When opting out of the old tax regime, you may have many doubts, like ‘Is standard deduction applicable in the new tax regime?’ While the Interim Budget of 2024 did not propose any changes to taxation, the 2023 Union Budget eliminated multiple exemptions under the new tax regime.
However, there are certain deductions and exemptions you can still enjoy if you opt for this scheme. Read on to know more.
What is the New Tax Regime?
Before diving into the deductions, here’s a brief overview of the regime:
- The new tax regime with concessional tax rates was introduced in the Union Budget 2020
- Those who opt for this tax regime cannot claim various tax deductions available in the older regime
- In this regime, the Government hiked the basic exemption limit from ₹2.5 to ₹3 lakhs
- The annual income limit for tax rebate was also raised from ₹5 lakhs to ₹7 lakhs
Also Read: Old Regime vs New Regime of Taxation in India
Deductions Available Under the New Tax Regime
Are you wondering which deductions are allowed in the new tax regime? Here’s an overview:
- Salaried individuals can claim up to ₹50,000 as standard deduction under Section 80TTB
- Exemption of up to ₹7.5 lakhs on employer’s contribution in PF, NPS and other such accounts
- You can withdraw 60% of your NPS account corpus without paying any taxes
- Partial withdrawal of up to 25% from the self-contribution of your NPS account is tax-free
- Family pensioners can avail of a standard deduction of 1/3rd of pension or ₹15,000, whichever is lower
- The interest earned on PPF is also tax-free, up to 9.5% if it is a recognised provident fund
- You can enjoy exemptions of up to ₹20 lakhs received as gratuity
- The amount received at maturity of life insurance plans is exempt if the premium doesn’t exceed ₹5 lakhs
- Funds received through voluntary retirement and leave encashment will be tax-free
- Exemptions on travel and conveyance allowances
- Contributions to Anginveer Corpus Fund u/s 80CCH are eligible for deduction
- Interest on a home loan for a let-out property can be claimed as a deduction
When deciding between the new and old regimes, calculate your tax liability for both. This will allow you to choose the best one and get maximum tax benefits. If you are going for the new regime, remember to choose yes under the “Are you opting for the new tax regime u/s 115BAC?” question asked at the time of return filing.
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FAQs on Deductions Allowed Under the New Tax Regime
Are any deductions allowed in the new tax regime?
The number of deductions you can claim under the new tax regime is less than that of the older regime. That said, there are several deductions you can enjoy in the new regime, such as:
- Standard deduction of up to ₹50,000
- Interest on a home loan for a let-out property
- Family pension received (₹50,000 or 1/3rd, whichever is lower)
- Amount paid or deposited in the Agniveer Corpus Fund
What is the professional tax deduction allowed in the new tax regime?
No, it isn’t applicable. However, you can claim up to ₹2,400 under the old tax regime.
Which is better, the old or new tax regime?
Consider the following factors when deciding between two tax regimes:
- The New Tax Regime will be beneficial if your total deductions are less than ₹1.5 lakhs
- If your total deductions range between ₹1.5 lakhs and ₹3.75 lakhs, either of these two regimes will be favourable based on your income level
- In case the total deductions exceed ₹3.75 lakhs, choosing the older regime will be more lucrative
- Calculate tax liabilities under both regimes and choose accordingly
What are the tax benefits of the new tax regime?
If you are wondering what deductions are allowed in the new tax regime, here’s a brief overview:
- Standard deduction of ₹50,000
- Transport and conveyance allowance
- Gratuity, leave encashment and voluntary retirement
- Interest on home loan on let-out property
- Gifts worth up to ₹50,000 from friends and family
