Deductions/ Exemptions Allowed in New Tax Regime on Income Tax
No. of queries have been received regarding IT exemption and deductions allowed under New Tax Regime.
Table of Contents
The New Income Tax regime is the Default Tax Regime; however, Taxpayers have the option to choose the Old Tax Regime.
New Tax Regime
The new tax regime was introduced in Budget 2020 wherein the tax slabs were altered, and taxpayers were offered concessional tax rates. However, those who opt for the new regime cannot claim several exemptions and deductions, such as HRA, LTA, 80C, 80D, and more. The main features of the new tax regime are as under:-
- Higher Tax Rebate Limit. A full tax rebate on an income up to 7 lakh has been introduced, whereas this threshold is 5 lakh under the old tax regime. This means that taxpayers with an income of up to 7 lakh will not have to pay any tax at all under the new tax regime.
- Streamlined Tax Slabs. The tax exemption limit has been increased to 3 lakh and the new tax slabs are as under:-
| Ser No | Tax Slab for FY 2024-25 | Tax Rate |
| 1 | Upto 3 lakhs | Nil |
| 2 | 3 lakh – 7 lakh | 5% |
| 3 | 7 lakh – 10 lakh | 10% |
| 4 | 10 lakh – 12 lakh | 15% |
| 5 | 12 lakh – 15 lakh | 20% |
| 6 | More than 15 lakh | 30% |
- Salary Income. The standard deduction of 50,000/- which was only available under the old regime, has now been extended to the new tax regime as well. This amount has been into 75,000/- for the new regime only wef FY 2024-25.
- Family Pension. Those receiving family pension can claim a deduction of 15,000/- or 1/3rd of the pension, whichever is lower. This amount has been increased to 25,000/- for the new regime wef FY 2024-25.
- Reduced Surcharge for High Net Worth Individuals. The surcharge rate on income over 5 crore has been reduced from 37% to 25%.
- Higher Leave Encashment Exemption. The exemption limit for non-government employees has been raised from 3 lakh to 25 lakh.
Old Tax Regime
The old regime is the tax system that prevailed before the introduction of the new regime Under this regime, there are over 70 exemptions and deductions available including HRA and LTA that can reduce taxable income and lower tax payments. The most popular and generous deduction is Sec 80C, which allows for a reduction of taxable income up to 1.5 lakh. The taxpayers have a choice between the old and the new tax regime.
Exemptions Allowed in New Tax Regime
- Conveyance Allowance for performance of Office Duties.
- Any Allowance for the cost of Travel/ Tour/ Transfer.
- Transport Allowance for differently abled employees (Divyang) up to ^3,200/- p m.
- Daily allowances received to meet the expenditure incurred on account of absence from place of duty.
- Any allowance granted to meet the expenditure incurred on purchase or maintenance of uniform.
- Leave Encashment u/s 10(10AA).
- Gratuity u/s 10(10).
- Interest and final payment under AFPP/ DSOP Fund u/s 10(11).
- Sum received from Life Insurance Policy u/s 10(10D).
- Commutation of Pension u/s 10(10A).
- Interest and withdrawal from Recognised Provident Fund u/s 10(12).
- Standard Deductions on Family Pension u/s 57(IIA).
- Deductions on Deposits in Agniveer Corpus Fund u/s 80CCH(2).
- Employer’s contributions to employees NPS Accounts u/s 80CCD(2).
Exemptions are not allowed in the New Tax Regime
Exemptions/ deductions of the Old Tax Regime not allowed in the New Tax Regime are as under:-
- Deductions under Chapter VIA (u/s 80C, 80CCC, 80CCD, 80DDB, 80EE, 80EEA, 80G, 80IA etc) (max limit of 1.5 lakh).
- Allowances u/s 10(14) which include CEA, Hostel expenditure, TPT allowance, Special compensatory allowance (including field area allowance), Counter Insurgency allowance, High Altitude allowance & Island Duty allowance.
- Deductions u/s 32AD which allows businesses and professionals to claim a deduction for the wear and tear of their assets used in generating income, 33AB, 33ABA, 35AD, 35CCC.
- HRA u/s 10(13A).
- Leave Travel Allowance u/s 10(5).
- Entertainment Alice and Employment/ Professional Tax.
- Home Loan Interest u/s 24(b).
- Donation or Expenditure on Scientific Research.
- Depreciation u/s 32(iia).
Comparison Between Old vs New Tax Regime
Comparison between the deductions and exemptions available under the new and old tax regimes are as under:-
| Ser No | Particulars | Old Tax Regime | New Tax Regime |
| 1 | Income level for rebate eligibility | 5 lakh | 7 lakh |
| 2 | Standard Deduction | 50,000/- | 75,000/- |
| 3 | Effective Tax-Free Salary income | 5.5 lakh | 7.75 lakh |
| 4 | Rebate u/s 87A | 12,500/- | 25,000/- |
| 5 | HRA Exemption | ✔ | x |
| 6 | Leave Travel Alice (LTA) | ✔ | x |
| 7 | Other allowances include food allowance of Rs 50/ meal subject to 2 meals a day | ✔ | x |
| 8 | Standard Deduction | ✔ | ✔ |
| 9 | Entertainment Allowance and Professional Tax | ✔ | x |
| 10 | Perquisites for official purposes | ✔ | ✔ |
| 11 | Interest on Home Loan u/s 24b on self-occupied or vacant property | ✔ | x |
| 12 | Interest on Home Loan u/s 24b on: Let-out
property |
✔ | ✔ |
| 13 | Deduction u/s 80C (EPF/ LIC/ ELSS/ PPF/ FD/ Children’s tuition fee etc) | ✔ | x |
| 14 | Employee’s (own) contribution to NPS | ✔ | x |
| 15 | Employer’s contribution to NPS | ✔ | ✔ |
| 16 | Medical insurance premium – 80D | ✔ | x |
| 17 | Disabled Individual 80U | ✔ | x |
| 18 | Interest on education loan – 80E | ✔ | x |
| 19 | Interest on Electric vehicle loan – 80EEB | ✔ | x |
| 20 | Donation to Political party/ trust etc – 80G | ✔ | x |
| 21 | Savings Bank Interest u/s 80TTA and 80TTB | ✔ | x |
| 22 | Other Chapter Vl-A deductions (incl Secs 80C, 80CCD, 80D, 80E, 80EE, 80G. 80U, 80TTA and80TTB) | ✔ | x |
| 23 | All contributions to Agniveer Corpus Fund – 80CCH | ✔ | ✔ |
| 24 | Deduction on Family Pension Income | ✔ | ✔ |
| 25 | Gifts upto Rs 50,000 | ✔ | ✔ |
| 26 | Exemption on voluntary retirement 10(10C) | ✔ | ✔ |
| 27 | Exemption on gratuity u/s 10(10) | ✔ | ✔ |
| 28 | Exemption on Leave encashment u/s 10(10AA) | ✔ | ✔ |
| 29 | Daily Allowance | ✔ | ✔ |
| 30 | Conveyance Allowance | ✔ | ✔ |
| 31 | TPT Allowance for a specially-abled person | ✔ | ✔ |
Disclaimer.
- When total deductions are more than 3 75 lakh, the old tax regime will be more beneficial.
- When total deductions are less than 1.5 lakh, the new tax regime will be more beneficial.
- When total deductions are between 1.5 lakh to 3.75 lakh, the choice will depend on gross total income.
- An Income Tax calculator available in the public domain may be used before choosing the tax regime.
