New Delhi: Those wanting to switch over to the lower income tax rates and new slabs, as announced in Union Budget 2020, will have to forfeit most of the deductions, including Section 80C.
However, in some good news for taxpayers, some deductions, including employer contribution on account of an employee in the notified pension scheme (NPS) under Section 80CCD (2), can still be availed even if one opts for the new income tax regime. This is made possible by the Finance Bill, which states that ‘deduction under sub-section (2) of Section 80CCD (employer contribution on account of the employee in notified pension scheme) and Section 80JJAA (for new employment) can be claimed.’
If the employer is contributing towards an employee’s NPS account, which is mandatory for government servants (Armed Forces being an exception), who joined before January 1, 2004, and voluntary for those in private sector, a deduction of up to 10% of salary, regardless of any limit, qualifies for income tax deduction under Section CCD(2).
For government employees, the limit is 14% of their salary. Employees, after permission from their organisations, can opt to restructure their salary structure to opt for this tax deduction.
In another income tax rule change proposed in the Budget, if the employer’s contribution exceeds Rs 7.5 lakh year towards NPS, superannuation and EPF will be taxable in the hands of the employee.
As per the existing income tax laws, the contribution by an employer to an employee’s account in a recognised provident fund, exceeding 12% of salary, is taxable.
A total of seven tax slabs have been announced the new income tax regime.