Filing income tax returns can be confusing, especially with the changes brought by the new tax regime. Here’s a simple guide to help you understand the exemptions and deductions you can still claim under the new system.
What is the New Tax Regime?
The new tax regime, introduced in 2020, offers lower tax rates but fewer exemptions and deductions. Taxpayers can choose between the old regime, which has higher tax rates but more exemptions and deductions, and the new regime.
Key Exemptions and Deductions Allowed
Even though the new regime has fewer benefits, there are still some you can claim:
- Employer’s Contribution to NPS: Contributions made by your employer to the National Pension System (NPS) are still exempt under the new regime.
- Employer’s Contribution to EPF: The employer’s contribution to the Employees’ Provident Fund (EPF) up to a certain limit is also exempt.
- Gratuity: The gratuity received by employees on retirement is exempt up to a specified limit.
- Leave Encashment: Leave encashment received at the time of retirement is exempt up to a certain amount.
- Retrenchment Compensation: Compensation received on retrenchment is exempt up to a specified limit.
- Voluntary Retirement Scheme (VRS): Amounts received under VRS are exempt up to a certain limit.
Benefits Not Available in the New Regime
Under the new tax regime, many common exemptions and deductions are not available, such as:
- House Rent Allowance (HRA)
- Leave Travel Allowance (LTA)
- Standard deduction of ₹50,000 for salaried individuals
- Deductions under Section 80C for investments in PPF, LIC, ELSS, etc.
- Deductions under Section 80D for medical insurance premiums
- Interest on housing loan under Section 24(b)
Choosing the Right Regime
Choosing between the old and new tax regimes depends on your financial situation. If you have significant investments and expenses that qualify for deductions, the old regime might be better. However, if you prefer a simpler tax structure with lower rates, the new regime could be beneficial.
| Section | Deduction/Exemption | Old Tax Regime | New Tax Regime |
| Section 10(13A) | House Rent Allowance (HRA) | Available | Not Available |
| Section 10(5) | Leave Travel Allowance (LTA) | Available | Not Available |
| Section 16 | Standard Deduction (₹50,000 for salaried) | Available | Not Available |
| Section 24(b) | Interest on Housing Loan | Available (up to ₹2,00,000) | Not Available |
| Section 80C | Investments in PPF, LIC, ELSS, etc. | Available (up to ₹1,50,000) | Not Available |
| Section 80D | Medical Insurance Premium | Available | Not Available |
| Section 80E | Interest on Education Loan | Available | Not Available |
| Section 80G | Donations to Charitable Institutions | Available | Not Available |
| Section 80TTA/80TTB | Interest on Savings Account/Deposits | Available | Not Available |
| Section 80CCD(2) | Employer’s Contribution to NPS | Available | Available |
| Section 10(14) | Special Allowances (e.g., children’s education) | Available | Not Available |
| Gratuity | Gratuity received on retirement | Exempt (up to specified limits) | Exempt (up to specified limits) |
| Leave Encashment | Leave encashment received at retirement | Exempt (up to specified limits) | Exempt (up to specified limits) |
| Retrenchment Compensation | Compensation received on retrenchment | Exempt (up to specified limits) | Exempt (up to specified limits) |
| VRS | Amounts received under Voluntary Retirement Scheme | Exempt (up to specified limits) | Exempt (up to specified limits) |
Key Takeaways
- Old Tax Regime: Offers a wide range of deductions and exemptions, making it beneficial for those with significant eligible investments and expenses.
- New Tax Regime: Provides lower tax rates with fewer deductions and exemptions, offering a simpler tax structure.
When deciding between the old and new tax regimes, consider your financial situation, investment portfolio, and eligible expenses to choose the most beneficial option. Consulting with a tax professional can also provide personalized guidance.
Note: Individuals earning up to ₹7,00,000 under the new tax regime are eligible for a rebate of ₹25,000. This effectively exempts them from paying income tax. For more information, refer to Income Tax Slabs FY 2024-25 (New & Old Regime Tax Rates)
Conclusion
Understanding the available exemptions and deductions under the new tax regime rules can help you make an informed decision when filing your income tax return. Consider your financial situation and consult with a tax professional if needed to choose the best option for you.
If you are still facing any problems or experiencing delays, don’t hesitate to consult a tax professional at ApkiReturn to resolve any issues.
We are a team of highly qualified Chartered Accountants and Company Secretaries with over 20 years of experience, providing prompt and efficient services tailored to meet the unique needs of our clients.
Contact us at +91 766 515 6000 to book consultants with our experts.
