Opted for the new tax regime? Here are the allowances and deductions you can still avail

• The new tax regime offers reduced tax rates and slabs, but most common tax deductions under the old tax regime are not available under the new regime
  
• However, there are deductions under the new tax regime, which can be a part of the employee’s CTC and have to be agreed upon between the employer and the employee
  
• It is crucial to comprehensively understand the inclusions and exclusions pertaining to exemptions and deductions under the new tax regime
  

Budget 2020 introduced the new tax regime for FY 2020-21 in addition to the old tax regime. FY 2020-21 onwards the taxpayer can choose the optimum tax regime based on the tax saving potential, practicality, and immediate needs.

The new tax regimes have reduced tax rates and slabs, but many of the common tax deductions that were available under the old tax regime are not available under the new tax regime.

“Under the new tax regime, deductions under Sections 80C, 80D, and 80E, interest on home loans (Section 24b), leave travel concession, house rent allowance, entertainment allowance deduction, SEZ unit exemption, and various other deductions under Sections 32AD, 33AB, 33ABA, 35AD, and 35CCC are not available,” says Abhishek Soni, CEO, Tax2Win, an income tax portal.

Deductions available under the new tax regime

However, the following deductions are available under the new tax regime.

• W.e.f Apr 01st 2023, Standard Deduction of ₹50000 if you have salary or pension income.
  
• Deduction u/s 80CCD (2) (Employer contribution to NPS)
  
• Deduction u/s 80JJAA (Additional employee cost). This applies to profits and gains from a business.
  
• Transport allowances in case of Specially abled persons
  
• Travelling Allowance granted to meet the cost of travel on tour or transfer u/s 10(14)
  
• Daily allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty
  
• Conveyance Allowance granted to meet the expenditure incurred on conveyance in the performance of duties of the office
  

It is important to note that many of these are a part of the employee’s CTC and have to be agreed upon between the employer and the employee. If these are added to the income of the employee, these would remain tax-free and the employee will not need to pay any tax on these.

Under the new tax regime, the taxpayer need not worry about the documentation and compliances as most of the exemptions and deductions are not applicable.

“Whereas the taxpayers under the old regime need to have all the proofs, and in many cases, the employee needs to submit such proofs to the employer for claiming deductions and exemptions,” says Suneel Dasari, CEO and founder, EZtax.in, a tax portal.

Making a decision

Although certain tax benefits have been removed under the new regime, it's worth noting that some deductions are still retained. “Hence, it becomes crucial for taxpayers to possess a comprehensive understanding of the inclusions and exclusions pertaining to exemptions and deductions in the new tax regime,” says Soni.

By gaining clarity on these aspects, taxpayers can optimise their tax planning strategies and ensure compliance with the revised regulations.