Hidden Deductions Allowed under New Tax Regime

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While many individuals are aware that various tax concessions cease upon opting for the new tax regime, it’s important to note that opportunities for tax exemptions still exist under the new regime. Contrary to common belief, taxpayers can avail themselves of tax exemptions even in the new regime. When considering all available exemptions together, individuals can potentially access tax exemptions worth lakhs of rupees.

These exemptions cover various categories such as investments, allowances, deductions, and specific expenditures, providing taxpayers with avenues to reduce their tax liabilities significantly. Therefore, understanding and leveraging these exemptions is essential for optimizing tax savings under the new tax regime.

Tax Exemption for Disabled Individuals in the New Tax Regime:

In the new tax regime, there exists a provision for separate exemption specifically tailored for taxpayers classified as disabled. Under this provision, individuals falling within the category of disabled can claim income tax exemption on any transport allowance they receive. It’s noteworthy that this exemption applies to both private and government sector employees alike.

Income Tax Exemptions for Employee Compensation and Allowances:

If an employee undergoes a transfer or is sent on a company-sponsored tour, they may be entitled to claim income tax exemption on any compensation received from the company in either scenario. Additionally, other allowances or facility charges received from the office can also be eligible for income tax exemption. For instance, if an employee is assigned to work remotely from a different location and receives compensation to cover related expenses, such as accommodation or travel costs, they can claim income tax exemption on these allowances as well.

Tax Benefits on Gratuity and Leave Encashment for VRS Recipients:

Under Section 10(10C) of the Income Tax Act, individuals are eligible for income tax exemption on gratuity and leave encashment amounts, even after opting for voluntary retirement (VRS). This provision remains applicable under the new tax regime as well. Therefore, individuals who choose to take VRS can still avail themselves of the tax benefits associated with gratuity and leave encashment payments. These exemptions provide significant financial relief to employees transitioning into retirement, ensuring that they can effectively manage their finances during this period of change. It’s important for individuals planning for retirement through VRS to consider these tax benefits and incorporate them into their financial planning strategies accordingly.

Housing Loan Interest Tax Exemption in the New Tax Regime:

While the benefit of tax exemption on home loans is traditionally associated with the old tax regime, it’s important to note that under certain circumstances, taxpayers can also avail themselves of tax exemptions on home loan interest under the new tax regime. Specifically, tax exemption under Section 24 on home loan interest can be claimed when individuals are paying interest on a loan for a house that they have rented out.

This provision allows taxpayers to offset the interest paid on the home loan against the rental income earned from the property, resulting in a reduction of taxable income. This exemption is a valuable opportunity for individuals investing in real estate for rental purposes, providing them with tax benefits and incentives under the new tax regime.

Tax Exemption on Gifts in the New Tax Regime:

In the new tax regime, taxpayers can also avail tax exemption on gifts received within a single financial year. However, there’s a condition that the gift amount should not exceed a fixed threshold. Under this provision, taxpayers can claim income tax exemption on gifts up to Rs 50,000 in a financial year. This allowance provides individuals with an opportunity to receive gifts from family members, friends, or others without incurring tax liabilities on the received amount, up to the specified limit. It’s important for taxpayers to be aware of this provision and its limitations when receiving gifts, as exceeding the threshold may result in tax implications.

National Pension System (NPS) Tax Benefits in Both Old and New Regimes:

The money deposited in the National Pension System (NPS) (Section 80CCD (2) by an employee’s employer is eligible for tax exemption. It’s important to note that this exemption is available in both the old tax regime and the new tax regime.

Tax Exemption on Family Pension Income:

Taxpayers who receive income through family pension can avail tax exemption on this amount. Under Section 57 of the Income Tax Act, the amount received as family pension falls outside the scope of income tax, allowing taxpayers to claim exemption on this income. Importantly, this exemption is applicable in both the old tax regime and the new tax regime. This provision provides financial relief to individuals who rely on family pension as a source of income, ensuring that they can manage their finances effectively without incurring tax liabilities.

Standard Deduction:

In accordance with Section 16(1) of the Income Tax Act, individuals are entitled to claim a standard deduction of Rs. 50,000 from Income from Salary/Pension. This deduction applies to both the new tax regime introduced in recent years and the old tax regime. The provision allows taxpayers to reduce their taxable income by a fixed amount without the need for any specific expenses or investments. The purpose of this standard deduction is to provide relief to salaried individuals and pensioners, easing their tax burden. By availing of this deduction, taxpayers can effectively reduce their tax liability, thereby retaining more of their income for personal savings and expenditure.