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Finance Minister, Mrs. Nirmala Sitharaman introduced a New Tax Regime (NTR) in 2020, and gave taxpayers the option to choose between the traditional tax system and the new one introduced. 

What is NTR?

In the NTR, there are lower income tax rates and additional slabs however there is no option of availing tax exemptions and deductions (like house loan or HRA) are made available for taxpayers that exist with the old income tax regime.

Slab Rates under NTR

Slab rate for New Tax Regime – Applicable for All Individuals & HUF irrespective of age and gender (i.e. applicable to men, women, senior citizens, super senior citizens)

New Regime Slab Rates till FY 2022-23 New Regime Slab Rates for FY 23-24 as per Budget 2023
Up to Rs 2.5 lakh – Nil  Up to Rs. 3 lakh – Nil 
Rs 2.5 lakhs- Rs 3.00 Lakhs – 5% (rebate u/s 87a available) Rs. 3 lakh to Rs. 6 lakh – 5% (rebate u/s 87a available)
Rs 3.00 lakhs – Rs 5.00 Lakhs – 5% (rebate u/s 87a available) Rs. 6 lakh  to Rs. 9 lakh – 10% (rebate u/s 87a available upto 7 lakh)
Rs 5.00 lakhs- Rs 7.5 Lakhs – 10% Rs. 9 lakh  to Rs. 12 lakh – 15%
Rs 7.5 lakhs – Rs 10.00 Lakhs – 15% Rs. 12 lakh  to Rs. 15 lakh – 20% 
Rs 10.00 lakhs – Rs. 12.50 Lakhs – 20% Rs 15 Lakhs & above- 30%
Rs 12.5 lakhs- Rs. 15.00 Lakhs – 25%
Rs 15 Lakhs & above- 30%

List of common Exemptions and deductions “ not allowed” under NTR  

The taxpayer can opt for concessional rates under NTR but will have to forgo certain exemptions and deductions that are available to taxpayers in the existing old tax regime.  70 deductions & exemptions that are not allowed, out of which the most important are listed below:

  • Leave Travel Allowance (LTA)
  • House Rent Allowance (HRA)
  • Conveyance allowance
  • Daily expenses in the course of employment
  • Relocation allowance
  • Helper allowance
  • Children education allowance
  • Other special allowances [Section 10(14)]
  • Standard deduction on salary
  • Professional tax
  • Interest on housing loan (Section 24)
  • Deductions available under Section 80TTA and 80TTB that is interest from Savings Account/Deposits
  • exemption to Special Economic Zones under Section 10AA.
  • Deductions under Section 32AD, 33AB, 33ABA, 35(1)(ii),35(1)(ii( (a), 35(1)(iii), 35(2AA), 35AD and 35CCC of the Income Tax Act.
  • Options of additional depreciation under Section 32(ii) (a) of the Income Tax Act
  • The option to carry forward or unabsorbed depreciation of earlier years
  • Tax-saving investment deductions under Income Tax Act , Chapter VI-A 80C, 80D, 80E, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc. These tax-saving investment options include ELSS, NPS, PPF tax relief on medical claim insurance premium, FDR, dependents who are differently-abled, expenses for specified medical treatments, interest on education loan and many more. 

List of deductions “allowed” under new Tax rate regime 

There are some deductions that are available to the taxpayer under NTR. The following is the list of the deductions available:

  • Transport allowance for specially abled people
  • Conveyance allowance for expenditure incurred for traveling to work
  • Investment in Notified Pension Scheme under section 80CCD(2)
  • Deduction for employment of new employees under section 80JJAA
  • Depreciation u/s 32 of the Income-tax act except additional depreciation
  • Any allowance for traveling for employment or on transfer
  • Interest received on Post Office Savings Account under Section 10(15)(i) the maximum amount of Rs. 3,500
  • Gratuity received from the employer up to a maximum amount of Rs. 20 Lacs
  • Amount received from Life Insurance Policy on maturity under Section 10(10D)
  • Employer contribution in NPS or EPF up to 12% of salary and interest on EPF up to 9.5% p.a
  • Income from Life Insurance, agricultural farming
  • Standard reduction on rent
  • Leave encashment on retirement 
  • Retirement cum death benefit

Proposed changes in NTR under Budget 2023 

1. New tax slabs introduced for Financial year 2023-24 (stated above)

2. Extension of the benefit of standard deduction of 50,000 to salaried individuals and 2,500 professional tax, and deduction from family pension up to 15,000. Each salaried person with an income of 15.5 lakh or more will thus stand to benefit by Rs. 52,500. 

3. Increase in the rebate limit to 7 lakh (stated above) Thus, persons in the new tax regime, with income up to 7 lakh will not have to pay any tax. 

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May 2024