Navigating The Deductions In The New Tax Regime: Understanding The Essentials | Semantic Taxgen Pvt Ltd


Navigating the Deductions in the new tax regime: Understanding the Essentials

June 15, 2024
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Deduction in new regime:

The New Tax Regime is new reforms in the income tax consideration introduced within the Union Budget of India in 2020. It supports lower rates of taxation in return for excluding nearly all deductions and incentives that are afforded under the pre–reform laws. The intended outcomes of this regime are namely to rationalize the burdens and structure of taxes and the process of their fulfillment for the taxpayer. Nonetheless, it has caused much controversy on the pros and cons of using this type of advertisement. In this article we will explore in detail the New Tax Regime with respect to the available tax deductions and then establish how it stands in comparison with the Old Tax Regime.

Overview of the New Tax Regime

The New Tax Regime offers six different tax slabs, which are as follows:

– Income up to ₹2.5 lakh: Nil

– Income from ₹2.5 lakh to ₹5 lakh: 5%

– Income from ₹5 lakh to ₹7.5 lakh: 10%

– Income from ₹7.5 lakh to ₹10 lakh: 15%

– Income from ₹10 lakh to ₹12.5 lakh: 20%

– Income from ₹12.5 lakh to ₹15 lakh: 25%

– Income above ₹15 lakh: 30%

The basic selling point of the New Tax Regime are these lower tax rates. But here the taxpayers will be able to claim very limited number of deductions and exemptions which was otherwise available under new Old Tax Regime.

Deductions and Exemptions Foregone

As for the New Tax Regime, there are numerous restrictions in contrast to the previous one, including the non-admissibility of the allowance of specific deductions and exemptions. Some of the major ones include:

√Section 80C:

This one is among the more familiar portions under which the taxpayers can subtract up to ₹1. 5 lakh pertaining to the investments made in instruments like the Public Provident Fund (PPF), the Employee Provident Fund (EPF), National Savings Certificate (NSC), life insurance premium, and such others.

√Section 80D:

Medical insurance deductions for self, family, and parents paid AY 2015-16.

√House Rent Allowance (HRA):

One major exception with regards to those working and earning a salary with their residence being rented.

√Leave Travel Allowance (LTA):

Car allowance for the time when are on annual leave- excemption.

√Standard Deduction:

A fixed Rs 50,000 independent of the gross total income for employees and wage earners.

√Interest on Home Loan (Section 24):

Therefore, deduction up to ₹ 2,00,000 on interest paid on the housing loan for a self-occupied property.

√Other Allowances:

Other Miscellaneous allowances include child Education allowance, Hostel allowance, Transport allowance etc.

What is Still Available

Despite the reduction in available deductions, the New Tax Regime does retain a few key exemptions and deductions:

  1. Employer’s Contribution to NPS (National Pension System): Happily for employer and employee both, the employer contribution made to the employee NPS account capped to 10% of salary (Basic + DA) continues to be deductible.
  2. Retirement Benefits: This means that incentives such as gratuity and leave allowance is exempted even in the course of retirement.
  3. Income from Life Insurance: Therefore the maturity proceeds arising out of life insurance policies as stated in Section 10(10D) shall still be exempt.
  4. Agricultural Income: Taxes on these foods should be GST zero-rated since fully exempt from tax.
  5. Standard Deduction for Family Pension: An allowance not exceeding ₹15,000 or thirty-three and a third percent of the pension which shall be paid to any pensioner incapacitated for service due to a physical or mental disability.

Comparing New and Old Regimes

New or Old Tax Regime- is a big question that cannot be answered simply without making comparison on the basis of individual conditions. The Old Tax Regime can be availed in the favor of those individuals and entities, which can potentially leverage off the provided deductions/exemptions. For instance, a person who invests on 80C instruments, is paying hefty medical insurance premiums, and availing home loan interest exemption will have a better deal in Old Regime.

On the other hand, the new tax regime could be beneficial because it comes with a set of perks that might be appealing to the persons who do not have hefty number of deductions to make. For example, employees who are in their 30s and not having home loans, major investments or liabilities will be benefited with lower tax rates of the New Regime.

Case Study Example

Let there be two taxpayers characterized as A and B, both having gross annual income of ₹12,00,000/- each.

Taxpayer A:

– Investments under 80C: This amount ranges from Rs1. 5 lakh for government organizations and regional ITSs.

– Health insurance premium under 80D: Rupees twenty five thousand is deducted in the form of processing charges, administrative charges etc.

– Interest on home loan: This is roughly equivalent to one lakh and fifty thousand rupees or ₹1. 5 lakh for short.

– HRA: ₹1 lakh

On the Old Regime, Taxpayer A’s taxable income was equal to ₹8 lakh after allowable deductions. The said amount would be less than the overall taxes paid on the gross income after subtracting the given deductions and exemptions.

In the New Regime, Taxpayer A’s gross total income would be ₹ 12 lakhs, as there is no provision to reduce his income under any deduction. The amount of tax would be determined by the adjusted scale, but it would be paid on a higher income.

Taxpayer B:

– Few stimuli of large magnitude – less investment; Few sinks of large magnitude – less cost.

As it can be see under the Old Regime [Table 3], Taxpayer B is entitled to the ₹12,00,000 tax credit and the only concession that has been provided is the regularization amount of ₹50,000.

As for Taxpayer B under the New Regime, he or she would be required to pay tax on ₹12 lakh but could do so at the lower rate, therefore likely pay less in total tax.

Strategic Considerations

For taxpayers, the choice between the New and Old Regimes should be strategic and based on:For taxpayers, the choice between the New and Old Regimes should be strategic and based on:

  1. Annual Income: Those who earned more money under the old regime could also gain by having big deductions.
  2. Investment and Expenditure Patterns: Such investors, who invest in tax-saving instruments and have a lucrative abat motorizable, might benefit from the Old Regime.
  3. Financial Goals: Long-term financial planning can also be a factor when coming up with the decision since one the long-term impacts are realized, it shows the long-term profitability of the business. The Old Regime looks at saving and investments with an eye on certain forms, which can readily be linked to retirement or other institutional saving.
  4. Simplicity: The New Regime is convenient as it entails that the entered number of a person can be tax free easy and quick and does not require records of different investment and spending as it would be complicated.


New Tax Regime- This offers a new way of taxation in India and it can be viewed as a major reform from the Old Tax Regime with numerous deductions and exemptions. It does this in exchange for lower tax rate and in return, the benefits that a taxpayer can claim or need are greatly limited. Thus choosing between the two regimes requires one to look at his or her finance, investment practices, and dreams for within a given timeline. Depending on the changes in the system, taxpayers should keep abreast with the new developments and maybe seek advice from personal financial managers concerning the best way they would have to go about it.

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DISCLAIMER: The information provided in this article is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990777 or the appropriate government authority to verify the accuracy of the information and to obtain advice on their specific tax situations.

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