How to Save Tax using Deductions in New Tax Regime

• The new tax regime provides lower tax rates and deductions to save tax, which makes it popular among taxpayers.
• Taxpayers can take up to ₹75,000 as a standard deduction from their salaries.
• Thenew tax regime also provides limited deductions, such as an employer's contribution to the PF, employer reimbursements, and so on.
• You can utilise all the available deductions and lower your tax liability under the new regime.

Tax planning in India has changed over the years, along with the country's economy. You now have the option of filing your returns under either the old or the new tax regime.With lower tax rates and fewer exemptions and deductions, the new regime emphasises simplicity. However, there are still deductions under the new regime to help you save taxes. Let's understand how to save tax in the new regime.

The new tax regime, which was introduced in the Budget 2020-2021, provides lower income tax rates. This is in exchange for taxpayers foregoing a majority of the exemptions and deductions available under the previous regime.Its primary goal is to make tax compliance easier, particularly for taxpayers without large investments or tax-saving needs.

Besides the lower tax rates, you can use the exemptions and deductions available under the new tax regime to save taxes. These deductions are as follows;

The 12% employer contribution to the EPF is tax-free under the new tax regime. The limit of deduction is up to ₹7.5 lakh in a financial year.Similarly, an employer's NPS contribution of up to 14% of the basic salary is tax-free under Section 80CCD(2).

Interest on a Home Loan for a Rental Property

Section 24(b) of the Income Tax Act allows for the deduction of interest on a home loan for a home that has been rented out. This benefit is available under the new tax regime as well.

Other Deductions Allowed in the New Tax Regime

Other deductions that you can claim under the new regime include:

• Conveyance charges incurred for employment-related purposes
• Cost incurred on business travel or tours
• Perquisites received for office purposes
• Deduction of 33.33% or ₹25,000 for family pension
• Gifts up to ₹50,000
• Cost of additional employee
• Standard deduction of ₹75,000 from salary income
• Section 10(10) allows for exemption on gratuity of up to ₹20 lakh
• Receive up to ₹5 lakh for voluntary retirement under Section 10(10C)
• Leave encashment of up to ₹25 lakh under Section 10 (10AA).
• Allowance for official travel and transportation for those with special needs
• Daily allowance for non-standard employment locations
• The amount deposited to the Agniveer Corpus Fund under Section 80CCH(2)

Deductions Not Allowed Under the New Tax Regime

The deductions which are not allowed under the new regime are as follows:

• Deductions under Chapter VI-A, including Sections 80C, 80D, 80E, 80CCC, 80CCD, 80DD, 80DDB, 80EE, 80EEA, 80G, and more
• Deductions under Sections 80TTA and 80TTB
• House Rent Allowance (HRA)
• Child education allowance
• 80D deduction for health insurance premiums (self, family, and parents)
• 80CCD deduction for contributions to the National Pension System and Atal Pension Yojana
• Leave Travel Allowance (LTA)
• Professional tax
• Salary allowance
• Home loan interest for self-occupied/vacant property
• Helper allowance
• Additional special allowances under Section 10(14)
• Contribute to the NPS account
• Donate to political parties or trusts

Effective tax preparation requires knowing how to save tax in a new tax regime . Even though it provides fewer deductions, you can still minimise your tax burden by making strategic use of employer benefits, tax-free assets, and other exemptions. You can take advantage of the new tax regime 's simplicity and optimise your savings by making sensible plans.To select the regime that best suits your financial objectives, always assess your financial status and, if needed, get advice from a tax advisor.

Section 115BAC of the Income Tax Act allows individuals or Hindu Undivided Families (HUFs) having income from any source except business or profession to use the new tax regime for tax returns. These entities can file their returns under the new regime and enjoy reduced tax slab rates. Also Read: Income Tax Slabs 2024: New & Old Regime Tax Rates