While the new tax regime offers simplified tax slabs and reduced paperwork, it comes with a trade-off: You cannot claim several exemptions and deductions, but there are a few that you can still claim in the new tax regime.
Here’s a list of exemptions and deductions available under the new regime after Budget 2023:
Standard Deduction:
“The new tax regime offers a standard deduction of Rs 50,000 for salaried individuals,” says Abhishek Soni, CEO, Tax2Win, an income tax portal. Under the New Tax Regime, you can enjoy tax-free income up to Rs 7.5 lakh after applying the standard deduction and tax rebate. Family pensioners can also benefit from this deduction—claim Rs 15,000 or 1/3rd (33.33 per cent) of their pension, whichever is lower.
It’s important to note that pensioners will only receive the standard deduction benefit if their pension is taxable as salary income. If someone designates their pension as income from another source, they won’t be eligible for the Standard Deduction benefit.
Deduction For Employer’s NPS Contribution:
You can claim a deduction for your employer’s contribution to your National Pension System (NPS) account under Section 80CCD(2).
Deduction For Additional Employee Cost: Employees can claim a deduction for certain allowances provided by their employers under Section 80JJA.
Family Pension Income: Pension received by family members after an employee’s death is exempt under Section 57(iia).
Exemption On Leave Encashment: You can claim a tax exemption of up to Rs. 25 lakhs on your leave encashment under Section 10(10AA), subject to certain conditions.
Keep In Mind:
No Chapter VI-A Deductions: “Most popular deductions under Chapter VI-A, like 80C, which includes investments in PPF, ELSS, and 80D, which includes health insurance premiums, etc., are not available in the new regime,” adds Soni.
No HRA, LTA, And Other Allowances: “Under the new tax regime, you cannot claim exemptions for allowances like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and entertainment allowances,” says Soni.
No Interest On Housing Loan: Under the new tax regime, deduction for interest paid on housing loans is not allowed on self-occupied or vacant properties u/s 24(b).
Limited Applicability: The new regime is the default tax regime starting from FY 2023-24, but you can still choose the old regime while filing your return or by declaring it to your employer.
New Tax Regime:
The Centre introduced the New Tax Regime as an alternative to the Old Tax Regime for individuals and Hindu undivided families (HUF) starting April 1, 2020. However, during the Union Budget 2023, Finance Minister Nirmala Sitharaman announced that the New Tax Regime would become the default option for taxpayers who do not choose at the beginning of the fiscal year after three years.
The New Tax Regime was introduced with adjusted tax brackets and lower tax rates. It applies to all taxpayers, including individuals, Hindu Undivided Families (HUFs), and Associations of Persons (AOPs). During her Budget speech for 2023-24, Sitharaman stated that the new income tax regime’s budget proposals would leave more money in people’s hands, allowing taxpayers to choose where to allocate their funds without government incentives or disincentives. However, the government clarified that individuals opting for the New Tax Regime cannot claim various exemptions and deductions available only under the Old Tax Regime, such as HRA, LTA, 80C, 80D, and others.
