Is Standard Deduction Applicable in New Tax Regime? Easy Guide

One of the key changes is the increase in the Standard Deduction in the New Tax Regime for salaried individuals from ₹50,000 to ₹75,000, which will help reduce taxable income significantly. Additionally, the deduction for family pension has been raised from ₹15,000 to ₹25,000, providing further relief to pensioners.

The deduction on employer’s contributions to pension schemes under Section 80CCD (2) has also been enhanced from 10% to 14% of the salary, increasing the tax-saving potential for employees.

Difference Between New Vs Old Tax Regime Slabs

Also read: Income Tax Slabs for FY 2023-24 & FY 2022-23 (Old & New Regimes)

The purpose of the Standard Deduction under the New Tax Regime is to simplify the tax filing process by reducing paperwork and allowing taxpayers to claim deductions without needing to provide proof of actual expenses.

It was introduced to offer tax relief primarily to middle-class salaried individuals, easing their financial burden by lowering their taxable income. Additionally, the Standard Deduction under the New Tax Regime extends these benefits to pensioners, providing them with similar tax reliefs.

Also read: What is Standard Deduction in Income Tax?

Under the New Tax Regime outlined in Section 115 BAC for the assessment year 2024-2025, individuals and Hindu Undivided Families (HUFs) are eligible to claim a Standard Deduction. However, eligibility comes with specific conditions that must be met. Here is a quick overview:

Individuals and Hindu Undivided Families (HUFs) must opt for the New Tax Regime unless they specifically choose to file under the old regime when submitting their income tax returns by the due date.

• The total income under the New Tax Regime must be calculated without considering certain deductions or exemptions. These include:

• All deductions except those under Section 80 CCD and 80 JJAA.

• Expenditures related to scientific research specified businesses and agricultural extension projects.

• Deductions related to family pension.

• Interest on home loan deductions.

• Specific allowances and perquisites, including House Rent Allowance (HRA).

• No additional depreciation under Section 32 (iia).

Also read: Self Assessment Tax: How to Pay Online & Calculation

Yes, the Standard Deduction is applicable in the New Tax Regime. As per the changes announced in the Union Budget of July 2024, salaried individuals can now claim a Standard Deduction of ₹75,000, an increase from the previous limit of ₹50,000 in 2023.

Additionally, family pensioners are also eligible to claim a Standard Deduction of ₹25,000, up from ₹15,000 in the previous year. These deductions can be availed under Section 80 TTB of the Income Tax Act, 1961.

Example of Difference between Old Vs New Tax Regime Standard Deduction

To understand the difference between the Standard Deductions between the old vs the New Tax Regime, let us look at the example below:

Mr Anish has an income of ₹10,00,000. As per the different Standard Deductions of the old and New Tax Regimes, here is a table to understand the taxable income in both scenarios.

As per the table above, the taxable income reduces with the New Tax Regime Standard Deduction amount, resulting in a higher scope of tax savings for taxpayers.

Also read: Tax Deductions and Exemptions under the New Tax Regime

Although there is no requirement to produce any documents for claiming the Standard Deduction, the following documents must be produced at the time of filing Income Tax Returns:

Also read: What is an Annual Information Statement (AIS)?

Previously, the older tax regimes were beneficial for taxpayers as far as medical insurance was concerned. This is because, under Section 80 D of the Income Tax Act, a taxpayer was eligible to claim tax deductions towards the premiums paid for their health insurance plans.

However, this significant relief of tax deductions towards the premiums is no longer available under the New Tax Regime for the FY 2024-2025.

This change impacts individuals who rely on these deductions to manage their overall tax liability, particularly those who prioritise health coverage as a vital part of their financial planning.

While the New Tax Regime offers its own set of benefits, the absence of health insurance deductions may make the old regime more appealing to those who value their health insurance plans.

Health insurance is crucial not only for safeguarding against unexpected medical expenses but also for ensuring peace of mind during emergencies. Investing in a reliable health insurance plan, like the policies offered by TATA AIG, can provide valuable protection in times of need.

For example, TATA AIG’s Consumables Cover offers the benefit of coverage for the cost of medical consumables and equipment used during treatment, which can be expensive outside of coverage.

Additionally, TATA AIG offers a wide range of benefits, including global coverage for overseas treatment, add-on covers like maternity cover and newborn cover and a seamless claims process, making it one of the best health insurance policy providers on the market, especially for those looking to secure their health and financial future.

Although the New Tax Regime simplifies tax calculations, individuals who value extensive medical insurance coverage and related tax benefits might find the old regime more suitable for their needs.

Also read: Benefits of Health Insurance

The New Tax Regime with better division of tax slabs and increased Standard Deduction, presents an attractive option for any taxpayers, particularly those who prefer a straightforward tax calculation without the need for extensive documentation.

The significant hike in the Standard Deduction to ₹75,000 from ₹50,000 for salaried individuals and ₹25,000 from ₹15,000 for pensioners highlights the government’s effort to provide relief to the middle-class and retired population of the country.

However, the New Tax Regime also comes with its limitations, such as the elimination of many exemptions and deductions that were previously available in the old regime related to health insurance premiums, housing loans, investments and more.

As a taxpayer, it is essential to weigh the benefits and drawbacks of both regimes carefully before deciding to go forward with any. Research and a thorough understanding of which regime will benefit your taxable income and liabilities are crucial for the efficient management of your finances.