NEW DELHI: The Central Board of Direct Taxes has notified amendments in Income Tax rules, which allow salaried employees to claim a set of exemptions if they apply for the lower personal income tax regime. This includes exemptions that may be claimed on conveyance allowances extended by employers.
The new regime, which is optional, will be applicable for income earned from financial year 2020-21. A new sub-section has been added to the rule 2BB to implement these exemptions. They include any allowance granted to meet the cost of travel on tour or on transfer; any allowance, granted on tour for the period of journey in connection with a transfer, to meet ordinary daily charges incurred by an employee on account of absence from his/her normal place of duty; and any allowance to meet the expenditure on conveyance in performance of duties, provided free conveyance is not provided by the employer.
The notification provides for exemption on transport allowance to physically challenged employees. The exemption limit is set at Rs 3,200 per month. However, the Board clarified that while determining the value of perquisites, no exemption will be available in the case of free food and non-alcoholic beverages provided by the employer.
The notification considers this to be a personal benefit to employees and not an expenditure for official purposes. Therefore, similar to other allowances under the new scheme, this has also been withdrawn, said Nangia & Co LLP Partner Shailesh Kumar.
CBDT notifies exemptions under new I-T mechanism
Earlier in February, Finance Minister Nirmala Sitharaman had announced in her Budget speech that an optional system with significantly lower income tax rates would be provided if taxpayers forgo available deductions and exemptions. The tax department has also made it clear that employees can opt for a lower tax regime before filing their retur ns. Based on the declaration and exemptions notified, employers can now go for Tax Deducted at Source (TDS) and accordingly pay salary under the alternative tax regime. The CBDT has also extended the time for filing of original as well as revised income-tax returns for the FY18-19 (AY 2019-20) to July 31, 2020.
The due date for filing returns for FY 2019-20 (AY 2020-21) has been extended to November 30, 2020. Under the new I-T scheme, annual income up to Rs 2.5 lakh is exempt from all tax. Those individuals earning between Rs 2.5 lakh and Rs 5 lakh will pay 5 per cent. Incomes between Rs 5-7.5 lakh will be taxed at 10 per cent, and those between Rs 7.5-10 lakh at 15 per cent. Those earning between Rs 10 lakh and Rs 12.5 lakh will pay 20 per cent, while those between Rs 12.5-15 lakh will pay at the rate of 25 per cent. Income above Rs 15 lakh will be taxed at 30 per cent.
TDS FOR FY21
Based on employees’ declaration and exemptions notified, employers can now go for Tax Deducted at Source (TDS) and pay salary under the alternative tax regime.