Think New Tax Regime Offers No Deductions? Five Key Tax Benefits You Should Know
Several taxpayers assume that the new tax regime does not allow any deductions and exemptions, meaning zero tax savings. However, it is not completely true. We say that the list of the same is quite short in the new regime as a comparison to the old tax regime, but we can’t say that the list entirely does not exist.
There are certain deductions and exemptions available under the new tax regime that can help a taxpayer reduce his/her tax burden significantly. If you are also among those who have chosen the new tax regime and are planning to shift, then you should be aware of the following key five benefits available for you:
Standard Deduction for Salaried Employees
Standard deduction is a common and widely availed benefit under the new tax regime. A standard deduction of upto Rs 75,000 can be claimed by salaried employees. The amount is directly deducted from the taxpayer’s salary, overall helping in reducing the tax liability.
Home Loan Interest on Let-Out Property
Taxpayers who own a home and have obtained a loan for a rented-out property are eligible to claim a deduction on the interest paid by them on the home loan under Section 24(b) of the Income Tax Act. This benefit is also available under the New Tax Regime.
Additionally, the government has not set any upper limit on the amount of interest that can be claimed as a deduction. However, taxpayers must be aware that they cannot adjust any loss arising under the head “Income from House Property” against the income from other sources or carry it forward to future years under the new tax regime.
Employer’s Contribution to NPS
Under the new tax regime, employees can also claim a deduction of up to 14% of their salary on contributions made by an employer to an employee’s National Pension System (NPS) account under Section 80CCD(2) of the Income Tax Act.
This benefit is not affected even if the employer pertains to the government or private sector. This relief can significantly reduce the tax liability of an employee whose company offers NPS contributions as part of their compensation package.
Deduction on Family Pension
Those receiving a family pension are not eligible for tax relief under the New Tax Regime. However, they are entitled to a deduction amounting to Rs 25,000 or one-third of the pension received, whichever is lower. This relief remains active even if you change your tax regime.
Exemptions on Retirement Benefits
New tax regime offers several retirement-related exemptions, including exemptions on gratuity under Section 10(10), leave encashment under Section 10(10AA), and compensation received under a Voluntary Retirement Scheme (VRS) under Section 10(10C). However, they also carry certain prescribed conditions and limits.
Overall, the final advice is that one should choose a tax regime wisely after comparing the various reliefs available under them.
