10 Deductions Available in New Tax Regime (FY 2024-25)

Introduction

The New Tax Regime, introduced under Section 115BAC of the Income Tax Act, provides lower tax rates but removes most deductions and exemptions available in the old regime. However, the Union Budget 2023-24 introduced some relaxations, allowing a few deductions in the new regime. Let’s look at what taxpayers can still claim under the new regime for FY 2024-25 (AY 2025-26).

Deductions and Benefits Available in New Tax Regime

1. Standard Deduction for Salaried Individuals & Pensioners

• Amount: ₹75,000
• Eligibility: Available to salaried individuals and pensioners
• Benefit: Reduces taxable income without requiring specific investments

2. Employer’s Contribution to NPS, EPF, and Superannuation Fund

• Amount: Up to 10% of salary for NPS (14% for government employees), 12% for EPF, and ₹1.5 lakh for the superannuation fund
• Eligibility: Only employer’s contribution is deductible
• Benefit: Encourages retirement savings without impacting take-home salary

3. Agni veer Corpus Fund Deduction (New in Budget 2023)

• Amount: Any sum deposited in the Agni veer Corpus Fund
• Eligibility: Available to Agni veers (armed forces personnel under Agni veer scheme)
• Benefit: Encourages savings for defense personnel

4. Family Pension Deduction (Section 57)

• Amount: 1/3rd of pension or ₹15,000, whichever is lower
• Eligibility: Individuals receiving family pensions
• Benefit: Provides relief to family members of deceased employees

5. Leave Encashment Exemption

• Amount: Up to ₹25 lakh (enhanced from ₹3 lakh in Budget 2023)
• Eligibility: Applicable on retirement or resignation for non-government employees
• Benefit: Provides tax-free income on retirement benefits

6. Exemption on Gifts from Employers

• Amount: Up to ₹5,000 per year
• Eligibility: Employees receiving gifts from their employer
• Benefit: Small tax-free perks from employers

7. Gratuity Exemption (Section 10(10))

• Amount: Up to ₹20 lakh for non-government employees
• Eligibility: Applicable upon retirement, resignation, or death
• Benefit: Tax-free retirement benefit for employees with at least 5 years of service

8. Exemption on Maturity Proceeds of Life Insurance Policies (Section 10(10D))

• Amount: Fully exempt if premium does not exceed 10% of sum assured (subject to new ₹5 lakh premium limit for ULIPs and high-value policies)
• Eligibility: All taxpayers
• Benefit: Encourages long-term life insurance planning

9. Tax-Free Allowances for Government Employees

• Eligibility: Certain government employees can avail tax-free allowances like:
  • Transport Allowance for Disabled Employees
  • Conveyance Allowance for Official Duties
  • Travel/Transfer Allowance
• Benefit: Reduces taxable salary while covering work-related expenses

10. EPF & PPF Interest Exemption

• Amount: Interest earned on EPF (up to ₹2.5 lakh annual contribution) and PPF (fully tax-free)
• Eligibility: Employees and individuals contributing to these schemes
• Benefit: Provides tax-free income growth for retirement savings

Key Points to Remember

• The New Regime is now the default tax regime, but taxpayers can opt for the old regime if they wish to claim other deductions like 80C, 80D, HRA, and home loan interest.
• Individuals with lower investments or fewer deductions may benefit from the new regime, while those with high deductions might find the old regime more suitable.
• The decision to opt for the new or old regime must be made carefully based on income, deductions, and tax planning strategies.

FAQs

1. Can I claim 80C deductions in the new tax regime?

No, Section 80C deductions for LIC, EPF, PPF, ELSS, etc., are not available in the new tax regime.

2. Is home loan interest deductible under the new regime?

No, home loan interest (Section 24(b)) deduction is not allowed for self-occupied properties under the new regime.

3. Are HRA and LTA exemptions available in the new regime?

No, House Rent Allowance (HRA) and Leave Travel Allowance (LTA) exemptions are not available in the new regime.

4. Who should opt for the new tax regime?

Taxpayers with minimal deductions and lower investment-based tax savings may benefit from the new tax regime.

5. Can I switch between the old and new tax regime every year?

Yes, salaried individuals can switch regimes every year, but businesses and professionals with business income can switch only once.

Conclusion

The new tax regime offers simplicity and lower tax rates but removes many deductions. However, with recent relaxations, some key exemptions and deductions are still available. Taxpayers should evaluate their total tax liability under both regimes and choose the one that offers maximum benefits.

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