3 Tax Deductions You Can Avail Under the New Regime Before Filing ITR
The government is making continuous efforts to make the new tax regime more attractive. As part of this initiative, the budget announced an exemption for income up to ₹12 lakh from the tax bracket. Thanks to these measures, the number of people opting for the new tax regime has been steadily increasing.
When it comes to filing Income Tax Returns (ITR), many taxpayers wonder whether to choose the new tax regime or stick with the old one. While the old tax regime still offers some appealing deductions, the new regime has gained popularity in recent times. In the financial year 2024-25, out of 7.28 crore ITRs filed, 5.27 crore were under the new tax regime, while 2.01 crore were under the old system. This indicates that around 72% of taxpayers have now opted for the new regime.
₹12 Lakh Tax-Free Income Under the New Regime
The new tax regime comes with lower tax slabs. Additionally, the budget announcement allowed income up to ₹12 lakh to be tax-free. However, some popular deductions from the old regime, such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), and home loan interest, are not available under the new regime.
Nevertheless, taxpayers can still benefit from three key exemptions under the new tax system:
- Standard Deduction
For salaried employees and pensioners, a standard deduction is available under the new tax regime. This deduction was ₹50,000 for the financial year 2023-24 but has been increased to ₹75,000 for the financial year 2024-25. This change helps reduce taxable income, thereby lowering the overall tax liability. - National Pension System (NPS)
Taxpayers can avail of tax deductions for contributions made by their employers to the National Pension System (NPS) under Section 80CCD(2). However, no deduction is available for contributions made by employees themselves. The employer’s contribution can be up to 10% of the employee’s basic salary plus dearness allowance, and this amount is tax-free. - Gratuity
Gratuity received at the time of retirement is tax-free under the new tax regime as well. This exemption is provided under Section 10(10) of the Income Tax Act. For government employees, the entire gratuity amount is tax-free, while for non-government employees, a maximum of ₹20 lakh is exempt from tax. Additionally, tax exemptions are also available under Section 10(10C) for amounts received under Voluntary Retirement Schemes (VRS) and under Section 10(10AA) for leave encashment at the time of retirement.
Should You Switch to the New Regime?
While the new tax regime offers simplicity with lower slabs and certain exemptions, the old regime still holds its ground with additional deductions. Taxpayers should assess their income, expenses, and eligibility for deductions before making a decision.
What’s your preference—new tax regime or old? Share your thoughts!
