Deductions Available under the New Tax Regime FY 2024-25

The deductions available under the New Tax Regime are often not being considered appropriately by the individuals thereby leading to reduced tax savings. Even though the individuals are availing the benefits of the higher income slabs under new tax regime, the deduction available to the individuals are often overlooked. Let us understand the deductions that can be availed by individuals while filing their Income Tax Returns for FY 24-25 under the New Tax Regime in order to maximize the tax savings.

Common Assumptions regarding Deduction under the New tax Regime

The concept behind the higher income slabs for taxation under the New Tax Regime is to reduce the tax implications in the hands of the individuals. However, while the Old Tax Regime has lower income slabs, it is often preferred since many deductions are allowed in the computation of taxable income. It is commonly assumed that there are no deductions available under the New Tax Regime, however, this statement has some exceptions.

How to opt for New Tax Regime?

The New tax Regime has now been made the Default tax Regime. Therefore, the assessee does not have to opt for the New tax Regime. In case the assessee wishes to file his return under the Old Tax Regime, they will have to file Form 10 IEA to opt out of the default tax regime.

Standard Deduction in New Tax Regime

For salaried individuals, u/s 115BAC the standard deduction in New Tax Regime is Rs. 75,000 however, the standard deduction under the Old Tax Regime is Rs. 50,000. Therefore, the standard deduction in New Tax Regime is higher than the deduction under the Old Tax Regime.

Rebate u/s 87A

Under Section 87A of the Income Tax Act, resident individuals can claim a tax rebate that reduces their liability to zero if their total income is within a specified limit. In the old tax regime, this rebate is available for incomes up to Rs. 5 lakh, with a maximum rebate of Rs. 12,500. In the new regime (post Budget 2023), the limit has been increased to Rs. 7 lakh, offering a rebate of up to Rs. 25,000. This makes both regimes tax-free up to their respective thresholds, but the new regime provides greater relief for those with fewer deductions.

Provident Fund and NPS Deduction

For individuals filing their Income Tax Returns under the New Tax Regime, the filers must keep in mind that the following 2 deductions are available with regards to contributions to the Provident Fund and NPS –

• Employer’s contribution to NPS u/s 80CCD(2)
• Employee’s contribution to Provident Fund u/s 80 CCD(1).

Interest on Home loan

While the law prohibits the assessee from availing the deduction for interest on housing loan for self occupied property, the assessee can avail the deduction on the interest on housing loan for let out property u/s 24b of the Income Tax Act.

Deductions for Employee Benefits

The deductions such as House Rent Allowance (HRA) is not available under the New Tax Regime however, there are certain deductions related to other employee benefits that are allowed under the New Tax Regime such as –

• Perquisites for official purposes
• Daily Allowance
• Transport allowance for specially abled persons u/s 10(14)
• Exemption on leave encashment u/s 10(10AA).

Deductions pertaining to Retirement Benefits

Under the New Tax Regime, the deductions pertaining to the retirement benefits are as under –

• Exemption on Voluntary Retirement u/s 10(10C)
• Exemption on Gratuity u/s 10(10)

Moreover, even in cases of retrenchment, the retrenchment compensation u/ 10(10B) is allowed for deduction under the New tax Regime.

Deduction u/s 80JJAA

Under the new tax regime, Section 80JJAA continues to be available and offers a 30% deduction on the additional employee cost for three consecutive years, aimed at encouraging job creation. This benefit applies to businesses subject to tax audit that hire new employees who work for at least 240 days in the year (or 150 days for sectors like manufacturing and apparel) and earn wages not exceeding Rs. 25,000 per month through digital or banking channels. It remains one of the few deductions permitted even when opting for the concessional tax rates under Section 115BAC.

Other Deductions allowable under the New Tax Regime

Some other deductions that are permitted under the New Tax Regime are as under –

• Contribution to Agniveer Corpus Fund u/s 80CCH
• Contribution to the Family Pension Scheme
• Gifts upto Rs. 50,000 u/s 57(IIA)
• Income from Life Insurance Policy, including bonus, u/s 10(10D)(1).

Deductions Not Allowed under the New Tax Regime

The assessee must keep in mind the following list of deductions that will not be allowed under the New Tax Regime –

• House Rent Allowance (HRA)
• Leave Travel Allowance (LTA)
• Section 80C – Deductions for investments like LIC, PPF, ELSS, tuition fees, etc.
• Section 80D – Health insurance premium
• Section 80G – Donations to charitable institutions
• Section 80E – Interest on education loan
• Section 80TTA / 80TTB – Interest on savings for individuals and senior citizens
• Interest on housing loan (Section 24b) – for self-occupied or vacant property
• Professional tax
• Entertainment allowance and employment tax

This list is only an indicative list and not an exhaustive list.