In the Indian tax system, deductions play a crucial role in reducing the taxable income of individuals. With the introduction of the new tax regime from April 1, 2023, there have been changes in the deductions allowed compared to the old tax regime.
The Government introduced a New Tax Regime, under Section 115 BAC (as an alternative to the old tax regime) with effect from 1st April, 2020 i.e. from FY 2020-21. The Union Finance Minister Nirmala Sitharaman announced during the Union Budget 2023 that going forward, the new tax regime would become the default tax regime for the taxpayers who do not express any preference at the commencement of the new fiscal year.
However, it should be noted that in Union Budget 2023, Finance Minister Nirmala Sitharaman introduced certain key changes to encourage taxpayers to adopt the New Tax Regime.
The latest changes in the New Tax Regime are as follows:
1.Standard Deduction and Family Pension Deduction:
Earlier the Standard Deduction of Rs. 50,000 was available under the Old Tax Regime but now the same has been made available under the New Tax Regime. Now, under the New Tax Regime, taxpayer can enjoy a tax-free income of Rs. 7,50,000 (i.e. after applying standard deduction and tax rebate).
Family Pensioners can now claim either Rs. 15,000 or 1/3rd of their pension, whichever is lower.
It must be noted that the benefit of Standard Deduction will be allowed to pensioners only if the income from pension is taxed as salary income and not as income from other sources.
2. Deduction under Section 80CCD(2)
The updated New Tax Regime now allows the taxpayers to avail the advantage of employer contribution to their National Pension Scheme (NPS) account as per Section 80CCD(2) of the Income Tax Act.
The deduction is limited to the employer’s NPS contribution made on behalf of the employee, up to 10% of the Employee’s Salary (where salary includes Basic +DA).
3. Other Exemptions under the New Tax Regime:
- Gratuity u/s 10(10)
- Conveyance Allowance
- Voluntary Retirement Scheme u/s 10(10C)
- Leave Encashment u/s 10(10AA)
- Transport Allowances to Person with Disabilities
- Deposits in Agniveer Corpus Fund u/s 80CCH(2)
The List of Deductions which are allowed in the respective tax regime are as follows:
| Sr. No. | Particulars | Old Tax Regime | New Tax Regime (From 1st April, 2023) |
| 1 | Amount of Income Eligible for Rebate |
5,00,000 |
7,00,000 |
| 2 | Standard Deduction |
50,000 |
50,000 |
| 3 | Tax-Free Income from Salary |
5,50,000 |
7,50,000 |
| 4 | Amount of Rebate u/s 87A |
12,500 |
25,000 |
| 5 | HRA Exemption |
Yes |
No |
| 6 | Food Allowance of Rs 50/meal subject to 2 meals a day |
Yes |
No |
| 7 | Leave Travel Allowance |
Yes |
No |
| 8 | Exemption u/s 10(10C) (Voluntary Retirement) |
Yes |
Yes |
| 9 | Exemption u/s 10(10) (Gratuity) |
Yes |
Yes |
| 10 | Exemption u/s 10(10AA) (Leave Encashment) |
Yes |
Yes |
| 11 | Conveyance Allowance |
Yes |
Yes |
| 12 | Daily Allowance |
Yes |
Yes |
| 13 | Transport Allowance (For Specially Abled Individuals) |
Yes |
Yes |
| 14 | Entertainment Allowance |
Yes |
No |
| 15 | Professional Tax |
Yes |
No |
| 16 | Perquisites for Official Purposes |
Yes |
Yes |
| 17 | Interest on Home Loan u/s 24b on let-out property |
Yes |
Yes |
| 18 | Interest on Home Loan u/s 24b on self-occupied or vacant property |
Yes |
No |
| 19 | Deduction u/s 80C (LIC, PPF, ELSS, ULIP, etc.) |
Yes |
No |
| 20 | Employee’s Contribution to NPS |
Yes |
No |
| 21 | Employer’s Contribution to NPS |
Yes |
Yes |
| 22 | Deduction u/s 80D (Medical Insurance Premium) |
Yes |
No |
| 23 | Deduction u/s 80U (Disabled Individual) |
Yes |
No |
| 24 | Deduction u/s 80E (Interest on Education Loan) |
Yes |
No |
| 25 | Deduction u/s 80EEB (Interest on Electric Vehicle Loan) |
Yes |
No |
| 26 | Deduction u/s 80G (Donation to Political Party/ Trust) |
Yes |
No |
| 27 | Deduction u/s 80TTA and 80TTB |
Yes |
No |
| 28 | Deduction u/s 80CCH (Contribution to Agniveer Corpus Fund) |
Yes |
Yes |
| 29 | Deduction on Family Pension Income |
Yes |
Yes |
| 30 | Gifts up to Rs. 50,000 |
Yes |
Yes |
| 31 | Other Deductions Under Chapter VI-A |
Yes |
No |
The new tax regime introduces changes in several deductions compared to the old tax regime, affecting various aspects such as exemptions, allowances, and deductions under different sections of the Income Tax Act. Taxpayers need to carefully assess these changes to optimize their tax planning strategies accordingly.
Author Bio
Contribution to NPS upto 50,000 is allowed under both regime. Section 80CCD(1B)