Union Budget 2024: Deductions under New Tax Regime

The old regime currently offers a variety of deductions under various sections of the Income Tax Act to help taxpayers lower their taxable income and tax liability. These include the popular Section 80C that comprises insurance premia, investments (Public Provident Fund, ELSS, Employee Provident Fund, children’s education fee, and home loan principal repayments, among others. Deductions and exemptions can also be availed for medical insurance premiums (Sec 80D), interest on education loans (Section 80E), donations to charitable institutions (Section 80G), and interest on home loans (Section 24), to name a few.

Speaking of the new tax regime, the lower tax rates it offers come at the cost of fewer deductions and exemptions, compared to the old regime. Here is a look at the deductions offered under the new tax regime as of 2024.

• Standard deduction: The Budget 2024 announced a Rs.25,000 hike in the standard deduction under the new regime. The new limit is Rs.75,000. As opposed to Rs.50,000 before and will be available to all taxpayers choosing to file their taxes under the new regime.

• Basic exemption limit: Under the new regime, the basic exemption limit is Rs.3 lakh. This means, income up to Rs.3 lakh will not attract no tax under the new regime.

• Tax rebate: Individuals with a taxable income of up to Rs.7 lakh may be eligible for a rebate equivalent to their payable income tax on taxable income or Rs.25,000, whichever is lower.

• Life insurance maturity payment: The maturity amount received in the case of a life insurance policy, the premium of which is up to 10% of the policy sum assured amount, will be exempt from tax. For instance, you have an endowment policy, the annual premium of which is Rs.23,500, that provides a sum assured of Rs.25 lakh, and a maturity amount of Rs.28 lakh. Here, the premium being paid is less than 10% of the sum assured amount, hence the maturity amount received will be tax free in the hands of the receiver.

• Voluntary Retirement Scheme (VRS) Proceeds: There will be no tax levied on amounts up to Rs.5 lakh received under the Voluntary Retirement Scheme Amounts.

• Gratuity received from employer: Under the new tax regime, gratuity payments of up to Rs.20 lakh, from your employer, will be exempt from tax.

• Daily Allowances: Under the new regime, taxpayers can also claim daily allowances they receive while on tour or transfer as a tax deduction. For instance, an individual goes on a 5-day business trip from work for which they are provided a daily allowance of Rs.1,000 by their employer. They will be eligible to claim the reimbursement of Rs.5,000 (Rs.1,000 x 5 days) without incurring any tax.

• Conveyance Allowances: Similar to daily allowance, taxpayers can claim up to Rs.1,600/month for transport expenses. For instance, if an individual received Rs.1,500 per month for commuting, they can claim the annual amount of Rs.18,000 (Rs.1,500 x 2 months) as a tax deduction.
• Transport allowances for specially-abled taxpayers: Transport allowances, up to a certain amount, received by specially-abled taxpayers can be claimed as a tax deduction. For instance, a specially-abled individual receiving Rs.3,000 per month as travel allowance can claim the amount of Rs.36,000 (Rs.3,000 x 12 months) as a tax deduction.
• Cost of travel on tour/transfer: The new regime will allow individuals incurring travel expenses while on an official tour or transfer to claim such expenses without incurring tax. For instance, an employee goes on a work tour and incurs an expense of Rs.700 per day for 7 days on travel within the city. They are reimbursed for the amount of Rs.4,900 by their employer. This reimbursement will be tax-free in the hands of the individual.

Adhil Shetty is the CEO of BankBazaar.com