You can claim these deductions under the new tax regime, check details
5 min read • Updated: February 13, 2024, 8:50 PM
In case you have opted for the new tax regime, the good news is that you can still claim certain deductions with effect from FY 2023-24 (AY 2024-25).
The government introduced the new tax regime in 2020 and the idea was to give taxpayers an option to pay income tax at lower rates in lieu of withdrawal of all major exemptions and deductions. However, with an objective to make the new tax regime more attractive for taxpayers, the government decided to extend some deductions under the new regime as well.
In Budget 2023, the government made the new tax regime the default with an option for the taxpayers to opt out. The key difference between the old and new tax regimes is that the deductions the taxpayers enjoy. New tax regime offers liberal tax rates without all the deductions and exemptions available under the old tax regime.
In case you have opted for the new tax regime, good news is that you can still claim certain deductions with effect from FY 2023-24 (AY 2024-25).
Let’s take a look at the deductions you can claim under the new tax regime.
Deductions under new tax regime
Here we have compiled a list of the deductions available under the new tax regime:
Standard deduction: Standard deduction was not allowed in the new tax regime until FY23. However, the Union Budget 2023 introduced the proposal to allow standard deduction of ₹50,000 for salaried persons and pensioners from FY24.
Therefore, under the new tax regime, after applying the tax rebate and standard deduction, you can enjoy a tax-free income of ₹7.5 lakh.
Standard deduction was also allowed for family pensioners. They can claim either ₹15,000 or one-third of their pension, whichever is lower.
However, the benefit of standard deduction will be allowed to pensioners only if the pension is taxable as ‘salary income’. If pension is chosen as ‘income from the other source’, then the benefit of standard deduction will not apply.
Employer’s contribution to NPS account: Salaried individuals opting for the new tax regime can claim deduction, but only on the employer’s contribution to their National Pension System (NPS) account. This deduction is claimed under Section 80CCD (2) of the Income Tax Act, 1961.
Also, the maximum amount that an individual can claim under this section is different for a private sector employee and a government employee.
Private sector employees can claim a maximum deduction of 10% of their salary (basic + dearness allowance), while government employees can claim a maximum deduction of 14% of their salary (basic + dearness allowance).
Employer’s contribution to EPF account: Salaried employees can also claim deduction on the employer contribution to the Employee Provident Fund (EPF) account. This deduction is limited to 12% of monthly salary (basic + dearness allowance). The benefit can only be availed where the employer contribution is less than or equal to ₹7.5 lakh in a financial year.
Transport allowances in case of a specially-abled person: The new tax regime allows exemption for transport allowance for salaried employees who are blind, deaf, dumb or orthopedically handicapped with disability of lower extremities. The exemption is limited to ₹3,200 per month.
Conveyance allowance: Taxpayers can claim deduction on conveyance allowance received to meet the travel expenditure incurred as part of the employment. This includes compensation received to meet the cost of travel on tour or transfer. This is limited to ₹1,600 per month or ₹19,200 per annum.
Daily allowance: Deductions can also be claimed on daily allowance received by employees to meet the ordinary regular charges or expenditure incurred on account of absence from the regular place of duty.
All contributions to Agniveer Corpus Fund: During Union Budget 2023, the government announced deduction on amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH (2) for both new and old tax regimes. Leave encashment on retirement: Salaried taxpayers can claim deduction on encashment of their accrued leave balance upon retirement under the new tax regime. In fact, in Budget 2023, the exemption threshold for leave encashment was increased 8-fold from ₹3 lakhs to ₹25 lakhs for non-government employees. Exemption on voluntary retirement: A maximum amount of ₹5 lakh for compensation under voluntary retirement scheme (VRS), after at least 10 years of service, can also be claimed as exemption.
Exemption on gratuity: Under the new tax regime, payments made in place of gratuities after five or more years of uninterrupted service are free from taxation. The maximum tax-free gratuity payout is limited to ₹20 lakh.
Interest paid on a housing loan taken for a rented-out property: Under the new tax regime, interest paid on a housing loan taken for a rented-out property can be claimed as deduction under Section 24(b). However, you cannot claim a deduction on interest for a housing loan in case of a self-occupied property.
To sum up As a large number of taxpayers believe that under the new tax regime deductions can’t be claimed, now you know what to do to save more money. As the financial year is going to end soon, plan it well to reduce your tax liability. It’s the time to gather all the investment proofs before filing the income tax return (ITR) and you know your go to options.