Income Tax Exemptions Permitted Under The New Tax Regime

A look at the tax exemptions and deductions available under the new regime

New Tax Regime

The Union Budget 2023 has recognised the new tax regime as the default regime. While the income tax rates are lower in the new income tax regime, the regime has done away with most of the income tax exemptions and deductions. Nevertheless, you don’t miss out on all the tax breaks if you opt for the new tax regime. Here are seven income tax exemptions that you can continue to earn even after opting for the new tax regime.

Also Read5 Changes In The New Tax Regime: Know How Much Will You Save

1. Standard deduction – A standard deduction of Rs 50,000 is available by default under the new tax regime. Just like the old regime, the new regime also provides this deduction to salaried persons, pensioners, and family pensioners only. Thus, this standard deduction is not available for businesspeople or self-employed taxpayers.

2. National Pension System – The old tax regime provided multiple deductions for the national pension system. This includes up to Rs 1.5 lakh under Section 80C, Rs 50,000 under Section 80CCD(1B), and the employer’s contribution under Section 80CCD(2). The deduction against the employer’s contribution is retained in the new tax regime. Employer’s contributions to NPS for up to 10% of an employee’s basic salary and dearness allowance (DA) (14% in the case of government employees) will continue to be allowed as a deduction under Section 80CCD (2). Tax-free benefits received from employers over Rs 7.5 lakhs will be taxable in the hands of the employee. 

Also Read: Pay Zero Tax: A Step-By-Step Guide For Those Earning Rs 10 lakhs

3. EPF – Employer’s contribution of 12% of the basic salary towards the employee provident fund is exempt from tax under the new tax regime. As mentioned above, the aggregate of all retirement benefits received from the employer must be below Rs 7.5 lakh.

4. Life Insurance – The tax-free maturity receipt of the life insurance policy will also continue in the new regime. However, if the aggregate premium amount paid for unit-linked insurance policies is more than Rs 2.5 lakhs, the maturity proceeds are taxable. Besides, if the premium on traditional non-unit-linked insurance policies (ULIPs), mostly endowment policies bought after 1 April 2023, exceeds Rs 5 lakhs, the maturity proceeds will be taxable. This doesn’t apply to surviving family members if the policyholder expires. 

5. Standard Deduction on Rental Income – Income from a rented-out property is eligible for a 30% standard deduction calculated on the property’s annual value. The annual value is the actual rent received or reasonable rent per market rate after deducting the municipal taxes.

6. Public Provident Fund – The exempt-exempt-exempt tag of the public provident fund (PPF) is not applicable in the new tax regime. However, you get to keep the tax exemption on the maturity receipts.

7. Sukanya Samriddhi Yojana – The contribution made to the Sukanya Samriddhi Yojana (SSY) is no longer eligible for tax deduction under the new regime. However, like PPF, maturity proceeds from investments in SSY are free from income tax liability.

Also Read: How Double Taxation Avoidance Agreement Promotes Cross-Border Trade And Investment

With this handful of tax deductions and exemptions, you can file your minimalist ITR return with the income tax department under the new tax regime.

The Union Budget 2023 has recognised the new tax regime as the default regime. While the income tax rates are lower in the new income tax regime, the regime has done away with most of the income tax exemptions and deductions. Nevertheless, you don’t miss out on all the tax breaks if you opt for the new tax regime. Here are seven income tax exemptions that you can continue to earn even after opting for the new tax regime.

Also Read5 Changes In The New Tax Regime: Know How Much Will You Save

1. Standard deduction – A standard deduction of Rs 50,000 is available by default under the new tax regime. Just like the old regime, the new regime also provides this deduction to salaried persons, pensioners, and family pensioners only. Thus, this standard deduction is not available for businesspeople or self-employed taxpayers.

2. National Pension System – The old tax regime provided multiple deductions for the national pension system. This includes up to Rs 1.5 lakh under Section 80C, Rs 50,000 under Section 80CCD(1B), and the employer’s contribution under Section 80CCD(2). The deduction against the employer’s contribution is retained in the new tax regime. Employer’s contributions to NPS for up to 10% of an employee’s basic salary and dearness allowance (DA) (14% in the case of government employees) will continue to be allowed as a deduction under Section 80CCD (2). Tax-free benefits received from employers over Rs 7.5 lakhs will be taxable in the hands of the employee. 

Also Read: Pay Zero Tax: A Step-By-Step Guide For Those Earning Rs 10 lakhs

3. EPF – Employer’s contribution of 12% of the basic salary towards the employee provident fund is exempt from tax under the new tax regime. As mentioned above, the aggregate of all retirement benefits received from the employer must be below Rs 7.5 lakh.

4. Life Insurance – The tax-free maturity receipt of the life insurance policy will also continue in the new regime. However, if the aggregate premium amount paid for unit-linked insurance policies is more than Rs 2.5 lakhs, the maturity proceeds are taxable. Besides, if the premium on traditional non-unit-linked insurance policies (ULIPs), mostly endowment policies bought after 1 April 2023, exceeds Rs 5 lakhs, the maturity proceeds will be taxable. This doesn’t apply to surviving family members if the policyholder expires. 

5. Standard Deduction on Rental Income – Income from a rented-out property is eligible for a 30% standard deduction calculated on the property’s annual value. The annual value is the actual rent received or reasonable rent per market rate after deducting the municipal taxes.

6. Public Provident Fund – The exempt-exempt-exempt tag of the public provident fund (PPF) is not applicable in the new tax regime. However, you get to keep the tax exemption on the maturity receipts.

7. Sukanya Samriddhi Yojana – The contribution made to the Sukanya Samriddhi Yojana (SSY) is no longer eligible for tax deduction under the new regime. However, like PPF, maturity proceeds from investments in SSY are free from income tax liability.

Also Read: How Double Taxation Avoidance Agreement Promotes Cross-Border Trade And Investment

With this handful of tax deductions and exemptions, you can file your minimalist ITR return with the income tax department under the new tax regime.

NEWSLETTER

Related Article

Premium Articles

Union Budget