If you are a tax payer then this article is for you. The Indian government has rolled out the New Tax Regime to make personal income tax easier to navigate. Out of the 7.28 crore income tax returns (ITRs) submitted for the financial year 2024-25, 5.27 crore were filed under the New Tax Regime, while 2.01 crore opted for the Old Tax Regime. This indicates that around 72% of taxpayers have switched to the new system.
While the new tax regime features lower tax rates, it has eliminated several popular exemptions and deductions like House Rent Allowance (HRA), Leave Travel Allowance (LTA), home loan interest, and Section 80C benefits. However, there are still three key exemptions available, though most people are only familiar with one of them.
1. Standard Deduction
Salaried employees and pensioners can benefit from the standard deduction in the new tax regime. For the financial year 2023-24, this deduction was set at Rs 50,000, but it has been raised to Rs 75,000 for FY 2024-25. This adjustment will help taxpayers lower their taxable income and, in turn, their tax bills.
2. Employer’s Contribution to NPS
In the new tax regime, there’s a tax exemption for contributions made by employers to the National Pension System (NPS), as outlined in section 80CCD(2). However, employees won’t get an exemption for their own contributions. The employer’s contribution can be as much as 10% of the employee’s basic salary and dearness allowance, and this amount is tax-free.
3. Gratuity
Gratuity received upon retirement remains tax-free under the new tax regime. This exemption falls under section 10(10) of the Income Tax Act. For government employees, the entire gratuity amount is tax-free, while non-government employees can enjoy tax-free gratuity up to Rs 20 lakh.
Additionally, there’s a tax exemption under section 10(10C) for amounts received through the Voluntary Retirement Scheme (VRS), and employees can also benefit from exemptions under section 10(10AA) for leave encashment at retirement in the new tax regime.