The new tax regime that is set to be the default system starting from the financial year 2023-24 has been introduced to simplify the tax system for taxpayers. However, it is not entirely exemption-free. In fact, there are six income-tax exemptions that even the new tax regime allows. Knowing about these exemptions can help individuals make informed decisions about which tax regime to choose.
The first and most well-known tax benefit offered under the new tax regime is the standard deduction of Rs 50,000. This deduction is offered by default to salaried employees and pensioners, but not to businesspersons or self-employed professionals. Family pensioners can also claim this deduction.
Another tax benefit that is available under both the old and new tax regimes is the employer’s contribution to employees’ National Pension System (NPS). An employer’s contribution to the NPS up to 10 percent (14 percent for government employees) of an employee’s basic pay plus dearness allowance is allowed as a deduction under section 80CCD(2). This benefit is exempt from tax, and the tax-free limit on benefits received from employers has been capped at Rs 7.5 lakh per year.
In addition, your employer’s contribution of up to 12 percent of your basic salary to your employees’ provident fund (EPF) account is exempt from tax as long as the aggregate retirement benefits you receive from your employer do not cross the Rs 7.5-lakh limit in a year.
If you have invested in a life insurance policy that provides tax-free maturity proceeds, these proceeds will be exempt from tax under both the old and new tax regimes. However, if you have bought policies that come bundled with an investment, such as a unit-linked insurance policy (ULIP) or an endowment plan, there are certain restrictions on maturity proceeds that you should be aware of.
Another tax benefit that is available to individuals who own a property that they have rented out is the standard deduction of 30 percent against their let-out property’s annual value. The annual value is the gross annual value (actual rent or reasonable rent as per market rates) minus municipal taxes paid.
Finally, individuals who have invested in the public provident fund (PPF) or Sukanya Samriddhi Yojana will not have to pay tax on maturity proceeds. However, investments made in these accounts will not be eligible for section 80C deductions up to Rs 1.5 lakh that the old tax regime provides.
In conclusion, the new tax regime may have been introduced as a simpler alternative to taxpayers, but it still offers several tax benefits. Individuals who are considering switching to the new tax regime should be aware of these exemptions to make informed decisions about which tax regime to choose. The official tax calculator launched recently by the income tax department can also help individuals determine which tax regime offers lower tax liability
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