged on a home loan taken to purchase an affordable home, subject to certain conditions.


Apart from the interest on the home loan, a typical salaried taxpayer will also lose the benefits of the HRA exemption, Standard Deduction, which amounted to Rs 50,000 in the financial year (FY) 2019-20, deductions u/s 80C to Rs 1.5 lakh, deductions up to Rs 50,000 u/s 80CCD(1B) on voluntary contributions to the Tier-1 accounts of the National Pension Scheme (NPS), deductions of up to Rs 75.000 u/s 80D on the health insurance premium paid for self-employed individuals and their family, as well as the premium paid for senior citizens’ parents or the costs incurred for their treatment.

So, taxpayers hope that the Finance Minister will continue to enforce the old income tax system as an optional one this year and in the future as well.

Recent Post:-