Many employees believe that under the new tax regime, the tax saving options ( tax benefits) are very few as compared to the old tax regime. This belief is not only prevalent amongst the employees but also amongst the retired employees. In their understanding, even the benefits received at the time of retirement from the employer or former employer are taxable under the new tax regime, which are otherwise exempt under Section 10 of the Income-tax Act in the old tax regime.

In this article, an attempt is made to clear such doubts, taking into consideration the changes made in the new tax regime by the Finance Act, 2023 and applicable for the assessment year 2024–25.

Basic exemption and tax rebate

• First of all, the basic tax exemption limit under the new tax regime is Rs 3,00,000/-, as against the basic exemption limit of Rs 2,50,000/- (other than senior citizens) under the old tax regime.
• Second, the standard deduction of up to Rs 50,000/- is now allowable to employees and pensioners in the New Tax Regime.
• Third, if your total income does not consist of any income which is taxable at special rate, such as capital gain for listed equity shares, no tax is payable on the total income up to Rs 7,00,000/- (Rs 7,50,000/- for salaries employees and pensioners, including standard deduction) under the new tax regime due to tax rebate of Rs 25,000/- under section 87A of the Income-tax Act, as compared to the total income of Rs 5,00,000/- (Rs 5,50,000/- for salaries employees and pensioners), on which no tax is payable under the old tax regime, due to tax rebate of Rs 12,500/-

Exemptions allowable

Only the following tax exemptions, which are available under section 10 of the income-tax act under the Old Tax Regime, are allowable under the New Tax Regime:

• Leave travel concession under section 10(5)
• House Rent Allowance under section 10(13A)
• Special allowances u/s 10(4), other than conveyance, travel and transfer

There is no restriction under the new tax regime under Section 115 BAC on the other exemptions allowable to employees and pensioners, which means the exemptions other than the above, allowable for employees and pensioners under the old tax regime, are also permissible under the new tax regime under the same conditions - within the same limits. The following is a list of the important exemption allowable in the new tax regime (under section 115 BAC) for employees and pensioners :-

• Death plus retirement gratuity as per section 10(10)
• Commuted value of pension as per section 10(10A)
• Leave encashment at the time of retirement as per section 10(10AA)
• Amount received under Voluntary Retirement Scheme or Voluntary Separation Scheme as per section 10(10C)
• Amount received on maturity of LIC/ ULIP/ Group Insurance Policy as per section 10(10D)
• Amount received from provident fund as per section 10(11)
• Amount received from a recognised provident fund as per section 10(12)
• Amount received from National Pension Scheme as per section 10(12B)
• Amount received from approved superannuation fund

Deductions allowable

The following deductions are also permissible under the new tax regime, at par with the old tax regime:

• Employer's contribution in the National Pension Scheme as per the provisions of section 80CCD(2).
• Interest on borrowed capital in respect of the let out residential house in term of section 24(b)

Conclusion

While the new tax regime may seem daunting, it offers its own set of opportunities for tax-saving and planning. Understanding the changes and leveraging available exemptions and deductions can help individuals navigate the tax landscape more effectively.

[Disclaimer- The article is only for educational purposes and therefore not to be construed as tax advice. The relevant provisions of the Income-tax Act may be referred to, for complete understanding.]