Tax Exemptions & Deductions Under the New Tax Regime

The Union Budget 2020 presented a new tax regime under Section 115BAC. This new tax regime features more tax slabs with reduced income tax rates. However, the Union Budget 2023 proposed a few changes to the new regime and also declared it the default slab from FY 2023-24. Taxpayers need to forgo tax deductions and exemptions available in the old tax regime if they want to pay concessional taxes under the new tax regime.

The upcoming segment summarises the deductions and exemptions under the new tax regime that individuals can and cannot claim. So, interested readers can keep scrolling to know more about it. 

Go through the following list of revised deductions and exemptions under the new tax regime, proposed in the Union Budget 2023, which eligible taxpayers can claim from April 1, 2023 to reduce their tax liabilities: 

Tax Deductions and Exemptions Allowed As Per Union Budget 2023-24

Given below is the revised new tax regime exemption list for FY 2023-24.

For Salaried Individuals and Pensioners

They can claim a standard deduction of Rs 50,000 under the head 'Income from salaries' only on their salary/pension income. Family pensioners can avail of a standard deduction of Rs 15,000 or 1/3rd of family pension, whichever is less, under the head 'Income from other sources.' 

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Section 80CCD (2)

Under Section 80CCD (2) of the Income-tax Act, 1961, a salaried individual can claim the benefit of standard deduction of Rs. 50,000 and any NPS (National Pension Scheme) contribution by the employer to employee's NPS account. However, there are no tax benefits on the employee's own contribution. The maximum deduction amount that private sector employee can claim is 10% of their salary while a government employee can avail deduction of 14% of their salary. 

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Agniveer Corpus Fund

Any contribution made to the Agniveer Corpus Fund under the newly proposed section 80CCH of the Income-Tax Act can be claimed as a deduction. This contribution can be made by the Agniveer or the Central Government to the Agniveer’s Seva Nidhi account.

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Section 80JJAA

Under Section 80JJAA, up to 30% of additional employee cost will be deductible. 

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Given below is the new tax regime exemption list of allowed deductions for FY 2023-24 that remain the same as FY 2022-23.

Home Loans

Deduction on the interest component of a home loan borrowed for a rented property.

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NPS, PPF and EPF

• Employers' contributions to their employee's NPS and EPF and superannuation accounts are applicable for tax exemption. However, the contributions made in a financial year to all the employee accounts should not be above ₹ 7.5 lakh to qualify for the tax exemption.

• Taxpayers receiving interest from their Employees' Provident Fund account can claim tax exemptions on that interest, given the latter is not above 9.5%.

• The lump-sum maturity amount received from the NPS account is eligible for tax exemption, and the partial fund withdrawal from the Tier I NPS account is also exempted from taxation.

• Interest or the maturity amount received from the PPF account is eligible for tax exemption. 

Savings Schemes

• According to Section 10(15)(i), taxpayers receiving interest on their Post Office Savings Account can claim exemptions up to ₹ 3,500 and ₹ 7,000 in the case of individual and joint accounts, respectively.

• According to Section 10(10D), funds received from Life Insurance Company after maturity of the account are eligible for tax exemption. 

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• Interests and maturity amounts received from the Sukanya Samriddhi Account are exempted from being taxed.

Gratuity

Non-government employees receiving gratuity from their employer can claim exemption up to ₹20 lakh on that gratuity amount. In the case of government employees, the entire gratuity received by them is exempted from being taxed.

Know more about:-

• What is Gratuity Act?
• Gratuity Calculator

Retirement

• The leave encashment during retirement is eligible for tax exemption subject to certain conditions.

• Monetary benefits received from employers for the cause of voluntary retirement are eligible for tax exemption if the conditions are satisfied. The maximum exemption limit is up to ₹ 5 lakh. 

• Education scholarships, retrenchment compensation, and monetary benefits for retirement cum death qualify for tax exemption.

Know more about:-
Retirement Planning Calculator

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Allowances by Employers

• Travel allowances provided to disabled employees, conveyance allowance, allowances provided to cover the travel cost or transfer of an employee, perquisites, and daily allowances are eligible for tax exemption under this new tax regime.

• Employers providing allowances to employees for performing official duties are exempt from being taxed.

• If non-government employees receive a commuted pension, then 1/3rd of it qualifies for tax exemption if the employee receives gratuity. If employees do not receive gratuity, then ½ of commuted pensions will be exempted from tax. 

• Gifts received from employers, which do not exceed ₹ 5,000, are eligible for tax exemption. 

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Go through the following list of revised deductions and exemptions under the new tax regime, proposed in the Union Budget 2023, which eligible taxpayers CANNOT claim from April 1, 2023. 

Tax Deductions and Exemptions Not Allowed As Per Union Budget 2023-24

The Union Budget 2023 removed up to 70 exemptions and deductions from the new tax regime for individual taxpayers. Here is the list of some revised ones that taxpayers cannot claim.

Home Loans

Deduction on payment of interest and principal amount towards housing loans up to Rs 1.5 lakhs under Sections 80C and 80EE/ 80EEA.

Section 80C

Investments made in Employees’ Provident Fund, life insurance premium and Public Provident Fund under Section 80C.

Section 80E

Interest paid on the student loan debt under Section 80E can no more be claimed for tax relief.

Charity

• Donation or expenses in scientific research are not deductible.

• Deductions under section 80G including National Defense Fund, Prime Minister’s National Relief Fund, The National Foundation for Communal Harmony, National/State Blood Transfusion Council.

The given list contains tax deductions and exemptions that are not allowed under the new tax regime for FY 2023-24 that remain the same as FY 2022-23.

Salary Deductions

• House rent allowance, based on the rent payments and salary structure.

• The professional tax of ₹ 2,500.

• Leave travel allowance.

• Deductions on professional tax and entertainment allowance (applicable for government employees). 

Savings Account

• Interest received from Savings Account under Section 80TTA and 80TTB (Interest on deposits to senior citizens are taxable.

• Special allowances under Section 10(14).

• Business professionals and owners in the Special Economic Zone cannot claim tax exemption under Section 10AA.

Home Loans

• Deduction of the interest payment of home loan for self-occupied/ vacant property under Section 24(b).

• Deduction of the interest payment up to ₹2,00,000 for the purchase/construction/ repair/reconstruction of house property under section 24(b).

Other Exemptions

• Tax deduction under Section 35(1)(ii), 35(2AA), 32AD, 33AB, 35(1)(iii), 33ABA, 35(1)(ii), 35CCC(a), and 35AD of the IT Act.

• Additional depreciation as specified under Section 32(ii) (a).

• The option to adjust the unabsorbed depreciation of previous years.

• Deductions as specified under Chapter VI-A such as 80IA, 80CCC, 80C, 80CCD, 80D, 80CCG, 80DDB, 80EE, 80E, 80EEA, 80DD, 80EEB, 80GG, 80IB, 80IAC, and 80IAB.  

• Minor child, helper allowances and allowances for children's education.

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