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LTA Cash Voucher Scheme Not Applicable Under New Tax Regime

LTA Cash Voucher Scheme Not Applicable Under New Tax Regime

LTA Cash Voucher Scheme Not Applicable Under New Tax Regime
(Dreamstime)

The government has said that people who have opted for the lower tax regime launched during the Budget 2020-21 will not be able to claim benefits of the centre’s recently-launched leave travel concession (LTC) scheme.

In a clarification issued on October 29, 2020, the revenue department said that as the exemption was in lieu of the exemption provided for LTC fare, those who opted to pay income tax under the concessional tax regime, would not be eligible to claim the benefit.

Under the LTC cash voucher scheme, which was launched on October 12, 2020, with an aim to boost consumer spending amid the country slipping into recession, because of the Coronavirus pandemic, central government employees have been given an option to buy goods and services in lieu of the tax-exempt portion of the LTA during 2018-21. An employee, opting for this scheme, will be required to buy goods/services worth three times the fare and one time the leave encashment before March 31, 2021.  The items should be bought using digital channels and attract 12% or more as GST, for which the taxpayer will also have to submit a GST invoice. The government has also clarified that state governments and the private sector could also extend this scheme to their staff.

“The biggest incentive for employees to avail of the scheme is that in a four-year block ending in 2021, the LTC not availed will lapse. Instead, this will encourage employees to avail of this facility to buy goods, which can help their families,” the government notification issued on October 12, 2020, said.

While presenting the Budget 2020-21, finance minister Nirmala Sitharaman proposed to lower the rate at which the income of individuals is taxed under different slabs.

On October 1, 2020, the Central Board of Direct Taxes said that people switching to the new tax regime for FY 2020-21 have to file a new form. Such taxpayers will have to fill the new form, Form 10-IE, while filing their ITR.

 

Should Homebuyers Switch To The New Tax Regime?

Taxpayers opting for the new regime would have to forgo certain exemptions they enjoy under the current tax regime. Among those are exemptions claimed by home loan borrowers under section 80C (up to Rs 1.50 lakh in a year on principal payment) and section 24 (up to Rs 2 lakh on interest payment). Taxpayers, however, have a choice to stick with the old regime and continue to pay taxes and higher rates while enjoying exemptions.

Income tax slab

As implications of the proposed regime is still being debated, we try to find out what makes better monetary sense from home buyer’s point of view who is servicing a home loan - switching to the new tax regime or staying with the old one.

With the promotion of affordable housing being the key government agenda, we have examined the impact of the new tax regime on a middle-income homebuyer, who has invested in a government defined affordable unit.

Case study

Sita Kulkarni bought a property worth Rs 45 lakh in in 2017. She took a home loan of Rs 36 lakh (80% of the property value) from a public lender at 8% interest and tenure of 20 years. For the down–payment, she used Rs 9 lakh from her savings. Considering Kulkarni’s annual income at Rs 10 lakh, let’s find out which tax regime is more beneficial for her.

Before we move ahead, let’s get the numbers first:

Loan principal: Rs 36 lakh
Interest rate: 8%
Tenure: 20 years
This would amount to an EMI payment of Rs 30,112 per month.
Total interest (20 years): Rs 36,26,842
Total payable (20 years): Rs 72,26,842

As Kulkarni took the home loan in 2017, in the third year

Total interest paid: Rs 2,72,095
Total principal paid: Rs 89,247

Calculations under old regime

Gross annual income: Rs 10 lakh
Standard deduction: - Rs 40,000
Section 24: - Rs 2 lakh
Section 80C: - Rs 89,247
Section 80D (health insurance): Assuming it's zero
Other exemptions: Assuming they are all zero

Total taxable amount:
Rs 10 lakh
- Rs 40,000
- Rs 2 lakh
- Rs 89,247

= Rs 6,70,753

As Kulkarni fell under the Rs 5 lakh-Rs 7.5 lakh tax bracket, her income will be taxed at 10%.

Split of Rs 6, 70,753 for tax calculation:
Rs 2.5 lakh (@0%) = 0
Rs 2.5 lakh (@5%) = Rs 12,500
Rs 170,753 (@20%) = Rs 34,151

Total: Rs 46,651

+ cess (@4%) = Rs 1,866

Final tax: Rs 48,517
===

Calculations under new regime

Gross annual income: Rs 10 lakh
Deductions: 0
Total taxable amount: Rs 10 lakh

Now, Kulkarni’s income falls under the Rs 7.5 lakh-10 lakh tax bracket, so her income will be taxed at 15%.

Split of Rs 10 lakh for tax calculation
Rs 2.5 lakh (@0%) = 0
Rs 2.5 lakh (@5%) = Rs 12,500
Rs 2.5 lakh (@10%) = Rs 25,000
Rs 2.5 lakh (@15%) = Rs 37,500

Total: Rs 75,000

+ cess (@4%) = Rs 3,000

Final tax: Rs 78,000

===

Kulkarni’s tax liability

Under the old regime: Rs 48,517

Under the new regime: Rs 78,000

She would save Rs 29,483 in taxes if she stayed with the old regime.

 

***

I-T Dept To Notify New ITR Form For Joint Owners Of Property

Starting assessment year 2020-21, taxpayers who own a property jointly will have to use a form other than the one they currently use, to file their returns. Taxpayers who have deposited more than Rs 1 crore in bank account or who have paid Rs 1 lakh in electricity bills in a year or who have incurred Rs 2 lakhs expense on foreign travel, will also have to use a new form to file their returns.  

So far, such taxpayers have been using the ordinary ITR-1 Form to file returns. The Income-Tax Department, which announced the move on January 3, 2020, said it would notify the taxpayers about the new form they are supposed to use, in due course.

 

 

Last Updated: Mon Nov 16 2020

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