Exemptions & Deduction under New Tax Regime

New tax regime will be the default tax regime. However, taxpayers can opt for the old regime. A tax rebate has been introduced under the new tax regime on income up to Rs.7 lakhs. Therefore, you do not have to pay tax if your taxable income is below Rs.7 lakhs under the new tax regime

• The tax exemption limit of Rs.2.5 lakh has increased to Rs.3 lakh under the new tax regime and tax slabs have been recalibrated under the new tax regime as follows: 
  • Up to Rs.3 lakh: Nil
  • Rs.3 lakh-Rs.6 lakh: 5%
  • Rs.6 lakh-Rs.9 lakh: 10%
  • Rs.9 lakh-Rs.12 lakh: 15%
  • Rs.12 lakh-Rs.15 lakh: 20%
  • Above Rs.15 lakh: 30%
• The standard deduction of Rs 50,000 has been extended to the new tax regime as well
• The highest surcharge rate of 37% has been reduced to 25% under the new tax regime. This move impacts taxpayers earning more than Rs 5 crore. As a result, their overall tax rate will decrease from 42.74% to 39%

Exemptions and deductions not claimable under the new tax regime

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The following are some of the major deductions and exemptions you cannot claim under the new tax system:

1. The standard deduction under Section 80TTA/80TTB
2. Professional tax and entertainment allowance on salaries
3. Leave Travel Allowance (LTA)
4. House Rent Allowance (HRA)
5. Minor child income allowance
6. Helper allowance
7. Children education allowance
8. Other special allowances [Section 10(14)]
9. Interest on housing loan on the self-occupied property or vacant property (Section 24)
10. Chapter VI-A deduction (Section 80C, 80D, 80E and so on, except Section 80CCD(2) and Section 80JJAA)
11. Exemption or deduction for any other perquisites or allowances including food allowance of Rs 50/meal subject to 2 meals a day
12. Employee’s (own) contribution to NPS
13. Donation to Political party/trust, etc
14. Budget 2023 update- Deduction from family pension income only for years up to FY 2022-23 (From FY 2023-24, this is allowed as deduction)
15. Budget 2023 update- Standard deduction of Rs.50,000 only for years up to FY 2022-23 (From FY 2023-24, this is allowed as deduction)

What are the exemptions and deductions available under the new regime?

Under New tax regime, you can claim tax exemption for the following:

1. Transport allowances in case of a specially-abled person.
2. Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
3. Any compensation received to meet the cost of travel on tour or transfer.
4. Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.
5. Perquisites for official purposes
6. Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)
7. Interest on Home Loan on let-out property (Section 24)
8. Gifts up to Rs 5,000
9. Deduction for employer’s contribution to NPS account [Section 80CCD(2)]
10. Deduction for additional employee cost (Section 80JJA)
11. Budget 2023 introduced a standard deduction of Rs 50,000 under New Tax Regime applicable from FY 2023-24
12. Budget 2023 also introduced deduction under Section 57(iia) of family pension income
13. Budget 2023 further introduced deduction of amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2)

Here’s a detailed list of exemptions and deductions available under Old vs New Regime.

Can I choose between the new tax regime and the existing regime?

A salaried taxpayer can choose the new tax regime at the beginning of FY 2023-24 and intimate their employer. The employee cannot change their choice anytime during the financial year. However, they can change their choice when filing the income tax return in July 2024.

The due date for tax filing for the FY 2022-23 (AY 2023-24) is 31st July 2023.

In case an employee does not choose the new tax regime at the beginning of the financial year, the employer will deduct tax (TDS) under the existing tax regime. A salaried taxpayer can choose the new tax regime in one year and choose the regular tax regime in another year.

A non-salaried taxpayer has to choose the new regime when filing the tax return. They need not declare or intimate their choice to anyone during the year. However, a non-salaried taxpayer (taxpayers with an income from business or profession) cannot opt-in and opt-out of the new tax regime every year. Once a non-salaried opts out of the new tax regime, they cannot opt-in again for the new tax regime in the future.

How do I choose the new regime and plan my tax?

From a tax planning perspective, choosing the tax regime at the beginning of the financial year is essential. A taxpayer must compare the income tax under the new tax regime with the existing regime. Once the taxpayer chooses the tax regime at the beginning of the year, the investments and TDS or advance tax payable calculations are made accordingly. Also, the taxpayer has to furnish Form 10IE to the income tax department before filing the return if the taxpayer intends to opt for the new tax regime.