New Delhi: Many taxpayers feel that the new tax regime does not offer as many deductions as the old system. Under the old regime, people could claim deductions under Section 80C for investments like EPF, PPF and ELSS, under Section 80D for health insurance, and under Section 24(b) for home loan interest.
The new tax regime has fewer deductions. However, because of lower tax rates and some key benefits, it can still be useful for many salaried individuals.
Rebate Under Section 87A
Under the new tax regime, Section 87A of the Income Tax Act, 1961 provides a tax rebate of up to Rs 60,000. Because of this rebate, individuals earning up to Rs 12 lakh in a financial year may not have to pay any income tax. This makes the new regime attractive for middle-income earners.
Standard Deduction
Salaried employees are allowed a standard deduction of Rs 75,000 under the new tax regime. This reduces their taxable income. With this benefit, income up to Rs 12.75 lakh can effectively become tax-free, depending on calculations. This helps reduce the final tax burden.
Employer’s Contribution to NPS – Section 80CCD(2)
If your employer contributes to your National Pension System (NPS) account, that amount is eligible for tax benefit under Section 80CCD(2). Usually, the deduction is allowed up to 10% of salary, and in some cases up to 14%. This employer contribution is reduced from your taxable income, lowering your total tax.
Gratuity – Section 10(10)
Gratuity is the amount paid to an employee at the time of retirement or completion of service. For government employees, the entire gratuity amount is tax-free. For private sector employees, gratuity up to Rs 20 lakh is tax-free, subject to government rules.
Leave Encashment – Section 10(10AA)
Leave encashment means payment received for unused leave at the time of retirement. Under the new tax regime, this amount is also tax-free up to a specified limit. This provides additional relief at the time of retirement.
Overall, while the new tax regime offers fewer deductions, lower tax rates and key benefits make it attractive for many taxpayers.
