Almost all lay taxpayers are under the impression that the new tax regime does not offer any deduction. As a concept, deductions were once introduced to lower the tax liability of an individual. But does the new system really not admit any deduction at all? Let’s have a close look.
A misconception
“This is somewhat of a misconception. A few deductions are still available under the new regime too. But everyone should bear in mind that the new system is the default one and the administration wants everyone to migrate to it,” said Himadri Mukhopadhyay, secretary, Income Tax Bar Association, Calcutta.
The one prominent deduction that is allowed by the new tax regime is the standard deduction, the blanket nature of which is indicated by its nomenclature.
The amount is Rs 50,000 for both the new and old regimes and is applicable to all taxpayers.
New Tax Regime deductions
The new regime also allows one deduction if an amount is contributed towards the New Pension System (NPS) by the employer. Therefore, it is applicable only to salaried employees and not to self-employed persons.
The Income Tax Act 1961, under section 80CCD (2) is relevant in this case. The deduction is allowed for employer’s contribution to the NPS account of the employee.
Employees of any state or Central government can avail up to 14% of their Basic Salary + DA. For any other employer, the ceiling is 10% of the same formula.
The new regime also offers some deductions such as:
Amounts on VRS (voluntary retirement scheme) under section 10(10C) of the Income Tax Act. There is a ceiling of Rs 5 lakh on this count. Payments of gratuity under section 10(10) and leave encashment under section 10(10AA) of the legislation are also admissible by the new tax regime.
Other exemptions given under the new tax regime include transport allowance if the employee is a differently-abled person.
Any amount received by an employee to travel for work or if he/she is transferred to another location also qualifies for exemption.
Any money paid to an employee to defray the cost of ordinary regular expenditure he/she incurs on account of absence from regular place of duty is also eligible.
ITR filing 2024: The popular impression is the new tax system, which is becoming the default one this year, does not allow any deduction whatsoever. But a few deductions are indeed allowed by it. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
