Exemption in New Tax Regime

  • Author :
  • TATA AIG Team
  • Published on :
  • 21/11/2023

The income tax regime defines tax slabs and rates to be paid by the taxpayers. The government of India has introduced the new tax regime in 2020. While this regime has increased the tax rates, it provides multiple tax-saving options.

Besides, the choice of tax regime is optional. It means taxpayers can choose whether they want to use the new tax regime or the old one.

So, what exactly comes under this revised tax regime? What are exemptions and deductions in the new tax regime? We will try to answer all these questions in this blog. Keep reading!

Understanding New Income Tax Slab 2023-24

There are six tax slabs in the new tax regime, with no tax for income up to ₹3,00,000. Below is the table showcasing tax slabs and the tax rates applicable to them:

Income Tax Rate
Up to ₹3 Lakh Zero Tax
₹3 Lakh - ₹6 Lakh 0.05
₹6 Lakh - ₹9 Lakh 0.1
₹9 Lakh - ₹12 Lakh 0.15
₹12 Lakh - ₹15 Lakh 0.2
Over ₹15 Lakh 0.3

An important point to note about the new tax slabs is they are applicable for individuals with income over ₹7 lakh. This is because the income tax is levied in an incremental manner.

Let’s understand this with an example.

Suppose you earn ₹12 Lakh per annum. Note that you won’t be levied a tax rate of flat 15%. Instead, your income will be taxed in an incremental way.

As per the tax calculation, your salary up to ₹3 lakh will attract zero tax. Next, the income between ₹3 to ₹6 lakh will be taxed at a rate of 5% and so on. Below is the complete tax calculation:

0-3 Lakh — Zero

3-6 Lakh — 5%

5% of 3,00,000 = ₹15,000

6-9 Lakh — 10%

10% of 3,00,000 = ₹30,000

9-12 Lakh — 15%

15% of 3,00,000 = 45,000

Thus, the total tax applicable on an income of ₹12 lakh is = ₹90,000.

Deductions Allowed in New Tax Regime

The following are the deductions allowed in the new tax regime:

Standard Tax Deduction in New Tax Regime (for Salaried Individuals)

If you are a salaried employee, you are eligible to claim a standard tax deduction of ₹50,000. This deduction can be claimed under the “Income from Salary” head.

Standard Tax Deduction (for Pensioners)

Pensioners can claim a deduction of ₹15,000 or one-third of their total pension amount, whichever is less.

Employer’s Contribution Towards NPS (u/s 80CCD)

As per section 80 CCD of the IT Act, a salaried employee can claim a tax deduction on his employer’s contribution towards his NPS account. Note that the employee can not claim tax deductions on his own contribution.

Contributions to Agniveer Corpus Fund (u/s 80CCH)

Under section 80CCH of the IT Act, any contribution made towards the Agniveer Corpus Fund can be claimed for deductions regardless of whether it is made by the Agniveer or the Central Government of India.

**Savings Schemes **

The following tax deductions are allowed on various savings schemes:

The maturity amount, as well as interest gained from the Sukanya Samriddhi Yojana, are free from tax.

As per Section 10(10D), maturity funds from Life Insurance Company are eligible for tax exemption in the new tax regime under certain conditions.

As per Section 10(15)(i), taxpayers who have Post Office Savings accounts can claim a deduction of up to ₹3,500 for individual accounts and up to ₹7,000 for joint accounts.

**Allowances By Employers **

Certain allowances that are given by employers to their employees are also eligible for tax deductions under the new tax regime. These are as follows:

Allowances given to perform official duties.

Daily allowances

Travel allowance for disabled employees

Conveyance allowance

Travel allowance for covering the transfer of employees

Gifts received by employees which are no more than ₹5,000.

Exemptions In New Tax Regime that are Not Allowed

We have discussed the new tax regime exemptions list. Let’s now take a look at the tax exemptions in the new tax regime that are not available.

House Rent Allowance (u/s 10(13A))

Professional Tax (u/s 10(5))

Health Insurance Premiums (u/s 80D)

Interest on Home loans

Deductions upto ₹1.5 lakh under sections 80C, 80CCC, 80CCD, 80DD, 80DDB, 80EE, 80E, 80EEA, 80G, etc.

Benefits of New Tax Regime

The latest income tax regime may have increased the tax rates and scrapped some tax deduction options. However, it has brought some significant benefits to the taxpayers. These are as follows:

Allows Standard Tax Deductions

The new tax regime has eliminated around 70 tax deduction options. However, the standard tax deduction of ₹50,000 is still available. This is a great tax-saving opportunity for both salaried individuals and the pensioners.

Lower Surcharge

This is a great relief for the business owners. For an income above ₹2 Crore, the tax rate has been reduced to 25% from 37% in the old tax regime.

Change of Income Tax Slabs

The old tax regime has reduced tax rates, but the slabs are in a block of ₹2.5 lakh. This means the tax rate for a slab ₹2.5 - 5 lakh is 5% and so on. However, the revised tax regime has slabs in a block of 3 lakhs. It means a tax rate of 5% will be levied on ₹3-6 lakh slab.

Tax Rebate

Tax rebate is defined under Section 87A of the IT Act. It reduces your tax liability if your income is less than the defined limit.

This limit is ₹5 lakh under the old tax regime. However, the new regime has increased this income tax exemption limit to ₹7 lakh, which is a great relief for many low-income individuals.

Simplified Income Tax Structure

By removing certain tax exemptions and deductions, the new tax regime has made the income tax structure more simplified, easy to understand, and easy to follow.

Tips to Optimise Your Tax Savings With New Tax Regime

With the new tax regime coming into effect, Indian taxpayers need to be more mindful regarding their tax deductions and savings. Following are some ways in which you can optimise your income tax savings while adhering to the tax regulations:

Claim Available Deductions

As you can see, there are very few tax exemptions under the new tax regime. Hence, identify the ones you are eligible for and claim them to maximise your tax savings.

For example, if you are a salaried employee, claim the standard deduction. Similarly, claim the deductions on the maturity amount and interest gained on government schemes.

Plan Your Investments Mindfully

Investment instruments not only allow you to earn exciting returns on your investment but also provide you with a chance to claim tax deductions under the new tax regime.

Therefore, consider investing in the instruments that are eligible for tax deductions under the revised regime. These include investing in government schemes such as Sukanya Samriddhi Yojana, Post Office Savings account, and so on.

Choose Your Tax Regime Carefully

Last but not least, choose the tax regime as per your income and financial preferences. It is important to remember that the new tax regime is optional. You can still choose the old tax regime if it is beneficial for you. So, avoid choosing the tax regime blindly and make the decision after analysing your tax liability, income, and financial situation.

How Can Tata AIG Help?

As we have discussed, tax deductions on health insurance premiums are not allowed in the new tax regime. However, it is important to realise that a medical insurance plan is not designed with tax benefits in mind. Instead, it is an essential tool designed to offer financial protection in the event of unforeseen health emergencies.

Our health insurance policies are known for their broad coverage, easy claims settlement process, affordable premiums, cashless treatment at network hospitals, etc.

So, if you haven’t already invested in the right policy, purchase a group or individual health insurance plan today.

Moreover, if you already have a health insurance plan, then you should opt for an old tax regime as it offers excellent tax deductions on health insurance premiums paid towards policies in your and your dependents’ names.

Final Words

The new or revised tax regime has been introduced with the objective of simplifying the Indian income tax structure. While it offers only a few deductions, it has reduced the tax rates while improving the tax slabs to a great extent.

For FY 2023-24 and onwards, the new tax regime is the default tax regime. However, taxpayers have the option to choose the old regime if it suits their financial and tax planning.

That’s all about the new tax regime deductions and exemptions. We hope it helps!

FAQS

Should I choose an old tax regime or a new tax regime?

Both new and old tax regimes have their own benefits. While the new regime offers lower tax rates, the old tax regime offers better tax-saving options. Therefore, choose the regime that aligns with your tax liability, income, and other relevant factors.

Does the new tax regime offer tax exemption on leave encashment?

Yes, the new tax regime offers exemptions on leave encashment. Under IT Section 10(10AA), you can claim exemptions on leave encashment up to ₹25 Lakh at the time of your retirement.

Can I switch to a different tax regime from the previous year?

Yes, you can switch to a different tax regime by submitting a form at the time of filing your ITR. Note that the frequency of switching between the tax regimes will vary based on your income type as follows:

For Business or Professional Income (like salary): You can switch only once in your life.

For Income other than Business or Professional: You can make the switch every year.

Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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