The Income Tax Department has introduced some significant changes under the new tax regime, which came into effect on April 1, 2024. This regime offers lower tax rates with certain deductions and rebates that could help reduce your tax liability. Understanding and utilizing these benefits correctly while filing your Income Tax Returns (ITR) can lead to substantial tax savings.
What is Included in the New Tax Regime?The new tax system simplifies taxation by offering lower rates, but it comes with limited exemptions compared to the old system. While popular exemptions like HRA, LTA, 80C, and home loan interest are no longer available, there are still some valuable tax-saving opportunities.
Key Benefits of the New Tax Regime:Standard Deduction of ₹75,000
In Budget 2024, Finance Minister Nirmala Sitharaman announced an increase in the standard deduction for salary and pension income to ₹75,000 (up from ₹50,000). This means ₹75,000 will be deducted from your salary or pension income, reducing your taxable income directly.
Exemption on Employer Contribution to NPS
If your employer contributes to your National Pension Scheme (NPS) account, the amount contributed will be tax-free under Section 80CCD(2). However, please note that your own contributions to NPS are not tax-exempt under this provision.
Exemption on Agniveer Corpus Fund
Youth recruited under the Agneepath Yojana can avail of a tax exemption under Section 80CCH on the amount received in the Agniveer Corpus Fund.
Tax Deduction on Family Pension
If you receive a family pension, you can claim a tax deduction of up to ₹25,000 under the new tax system, reducing your overall tax liability.
Exemption on Allowances (HRA, LTA, etc.)
While HRA and LTA are generally considered exempt under the new regime, these exemptions apply to allowances given by the employer. Additionally, gifts up to ₹50,000 from friends or family are tax-free.
Rebate Under Section 87A
The Section 87A rebate has been increased from ₹25,000 to ₹60,000 from FY 2025-26. If your taxable income is ₹7 lakh or less, you will not be required to pay any income tax.
| Tax Rates: Higher | Tax Rates: Lower |
| Deductions: Many (e.g., 80C, 80D, HRA) | Deductions: Limited (only 5) |
| Complexity: More (Documents, Investments) | Simplicity: Less (Straightforward) |
| Best For: Investors, HRA claimants | Best For: Tax savers without investments |
Tax Expert Opinion:
If you take full advantage of deductions like 80C, 80D, and home loan interest, the old tax regime might be better suited for you. However, if your income is straightforward, and you don’t have many investments, the new tax regime could offer significant benefits.
