The New Tax Regime, introduced by the Government of India, aims to simplify personal income tax while offering lower tax rates. As per the latest data, 72% of taxpayers have chosen the new tax system, indicating its growing popularity. Out of 7.28 crore income tax returns (ITRs) filed for the financial year 2024-25, 5.27 crore were under the new regime, while 2.01 crore were filed under the old regime.
However, while the New Tax Regime eliminates several traditional deductions like House Rent Allowance (HRA), Leave Travel Allowance (LTA), Interest on Home Loan, and Section 80C benefits, it still allows for three major tax exemptions. Most taxpayers are aware of only one—the standard deduction—but the other two also offer significant tax-saving opportunities.
1. Standard Deduction
One of the biggest advantages under the new tax regime is the Standard Deduction, which applies to salaried individuals and pensioners. This deduction was previously ₹50,000 for FY 2023-24 but has been increased to ₹75,000 for FY 2024-25. This enhancement helps in reducing taxable income, directly lowering the tax burden.
2. Employer’s Contribution to National Pension System (NPS) (Section 80CCD(2))
Under the New Tax Regime, tax exemption is available on the employer’s contribution to the National Pension System (NPS). This falls under Section 80CCD(2) of the Income Tax Act. While employees cannot claim deductions for their own NPS contributions, their employer’s contribution is tax-free up to 10% of their basic salary and dearness allowance. For government employees, the exemption limit is 14%.
3. Tax-Free Gratuity (Section 10(10))
Gratuity received upon retirement remains tax-free under the New Tax Regime. This exemption is provided under Section 10(10) of the Income Tax Act. The tax benefits are as follows:
- For government employees: The entire gratuity amount is exempt from tax.
- For non-government employees: Gratuity up to ₹20 lakh is tax-free.
Additional Exemptions Under the New Tax Regime
Apart from these three key deductions, taxpayers can also benefit from:
- Voluntary Retirement Scheme (VRS) benefits: Exemption under Section 10(10C) for compensation received under VRS.
- Leave encashment: Exemption under Section 10(10AA) for leave encashment at the time of retirement.
Final Thoughts
While the New Tax Regime removes several traditional deductions, it still provides tax-saving opportunities through Standard Deduction, NPS employer contributions, and Gratuity exemptions. Taxpayers should evaluate these benefits carefully before filing their returns to optimize their tax savings. Checking for the latest updates and exemptions will ensure you make the most of the available benefits under the New Tax Regime.
For expert tax consultation and guidance, SAPTAX HUB LLP is the best tax consultant in Delhi, offering professional assistance to help you navigate tax filing and compliance with ease.
Source: https://www.informalnewz.com/new-tax-regime-deductions-3-deductions-are-also-available-in-the-new-tax-regime-check-the-updates-before-paying-tax/
