The government introduced a draft of the new income tax rules on February 7. It proposes to increase the exemption limit for education allowance per child from Rs. 100 per month to Rs. 3,000 per month. Exemption is allowed for education allowances for a maximum of two children. The hostel expense allowance limit is proposed to be increased from Rs. 300 per month per child to Rs. 9,000.
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Income Tax New Rules: The proposals in the draft new income tax rules will completely change the way salaries are taxed. The exemption limits for certain allowances will be significantly increased. This could revive salaried taxpayers’ interest in the old income tax regime. Deductions and exemptions are available only under the old regime. However, the new regime is the default regime, and interest in it has increased among both individuals and salaried taxpayers over the past few years.
The Education Allowance Exemption Limit Will Increase Significantly
The government presented the draft of the new income tax rules on February 7th. It proposes increasing the education allowance exemption limit for one child from ₹100 per month to ₹3,000 per month. Exemptions are allowed for education allowances for a maximum of two children. The hostel expense allowance limit is proposed to be increased from ₹300 per child per month to ₹9,000. This can also be claimed for up to two children. Both these limits have remained unchanged for several years.
Salaried taxpayers may be more interested in the old regime.
Gaurav Makhijani, partner at Makhijani Gera & Associates, said, “The increase in the exemption limit on allowances will make the old regime more attractive again.” However, the total tax benefit a salaried taxpayer receives will depend on their salary structure and other available deductions. Vikas Sharma, lead (personal tax) at AKM Global, said, “Overall, the choice between the new regime and the old regime will depend on the benefits available under the new regime.”
Taxpayers’ demand for higher education allowance expenses will be met.
He said, “Salaried employees who enjoy higher benefits may find the old regime more attractive. For other taxpayers, the new regime will be beneficial. Its tax structure is simpler.” Higher education allowance exemption will fulfill the long-standing demand for inflation adjustment.
Meaning of Perquisites to Employees
Perquisites refer to non-cash benefits and amenities provided by an employer to employees in addition to their salary. These are part of salary income and are taxed according to established valuation rules, regardless of whether the employee chooses the old or new regime.
Tax is levied on the fixed value of perquisites
According to the Income Tax Act, 1961 (and the Income Tax Rules, 1962), when an employer provides a car and driver to an employee for both official and personal use, a fixed monthly value is considered taxable perquisites. Currently, this value is ₹2,700 per month for small cars (up to 1.6 liters) and ₹3,300 per month for larger cars. The new rules propose increasing this to ₹8,000 per month and ₹10,000 per month. This will increase the taxable salary and increase the tax on employees.
Proposal to Increase the Exemption Limit for Gifts
The new income tax rules have increased the exemption limit for gifts received from employers from ₹5,000 to ₹15,000 annually. The government has sought public comment on the draft new rules by February 22nd. The government will issue the final rules after receiving feedback from experts and other stakeholders.
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