New Tax Regime Deductions: The Government of India has introduced the New Tax Regime to simplify personal income tax. Out of the total 7.28 crore income tax returns (ITRs) filed for the financial year 2024-25, 5.27 crore returns were under the New Tax Regime, while 2.01 crore returns were filed under the Old Tax Regime. This shows that about 72% of taxpayers have adopted the new system.
Although the new tax regime has lower tax rates, it has removed many popular exemptions and deductions such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), interest on home loan, Section 80C, etc. Still, taxpayers can avail three major exemptions. Usually people are aware of only one and are less aware of the other two.
1. Standard Deduction
The benefit of standard deduction is available in the new tax regime for salaried employees and pensioners. This deduction was ₹ 50,000 for FY 2023-24, which has been increased to ₹ 75,000 from FY 2024-25. This change will help taxpayers reduce their taxable income, thereby reducing their tax liability.
2. Employer’s contribution to National Pension System (NPS)
Under the new tax regime, tax exemption is available on contributions made by the employer to the National Pension System (NPS). This exemption is given under section 80CCD(2). However, there is no exemption on contributions made by the employee himself. The employer’s contribution can be up to 10% of the employee’s basic salary and dearness allowance, which is tax free.
3. Gratuity
The gratuity received at the time of retirement is tax free even in the new tax regime. This exemption is provided under section 10(10) of the Income Tax Act. For government employees, the entire gratuity amount is tax free, while for non-government employees, gratuity up to a maximum of ₹20 lakh is tax free.
Apart from this, tax exemption is also available under section 10(10C) on the amount received under Voluntary Retirement Scheme (VRS). Also, the benefit of exemption under section 10(10AA) on leave encashment at the time of retirement is also available in the new tax regime.
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