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Tax saving options under New Tax Regime most taxpayers may not be aware of
May, 22nd 2024

In a bid to offer lower tax rates with fewer deductions and exemptions, compared to the Old Tax Regime, Finance Minister Nirmala Sitharaman had introduced the New Tax Regime in the Union Budget 2020-21. However, as taxpayers opting for the New Tax Regime (also known as the Concessional Tax Regime) had no option to claim several exemptions and deductions — such as LTA, HRA, 80C and 80D deductions, among others — the new regime did not have many takers, especially in the higher income tax brackets.

Therefore, some changes were introduced in the Budget 2023 to encourage taxpayers to adopt the new regime like introducing full tax rebate on incomes up to Rs 7 lakh, extending standard deduction of Rs 50,000, increasing tax exemption limit to Rs 3 lakh, streamlining tax slabs, etc. The new regime was also made the default tax regime from 1 April, 2023.

 

“The latest amendments in the tax regime have introduced enticing benefits for salaried individuals, aiming to make the new tax regime more appealing than the old one. Effective from April 1, 2023, for the financial year 2023-24, these changes offer an array of avenues for tax-saving,” informs Abhishek Soni, CEO, Tax2win.in.

 

Let’s delve into the key deductions and allowances available under the new tax regime:

1. Standard Deduction: Salaried individuals can now benefit from a standard deduction of Rs 50,000 from their salary or pension income. This serves as a fundamental tool for reducing taxable income.

2. Section 80CCD (2) Deduction: Another avenue for tax-saving is through Section 80CCD (2) of the Income Tax Act, 1961. Under this provision, individuals can avail of deductions for investments made in the National Pension System (NPS) by their employer. This serves not only as a tax-saving mechanism but also encourages retirement planning.

Key Allowances and Exemptions Allowed:

Transport Allowances for Specially-Abled Individuals: Special provisions are in place to provide tax relief for transport allowances for differently-abled individuals, recognizing the additional expenses they may incur.

Conveyance Allowance, Tour and Travel Compensation, Daily Allowance: Various allowances related to official travel and conveyance are eligible for tax benefits, easing the financial burden associated with work-related travel.

Official Perquisites: Certain perks provided by employers, such as accommodation, utilities, or car leases, may be exempted from taxation up to specified limits.

Exemptions on Voluntary Retirement, Gratuity, and Leave Encashment: Upon retirement, gratuity and leave encashment benefits may be partially or fully exempt from taxation, providing significant relief to retiring individuals.

Interest on Home Loan (Let-Out Property): Interest paid on home loans for let-out properties is eligible for deduction, reducing the tax liability for individuals with rental income.

Tax-Free Gifts: Individuals can receive gifts up to Rs 50,000 without incurring any tax liability, providing a convenient way to receive financial assistance from family and friends.

Additional Employee Cost Deduction under Section 80JJA: Employers can benefit from deductions under Section 80JJA for the additional costs incurred in hiring new employees, promoting job creation and growth.

Deduction under Section 80CCH(2) for Agniveer Corpus Fund: Contributions made to the Agniveer corpus fund are eligible for deductions under Section 80CCH(2), encouraging philanthropic activities and social welfare initiatives.

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