Discover Income Tax Exemptions Permitted by the New Tax Regime

“Unveiling the Hidden Tax Benefits of the New Tax Regime”

The new tax regime was introduced with the aim of making the tax system simpler and less burdensome for taxpayers. While it may seem like it eliminates all tax benefits, it’s not entirely true. Starting from the financial year 2023-24, the new tax regime will be the default tax system. However, taxpayers can still opt for the older regime, which offers a range of exemptions. Let’s explore the lesser-known tax benefits offered by the new tax regime.

1. Budget 2023 Brings Good News for Salaried Employees and Pensioners: Standard Deduction of Rs 50,000 Now Available in the New Tax Regime

One of the most talked-about tax benefits offered by the new tax regime is the standard deduction of Rs 50,000, which was introduced in Budget 2023. This deduction is automatically applicable to salaried employees and pensioners, without any additional paperwork or proof required. However, self-employed professionals and businesspersons are not eligible for this tax break. Even family pensioners can claim this deduction, making it a widely accessible benefit. Let’s take a closer look at this tax relief and understand how it can help you save money.

2. Employers’ contribution to employees’ NPS:

One lesser-known tax benefit available under both the old and new tax regimes is an employer’s contribution to the National Pension System (NPS). Employers can contribute up to 10% (14% for government employees) of an employee’s basic pay plus dearness allowance, which is allowed as a deduction under section 80CCD(2). However, the tax-free limit on benefits received from employers is capped at Rs 7.5 lakh per year. If the total benefits exceed this limit, the excess amount will be treated as an employee’s taxable perquisite. It is advisable for new employees to negotiate this benefit in their cost-to-company (CTC) package, while existing employees can renegotiate with their employers and HR to restructure their salaries to avail of this benefit from the new financial year.

3. Employers’ EPF contribution of up to 12 percent of basic salary:

An employer contributes 12% of an employee’s basic salary to their employees’ provident fund (EPF) account. This contribution is exempt from tax as long as the aggregate retirement benefits received from the employer do not cross the Rs 7.5 lakh limit in a year.

4. Tax exemption on life insurance maturity proceeds:

Maturity proceeds from life insurance policies with investments, such as unit-linked insurance policies (Ulips) or endowment plans, are tax-free. However, there are certain caveats. For policies purchased after February 1, 2021, if the aggregate premiums exceed Rs 2.5 lakh, the maturity proceeds from Ulips will attract tax. Similarly, if aggregate premiums for traditional non-Ulip policies bought after April 1, 2023, exceed Rs 5 lakh, the income earned at the end of the tenure will be subject to tax. Proceeds received by nominated family members on the policyholder’s death are not taxable.

5. Standard deduction on rental income:

If you own a property that you have rented out, you can claim a standard deduction of 30% against the let-out property’s annual value. Annual value is the gross annual value (actual rent or reasonable rent as per market rates) minus municipal taxes paid.

6. PPF or Sukanya Samriddhi Yojna maturity proceeds:

Investments made in the Public Provident Fund (PPF) and Sukanya Samriddhi Yojana are tax-free upon maturity. However, under the new tax regime, investments made in these accounts will not be eligible for section 80C deductions up to Rs 1.5 lakh that the old regime provides.

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