Allowed Deductions New Tax Regime - WHICH TAX DEDUCTION ALLOWED IN NEW TAX REGIME
Understanding Deductions Under the New Tax Regime for 2024-25
The new tax regime, introduced with various
changes in the Finance Act of 2023, aims to simplify taxation but offers fewer
deductions and exemptions. Here’s a breakdown of the deductions available under
this regime and those that are excluded.
Deductions
Allowed Under the New Tax Regime:
1.
Employer’s
Contribution to NPS (Section 80CCD(2)):
- The employer’s
contribution to the National Pension Scheme (NPS) has been increased from
10% to 14% of the salary in the Budget 2024.
2.
Standard Deduction:
- A standard
deduction of Rs. 75,000 is allowed on Salary and Pension income under the
new regime.
3.
Family Pension
Scheme (Section 57(iia)):
- A deduction of
up to Rs. 25,000 is available, which is either one-third of the family
pension or Rs. 25,000, whichever is lower.
4.
Agniveer Corpus
Fund (Section 80CCH(2)):
- Contributions
to the Agniveer Corpus Fund are eligible for deduction.
5.
Transport and
Allowances:
- Transport
allowance is provided for specially-abled individuals, as well as
allowances for expenses related to tours, transfers, and travel.
6.
Exemptions on
Retirement Benefits:
- Exemptions
are available for voluntary retirement (Section 10(10C)), leave
encashment (Section 10(10AA)), and gratuity (Section 10(10)).
7.
Gifts:
- Gifts up to
Rs. 50,000 received by the taxpayer are exempt from tax.
8.
Interest on Home
Loans for Let-Out Property (Section 24):
- Deductions
for interest on loans taken for let-out properties are allowed, though
there are limits under the new regime.
Deductions Excluded from Business Income:
Certain deductions that were available in the
old tax regime are not claimable under the new tax regime. These include:
- Additional Depreciation (Section 32)
- Investment Allowance (Section 32AD)
- Sector-Specific Deductions (Sections 33AB,
33ABA)
- Expenses on Scientific Research (Section 35)
- Capital Expenditure Deductions (Section
35AD)
- SEZ Unit Exemption (Section 10AA)
Deductions and Exemptions Not Available:
Under the new tax regime, the following
deductions and exemptions are no longer applicable:
- Professional Tax
- Entertainment Allowance
- Leave Travel Allowance (LTA)
- House Rent Allowance (HRA)
- Minor Child Income Allowance
- Allowances for MPs/MLAs
- Special Allowances under Section 10(14)
- Children’s Education Allowance
- Scientific Research-Related Deductions
- Interest on Housing Loan for Self-Occupied
Property
- Chapter VI-A Deductions (except Section 80CCD(2) and Section 80JJAA)
- Donations to Trusts and Political Parties
- Employee’s Own Contribution to NPS
Taxation Under Section 115BAC for Business Income:
For taxpayers with business income, under
Section 115BAC, the choice between the old and new tax regimes is available.
However, if you choose the new tax regime, the following rules apply:
- The new tax
regime is applicable for all subsequent years.
- Taxpayers can
switch only once during their lifetime from the new regime back to the old
one, with specific conditions.
- Business
taxpayers must inform their employer about their tax regime choice, and
they cannot change annually like salaried individuals.
House Property Loss and the New Regime:
- Self-Occupied Property: The new tax regime disallows deductions for
housing loan interest on self-occupied property. The Rs. 2 lakh limit
available under the old regime does not apply.
- Let-Out Property: Interest on housing loans for let-out properties is deductible, but the new regime limits it to taxable rent received. Excess interest over rental income cannot offset other income or be carried forward.
Conclusion:
The new tax regime offers simplicity with
lower tax rates but reduces the number of available deductions and exemptions.
While it's beneficial for those preferring fewer documentation requirements,
taxpayers must carefully consider their eligibility for deductions before
opting for the new regime. For business income taxpayers, this decision is
crucial as it has long-term implications.
As
we progress through the financial year, staying updated on the latest tax
provisions will help in effective tax planning and compliance.
1.
What are the key
deductions available under the new tax regime?
Under the new tax regime, key deductions include employer contributions to the
NPS (up to 14% of salary), a standard deduction of Rs. 75,000 for salary and
pension income, family pension scheme deductions (up to Rs. 25,000), and
deductions for contributions to the Agniveer Corpus Fund. However, most other
exemptions and deductions, such as HRA and LTA, are not available under this
regime.
2.
Can I claim
deductions like HRA or LTA in the new tax regime?
No, the new tax regime does not allow deductions for House Rent Allowance (HRA)
or Leave Travel Allowance (LTA). These deductions are only available under the
old tax regime.
3.
Is there any
deduction available for home loan interest under the new tax regime?
Yes, you can claim a deduction for interest paid on home loans for let-out
properties under the new tax regime. However, for self-occupied properties, no
deduction is allowed for home loan interest.
4.
Can I switch
between the old and new tax regimes every year?
Salaried individuals can switch between the old and new tax regimes every year.
However, taxpayers with business income can only switch from the new tax regime
to the old regime once in their lifetime, with certain conditions.
5.
What happens if I
do not inform my employer about the tax regime I choose?
If you are a salaried individual and do not inform your employer about your
choice of tax regime, your employer will presume you are following the default
new tax regime and will deduct tax accordingly. It is important to notify your
employer to avoid any discrepancies.
Airfinac.com, its author/writer and associates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.