The Central Board of Direct Taxes (CBDT) has issued a notification amending rules to allow taxpayers who are opting for the new tax regime to claim exemption for allowance to meet cost of travel and daily expenses on transfer, tour allowance for travel for official purposes to meet the travel and daily expenses, and conveyance allowance for meeting conveyance expenditure incurred in course of performing official duties. Besides, transport allowance for handicapped employee to commute to and from office is also tax exempt.
"The notification has rightly exempted allowances in the nature of tour, transfer or conveyance for official purposes, since these are essentially incurred by employees not for their personal benefit, but for discharging their official duties, and therefore expecting employees to pay tax on such amount even under the new scheme would have been unreasonable," tax expert Shailesh Kumar, Partner, Nangia & Co LLP, said.
The new rules also considers free meal or beverages provided by an employer to employees during office hours through paid voucher to be a personal benefit to employees and not an expenditure for official purposes. Therefore, tax exemption of such free meals or beverages has been withdrawn under the new income tax scheme.
"This notification also apparently clarifies that except free meals/ beverages/ meal coupons, tax treatment of other perquisites specified under Rule 3, such as rent free accommodation, motor cars, free/ concessional education facility, telephone, concessional loan, gifts, club membership, etc. provided by employer will remain the same, both under old scheme as well as under new scheme," Kumar said.
The new rules will come into force from assessment year 2021-22.
Offering an optional lower rate of income tax to individuals willing to forego certain specified deductions or exemptions while computing total income for tax purpose, the finance ministry has introduced two income tax slabs.
Under the new income tax slab with lower tax rate, annual income up to ₹2.5 lakh is exempt from tax. Those individuals earning between ₹2.5 lakh and ₹5 lakh will pay 5% tax. Income between ₹5 and 7.5 lakh will be taxed at 10%, while those between ₹7.5 and 10 lakh at 15%.
Those earning between ₹10 and 12.5 lakh will pay tax at the rate of 20%, while those between ₹12.5 and ₹15 lakh will pay at the rate of 25%. Income above ₹15 lakh will be taxed at 30%.