The new tax regime was introduced in India, in 2020, to streamline the prevalent tax structure and make it easier for taxpayers to comply with their tax obligations. In the recent budget announcement of 2023, the new tax regime underwent a revamp. The introduction of revised slabs and deductions under the new tax regime was the key highlight of this announcement. Although the objective of the new tax regime is to encourage compliance, widen the tax base, increase tax revenues, and provide tax relief to those with lower income levels, it may not necessarily be ideal for all. Let us take a brief look at the new tax regime deductions and other focal points associated with it so that you can make a more informed decision.
You can claim ₹50K as a standard deduction in the new tax regime. This is applicable to salaried people as well as pensioners. No separate proof or claims need to be made to avail of this deduction. For family pensioners, ₹15K has been set as the standard deduction in the new tax regime.
Under section 80CCD(2) of the Income Tax Act, contributions made by your employer to your National Pension System (NPS) account are also exempt from tax. This is capped at 10% of the basic salary plus DA of a person employed in the private sector, while it is 14% for a government employee.
Under section 24(b), you can claim a deduction for the amount paid as interest on a loan on the property. It is important to note that this is only applicable to properties that are rented out. If you’re living or occupying it, you cannot claim this benefit. The interest paid can be deducted from the rent received, thereby reducing your net payable tax.
Another new tax regime deduction introduced falls under section 80CCH and is applicable to those who are enrolled in the nation’s Agniveer Scheme (from 01 Nov 2022 onwards). A deduction can be claimed up to the amount contributed to the Agniveer Corpus Fund.
Under the new tax regime, taxpayers have lower tax rates but fewer deductions and exemptions. The government hopes that the new tax regime will encourage compliance, widen the tax base, and increase tax revenues. It is also expected to make tax calculations easier for taxpayers, especially those with lower income levels. However, a lot of the deductions that you may be used to, such as the ones under section 80(C) – insurance premiums, ELSS funds, pension plans, provident funds, etc. – are no longer available if you choose the new tax regime. So, it is important to do a thorough cost-benefit analysis before choosing the right tax regime for yourself.
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Section 24(b) of the Income Tax Act in the new tax regime allows you to claim a deduction for interest paid on housing loans taken for a property that has been rented out. The interest that you pay on the loan can be deducted from the rent you receive. Do note, this deduction under the new tax regime is not applicable for a self-occupied property.
Apart from the interest paid on property that is rented out, you can also claim a deduction on the contribution made by your employer to your National Pension System (NPS) account. This falls under section 80CCD(2) of the Income Tax Act and is restricted to 10% of the basic salary + DA. Furthermore, you can claim a deduction for gratuity, leave encashment, and voluntary retirement exemptions.