We have written about the new income tax structure announced in Budget 2020 here.

While proposing new optional income tax rates, Union Finance Minister Nirmala Sitharaman made it clear that one has to forego many tax exemptions to claim the lower rates. Popular avenues to save tax like Section 80C and 80D cannot be claimed to get the lower tax advantage.

However, there are still a few exemptions you can claim even if you opt for new income tax slabs. Here are they:

NPS contributions

“In her budget speech, the FM announced new tax slabs which can be availed provided certain tax deductions are foregone. Fortunately for NPS subscribers, they can continue to avail deduction under Section 80CCD(2) on account of employer’s contribution to NPS as this deduction is not amongst those to be excluded to avail new tax slabs,” said Sandeep Shrikhande, CEO, Kotak Mahindra Pension Fund Limited.

The provisions under Section 80 CCD (2) are relevant for those whose employer is contributing to the NPS of the employee. This section applies to only salaried individuals and not to self-employed individuals. Section 80CCD (2) allows salaried individuals to claim deductions up to 10% of their salary which includes the basic pay and dearness allowance or is equal to the contributions made by the employer towards the NPS.

Commuted pension

Another income tax deduction that stays is commuted pension.

For a government employee, commuted pension is fully exempt. For a non-government employee, it is partially exempt. If gratuity is also received with pension – 1/3rd of the amount of pension that would have been received if 100% of the pension was commuted, is exempt from commuted pension and remaining is taxed as salary.

In case, only a pension is received, gratuity is not received – 1/2 of the amount of pension that would have been received if 100% of the pension was commuted is exempt.

Leave encashment on retirement, EPFO contribution

Individuals who sign up for the new tax structure will be able to avail certain tax incentives related to gratuity, commutation of pension, leave encashment on retirement, payments to Employees Provident Fund Organisation (EPFO) and payment received from the National Pension System on closure, revenue secretary Ajay Bhushan Pandey reportedly said at a post-budget press meet.

Leave encashment received at the time of retirement is either fully or partially exempt depending upon the category that an employee falls under. Leave encashment received by Central or State Government employee at the time of retirement is fully exempt. Also, leave encashment received by legal heirs of deceased employee is fully exempt. Leave encashment received by non-government employee is exempt based on the computation provided under Section 10(10AA)(ii) and balance amount if any is taxable as ‘income from salary’.

Budget 2020 coverage

Budget 2020: Tax collected at source on overseas tour program packages, remittances out of India

Budget 2020: The new optional income tax rates are low, but you can’t claim exemptions

Budget 2020: Dividend distribution tax scrapped, but shifts the burden to the recipients; high income earners to bear the brunt

Budget 2020: Bank deposits insurance cover increased to Rs 5 lakh from existing Rs 1 lakh

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at [email protected].

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