New Tax Regime: 3 Deductions To Maximize Savings

Aakhir Tak – In Shorts

• 72% of taxpayers have shifted to the new tax regime, indicating its growing popularity over the old system.
• Many popular deductions like HRA, LTA, and Section 80C have been reduced under the new regime.
• Taxpayers can still claim deductions on standard deduction, NPS contributions, and gratuity.
• Budget 2024 increased the limit of standard deduction from Rs 50,000 to Rs 75,000.
• Taxpayers should review their tax-saving plans under the new tax regime.

Aakhir Tak – In Depth

The government introduced the new tax regime with the aim of simplifying personal taxation. Out of the total 7.28 crore ITRs filed, 5.27 crore were under the new regime, while 2.01 crore were filed under the old tax regime for AY 2024-25, indicating nearly 72% of taxpayers have shifted to the new system. The new tax regime is becoming increasingly dominant.

Reduction in Deductions Under the New Tax Regime

While the new regime offered concessional tax rates, it reduced several popular deductions and exemptions, such as the house rent allowance (HRA), leave travel allowance (LTA), interest on home loans, Section 80C, and more. This has negatively impacted many taxpayers who previously relied on these deductions.

Deductions Still Available

However, taxpayers can still claim the following three deductions:

• Standard Deduction: Taxpayers can now claim an enhanced standard deduction benefit under the new tax regime. Budget 2024 has increased the limit of standard deduction from Rs 50,000 to Rs 75,000 for FY2024-25 onwards. The standard deduction provides significant relief to taxpayers.
• NPS Contribution: Employers’ contributions towards the National Pension Scheme (NPS) have been exempted under the new income tax regime under Section 80CCD(2). However, no such exemption is given to an employee’s own contribution to NPS. NPS remains a valuable investment option.
• Gratuity: Certain retirement-related benefits such as gratuity and voluntary retirement remain tax-exempt under the new regime. Gratuity is exempted under Section 10(10), while exemption for voluntary retirement scheme can be claimed under Section 10(10C) by the taxpayers. Gratuity provides an important post-retirement benefit.

Moreover, deductions such as leave encashment under Section 10(10AA) are also available to taxpayers under the new regime. These available deductions should be utilized.

Review Tax-Saving Plans

As the tax structure evolves, taxpayers must review their tax-saving plans. Although the new regime makes tax-filing easier, it also removes several deductions and exemptions. However, being informed about the available deductions can help taxpayers maximise savings and minimise tax burden. Understanding the intricacies of the new tax regime is essential for effective financial planning.

Aakhir Tak – Key Takeaways to Remember

• 72% of taxpayers shifted to the new tax regime.
• Many deductions like HRA, LTA, and 80C were reduced.
• Standard deduction increased to Rs 75,000.
• Exemption available on NPS contributions.
• Exemption continues for gratuity and voluntary retirement.

Aakhir Tak Editor-in-Chief

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