Deductions in New Tax Regime under Union Budget 2023-24

Union Budget 2023 removed almost 70 deductions in the new tax regime for individual taxpayers. The exclusions include deductions up to Rs 1.5 lakh under Section 80 C and benefits on medical insurance premiums u/ Section 80D. However, certain deductions are still available to taxpayers under the new tax regime. This article is will help you to know some of the valid exemptions and deductions under the new tax regime.

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What is New Tax Regime for Financial Year 2023-24 (AY 2024-25)?

Union Government introduced a New Tax Regime under Section 115BAC in Budget 2020 with concessional tax slab rates.

In Union Budget 2023 income tax regime, the government introduced the following key changes for the financial year (FY) 2023-24:

Streamlining of Income Tax Slabs

Income Tax Slabs	Tax Rates (in % p.a.)
Up to Rs. 3 lakhs	NIL
Rs. 3 lakhs- Rs. 6 lakhs	5%
Rs. 6 lakhs- Rs. 9 lakhs	10%
Rs. 9 lakhs- Rs. 12 lakhs	15%
Rs. 12 lakhs- Rs. 15 lakhs	20%
Rs. 15 lakhs & Above	30%
Education Cess	4% p.a. of Taxable Income

Increase in Tax Rebate Limits

Full tax rebate on income of up to Rs. 7 lakhs is provided under the new tax regime u/Section 87A of the Income Tax Act, 1961.

Tax Rebate Limit Under Old Tax Regime for FY 2023-24 Tax Rebate Limit in New Tax Regime for FY 2023-24

Rs. 5 lakhs Rs. 7 lakhs

You are liable to pay no tax if claiming a standard tax deduction of Rs. 50,000 on an income limit of Rs. 7.5 lakhs.

Increase in Basic Tax Exemption Limit

The basic tax exemption limit of Rs. 2.5 lakhs under the old tax regime increased to Rs. 3 lakhs under the new tax regime.

Age Categories	Basic Tax Exemption Limit u/ Old Tax Regime for FY 2023-24	Basic Tax Exemption Limit u/ New Tax Regime for FY 2023-24
< 60 Years of Age	Rs. 2.5 lakhs	Rs. 3 lakhs
60-80 Years of Age	Rs. 3 lakhs
> Years of Age	Rs. 5 lakhs

The latest exemption limit is applicable from 01 April 2023 if opting for the new tax regime.

Standard Tax Deductions

Salaried individuals are eligible to claim the benefit of standard deductions of Rs. 50,000 under the new tax regime.

Family pensioners can claim the standard deductions of Rs. 15,000 under the new tax regime.

Lower Surcharge Rates on High-Income Individuals

Individuals earning Rs. 50 lakhs & above fall in the high-income category. The government of India levies a surcharge on high-income earners.

Income Slabs	Surcharge Rates in Old Tax Regime	Surcharge Rates in New Tax Regime (in % p.a.)
Rs. 50 lakhs	NIL	NIL
Rs. 50 lakhs- Rs. 1 crores	10%	10%
Rs. 1 crores- Rs. 2 crores	15%	15%
Rs. 2 crores- Rs. 5 crores	25%	25%
Rs. 5 crores & above	37%	25%

New Tax Regime is the Default Option

The new tax regime is the default choice for an income tax deduction by an employer and the Income Tax Department.

Note: You have to specifically opt (with your employer or IT department) to calculate your TDS and other personal taxes as per the new tax regime.

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Meaning of Exemptions and Deductions in New Tax Regime

Let us understand the key terms from the list mentioned below:

Deductions in New Tax Regime
- Refers to the expenses or investments made by the taxpayer that can be subtracted from their gross total income to arrive at the taxable income
- Deductions can help lower the tax liability of an individual or a company
Exemptions in New Tax Regime
- Refers to the income or investments made by the taxpayer that are not included in the calculation of their taxable income

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Exemptions and Deductions Not Available Under New Tax Regime

From the table below, let us learn the key exemptions and deductions in the new tax regime that are not claimable by individuals:

Non-Claimable Tax Deductions & Exemptions in New Tax Regime

Standard Deductions u/ Section 80TTA and Section 80TTB
Deductions u/ Section 80C, 80D, 80E, 80CCC, 80CCD, 80DD, 80DDB, 80EE, 80EEA, 80G, etc. of Chapter VI-A of IT Act
Professional Tax
Entertainment Allowance on Salaries
House Rent Allowance (HRA)
Leave Travel Allowance (LTA)
Helper Allowance
Child Education Allowance
Minor Child Income Allowance
Interest on Housing Loan Self-Occupied/ Vacant Property
Other Special Allowance u/ Section 10(14)
Employee’s Contributions to NPS Account
Donations to Political Parties/ Trusts

Provision of Exemptions and Deductions in New Tax Regime

There are certain deductions and exemptions in the new tax regime, which are as follows:

New Tax Regime Exemption List

Transport Allowances w.r.t. Person with Disabilities (PwD)
Conveyance Allowance
Travel/ Tour/ Transfer Compensation
Perquisites for Official Purposes
Exemptions for Voluntary Retirement Scheme u/ Section 10(10C)
Gratuity Amount u/ Section 10(10)
Leave Encashment u/ Section 10(10AA)
Interest on Home Loan on Lent-out Property u/ Section 24
Gifts of Up to Rs. 5,000
Employer’s Contributions to Employees NPS Accounts u/ Section 80CCD(2)
Additional Employee Costs u/ Section 80JJA
Standard Deductions on Family Pension u/ Section 57(IIA)
Deductions on Deposits in Agniveer Corpus Fund u/ Section 80CCH(2)

Deductions on Business Income Not Provided Under New Tax Regime

Let us have a look at the various exemptions and deductions in the new tax regime not available to businesses:

Exemptions/ Deduction Not Claimable by the Businesses in the New Tax Regime

Additional Depreciation u/ Sec 32
Investment Allowance u/ Section 32AD
Sector-wise Deductions for Businesses u/ Section 33AB and 22ABA
Expenditure on Research & Development u/ Section 35
Expenses on Capital Expansion u/ Section 35AD
Exemptions u/ Section 10AA for Units in SEZ
Depreciation and Losses in the Business

Comparison of Deductions under Old Regime vs. New Regime for FY 2023-24

The table below shows a comparative analysis of the available deductions under the old vs. new tax regime:

Available Exemptions/ Deductions	Old Tax Regime	New Tax Regime
Standard Deductions of Rs. 50,000	YES	YES
Employment/ Professional Tax u/ Sec 10(5)	YES	NO
House Rent Allowance (HRA) u/ Sec 10(13A)	YES	NO
Exemptions for Free Food & Beverages through Vouchers/ Food Coupons	YES	NO
Deductions of Up to Rs. 1.5 lakhs u/ Chapter VIA towards investments like u/ Sec 80C, 80CCC, 80CCD, 80DD, 80DDB, 80E, 80EE, 80EEA, 80G, etc.	YES	NO
Deductions u/ Sec 80CCD(2) for Employer’s Contribution to Employee NPS Accounts	YES	YES
Deductions u/Sec 80CCD(1B) of Up to Rs. 50,000	YES	NO
Medical Insurance Premium u/Sec 80D	YES	NO
Interest on Home Loan for Self-Occupied/ Vacant Property	YES	NO

Wrapping It Up

The new tax regime introduced under the Union Budget 2023-24 offers taxpayers the option to choose between lower tax rates and limited deductions or higher tax rates and multiple deductions and exemptions.

It is important for taxpayers to carefully evaluate their deductions in both these tax regime. Choose the one that best suits your financial goals and circumstances.

FAQ's

Is standard deduction applicable in the new tax regime?

Yes, the standard deduction is applicable in the new tax regime. A fixed amount of Rs. 50,000 is allowed as a deduction from the total income of salaried individuals.
It is important to note that if an employee claims this standard deduction, they cannot claim any other deduction for the same amount under any other section of the Income Tax Act.
What deductions are allowed in the new tax regime in 2023?
The deductions in the new tax regime and the list of various exemptions are as follows:
- Standard deductions of Rs. 50,000 on taxable income
- Employer’s contribution to NPS accounts of employees
- Deductions on health insurance premiums u/ Section 80D
- Transport allowances to Persons with Disabilities
- Gratuity u/ Section 10(10)
- Leave Encashment u/Section 10(10AA)
What is the standard deduction for 2023-24?

The standard deduction of Rs. 50,000 is provided on the income of up to Rs. 7 lakhs for the financial year (FY) 2023-24.
How many deductions are there in the new tax regime?

Approximately 10 tax exemptions and deductions are available to individuals under the new tax regime. However, the tax slab rates are more simplified and reduced in the new tax regime as compared to the old tax regime.
Is standard deduction applicable in the new tax regime?

Substantial deductions and exemptions aren't permitted under the new tax regime. However, taxpayers do have the option of paying concessional tax rates. The standard deduction from gross salary is also not permitted if the taxpayer is required to file a return under the new tax system.
What are the benefits of the new tax regime?

The benefits of the new tax regime include lower tax rates, easier compliance, and easier filing since fewer documents are needed since most of the exemptions and deductions are unavailable.
What are some deductions under the new tax regime?

Minor child income allowance, HRA, LTA, etc., are some deductions under the new tax regime.
Can someone opt for New Tax Regime and avail of Rebate u/s 87A?

Since the deduction under the new tax regime doesn't mention anything thus, the rebate listed in section 87A applies to both the old and the new tax regimes.
How can someone opt for the new tax regime?

To opt for the new tax regime, one has to choose it while filing for tax returns.

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