The new tax regime was introduced to simplify tax filing and offer lower tax rates. However, it excludes several popular exemptions available under the old regime, such as House Rent Allowance (HRA), Section 80C benefits, and medical insurance premium deductions, making it less favorable for many taxpayers.
Sudhir Kaushik, Co-Founder & CEO of Taxspanner, explains:
“The new tax regime, introduced in FY 2020-21, aims to simplify taxation by offering lower rates while eliminating multiple deductions like HRA, LTA, meal coupons, car lease benefits, and exemptions under Sections 80C, 80D, and 80E. It was designed to reduce the dependency on tax-saving investments, boost consumption, and ease compliance by minimizing the need for documentation.”
Despite these changes, some exemptions remain available under the new tax regime:
1. Standard Deduction
To make the new tax regime more appealing, the standard deduction has been increased to ₹75,000 from ₹50,000. Under the old tax regime, the standard deduction was capped at ₹50,000.
2. Employer’s Contribution to NPS
Under Section 80CCD(2), taxpayers can claim a deduction on their employer’s contribution to the National Pension Scheme (NPS). However, contributions made by the taxpayer themselves are not eligible for deduction under the new tax regime but remain claimable under the old regime.
3. Transport Allowance for Specially-Abled Persons
Individuals with disabilities are entitled to a transport allowance deduction under the new tax regime. This exemption covers commuting expenses between their residence and workplace.
4. Exemption on Gratuity
Gratuity, a lump sum paid upon retirement or resignation after at least five years of service, remains tax-exempt under the new tax regime:
- For government employees: The entire gratuity amount is exempt.
- For non-government employees: A gratuity amount of up to ₹20 lakh is tax-free.
5. Exemption on Leave Encashment
Many employers allow employees to encash unused paid leave upon resignation or retirement. Under the new tax regime, leave encashment is tax-exempt, but the exemption limit varies:
- For government employees: The entire amount is exempt.
- For non-government employees: The exemption is capped as per prescribed limits.
While the new tax regime eliminates many traditional exemptions, these five key benefits still provide relief to taxpayers opting for the simplified tax structure.
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