Since April 1, 2024, India’s new tax regime has become the default system for taxpayers. While it offers lower tax rates, many believe it lacks the deductions and exemptions of the old regime. However, the new regime still provides several tax benefits that can help reduce your tax liability. Let’s delve into these benefits to help you make informed decisions.
Key Deductions and Rebates in the New Tax Regime
1. Standard Deduction of ₹75,000
The standard deduction for salaried individuals and pensioners has been increased to Rs.75,000 from the previous Rs.50,000. This deduction is automatically applied, reducing your taxable income without the need for any investment proofs.
2. Employer’s Contribution to NPS (Section 80CCD (2))
If your employer contributes to your National Pension System (NPS) account, this amount is exempt from tax under Section 80CCD (2). This benefit is available up to 10% of your salary (14% for central government employees).
3. Family Pension Deduction
For individuals receiving family pension, a deduction of Rs.25,000 is available under the new regime. This helps reduce the taxable amount from the pension received.
4. Rebate Under Section 87A
If your total taxable income is up to ₹7 lakhs, you are eligible for a rebate under Section 87A, which effectively reduces your tax liability to zero. This rebate ensures that individuals with lower incomes are not burdened with tax payments.
5. Agniveer Corpus Fund (Section 80CCH)
Individuals enrolled under the Agnipath Scheme can claim deductions on contributions made to the Agniveer Corpus Fund under Section 80CCH. Both the individual’s and the government’s contributions to this fund are eligible for deduction.
Switching Between Tax Regimes
While the new tax regime is the default, taxpayers have the option to choose the old regime if it suits them better. However, the process differs based on the type of income:
- For Salaried Individuals Without Business Income: You can opt for the old regime directly while filing your Income Tax Return (ITR) without any additional forms.
- For Individuals with Business or Professional Income: You must submit Form 10-IEA before the due date of filing your ITR to switch to the old regime. Note that once you opt out of the new regime, you can switch back only once in your lifetime.
Comparing Old and New Tax Regimes
| Criteria | Old Regime | New Regime |
| Tax Rates | Higher | Lower |
| Deductions & Exemptions | Multiple (e.g., 80C, HRA, LTA) | Limited (e.g., Standard Deduction, NPS) |
| Complexity | More documentation required | Simplified process |
| Best Suited For | Individuals with significant investments | Individuals with minimal investments |
Choosing between the two regimes depends on your financial situation. If you have substantial investments and claims under various sections, the old regime might be more beneficial. Conversely, if you prefer a simplified tax process with lower rates and minimal documentation, the new regime could be advantageous.
Maximizing Benefits Under the New Regime
To make the most of the new tax regime:
- Utilize Employer Benefits: Ensure your employer’s contributions to NPS are maximized, as they are tax-exempt.
- Understand Available Deductions: Familiarize yourself with the deductions and rebates available, such as the standard deduction and Section 87A rebate.
- Plan Financially: Even with fewer deductions, strategic financial planning can help reduce your taxable income.
By understanding and leveraging the available deductions and rebates, taxpayers can effectively minimize their tax liability under the new regime. It’s essential to assess your financial situation annually to determine which tax regime aligns best with your goals.
