IT rules specify allowances for employees choosing new tax regime

The new tax regime is effective from FY 2020-21. Employees choosing the new tax regime for the FY 2020-21 cannot claim any deductions or exemptions as available under the old regime. The CBDT now notifies specific allowances an employee can claim tax-exempt under the new regime. The rules also report that an employee choosing the new regime cannot claim tax exemption on meal coupons allowance. 

The tax-exempt allowances under the new regime are as below:

1. Allowance provided to meet the cost of travel on tour or transfer. It includes allowance to meet the cost of travel such as airfare, rail fare and other transportation costs.
2. Any allowance to meet the ordinary daily charges incurred by an employee on account of absence from his usual place of duty. The allowance should be given on tour or for the period of journey in connection with a transfer. The allowance includes expenses incurred for food and other daily costs incurred while travelling.
3. Allowance to meet conveyance expense incurred in the performance of duties of an office or employment of profit. However, the employer should not be providing a free conveyance to the employee. The allowance includes travelling expenses incurred while performing official duties.

Also Read: Tax Query: Can I continue with my LIC policy under the new tax regime?

Also, an employee who is blind, or deaf and dumb, or orthopedically handicapped, with a disability of lower extremities can claim transport allowance, to meet expenditure on commuting between residence and the place of duty. The benefit is up to Rs 3,200 per month.

However, the tax rules withdraw the tax-exemption for meal coupons or paid vouchers under the new regime. Thus, an employee choosing the new tax regime cannot claim tax exemption for meal coupons or paid vouchers given by the employer.

For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in

Sweta Dugar

I am a Chartered Accountant by profession. I specialise in personal taxes and corporate income tax matters. I am an avid reader and track developments in financial markets, economy and other market developments.