With 72% of taxpayers now opting for the New Tax Regime, it's important to understand the deductions available under this system. While many believe the new regime eliminates most tax benefits, three major deductions can still be claimed. Before filing your tax return, make sure you're aware of these exemptions to maximize your savings.
New Tax Regime: Simplified Yet Beneficial
The Indian government introduced the New Tax Regime to simplify income tax calculations by offering lower tax rates. According to official data, out of 7.28 crore Income Tax Returns (ITRs) filed for FY 2024-25, nearly 5.27 crore taxpayers opted for the New Tax Regime, while 2.01 crore chose the Old Tax Regime.
Although the new system removes many common exemptions, such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), and Section 80C benefits, taxpayers can still avail themselves of three key deductions:
1. Standard Deduction
✅ Available for: Salaried employees and pensioners
✅ Amount: ₹75,000 for FY 2024-25 (Previously ₹50,000 in FY 2023-24)
This deduction automatically reduces taxable income, lowering the overall tax burden. It is one of the few direct benefits available under the New Tax Regime.
2. Employer’s Contribution to National Pension System (NPS) [Section 80CCD(2)]
✅ Available for: Employees receiving contributions from their employer
✅ Exemption Limit:
- Private sector employees – Up to 10% of Basic Salary + Dearness Allowance (DA)
- Government employees – Up to 14% of Basic Salary + DA
While personal contributions to NPS do not qualify for deductions, employer contributions remain tax-free, providing additional savings for salaried individuals.
3. Gratuity Exemption [Section 10(10)]
✅ Available for: Employees receiving gratuity upon retirement
✅ Exemption Limits:
- Government Employees: Entire gratuity amount is tax-free
- Private Sector Employees: Gratuity up to ₹20 lakh is tax-free
Additionally, tax exemptions apply under:
✅ Section 10(10C): Voluntary Retirement Scheme (VRS) payouts
✅ Section 10(10AA): Leave encashment at retirement
Final Thoughts
While the New Tax Regime eliminates many deductions, it still offers essential benefits that help reduce tax liability. Before filing your return, ensure you're taking advantage of these deductions to optimize your savings.
Would you prefer the Old Tax Regime with multiple exemptions or the New Tax Regime with lower rates and fewer deductions? Let us know in the comments! 💬💰
4o
