Some of the Important Deductions Available in the New Tax Regime
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Updated date : 14 February 2020
There are 70 exemptions and deductions that were removed from the new income regime for individual taxpayers. The excluded exemptions include 80 C deductions up to Rs 1.5 lakh, medical insurance premium u/s 80D, etc. But there are some exemptions that a taxpayer can claim in the new tax regime. And if you are feeling confused between the ones that are removed and the ones that are available then here is a quick rundown of the some of the important valid available deductions in the new regime:
Checkout some of the permissible exemptions under the new tax regime as proposed in the Union Budget 2020:
Contribution By Employer Towards’ Employees NPS/EPF Account
For the FY 2020-21, the employer’s contributions towards superannuation, EPF, NPS is available for tax exemption up to a maximum limit of Rs. 7.5 lakh. And the interest earned will be taxable in the hands of an employee.
Currently, the employer’s contribution towards EPF remains 12% of the employee’s basic salary. In the same way, an employer’s contributions towards Tier-I account of NPS remains 10% of the employee's basic salary. Whereas in a superannuation account, a maximum of Rs. 1.5 lakh employer’s contribution is exempted from tax during a financial year.
People earning less than Rs. 60 lakh a year are likely to benefit from this as they will not cross the exemption limit of Rs. 7.5 lakh.
Interest on Employee’s Provident Fund up to 9.5%
In the new tax structure, if the interest earned during a year on the EPF scheme does not exceed the limit of 9.5% you can avail tax exemption benefits.
All the taxpayers that receive gratuity (on working for more than 5 years) from their employer can avail tax exemption up to a specified limit. The tax exemption limit for gratuity in a lifetime is kept at Rs. 20 lakhs for non-government employees. There is no limit for government employees.
In the new regime, the gratuity amount that is received on the death of an employee shall be available for tax exemption with no limits.
Interest Earned on Post Office Savings Account Balances
Under the purview of section 10(15) (i) of the IT Act, a person can avail tax benefit on the interest earned up to a specified limit. In the case of individual accounts, the tax exemption limit of the Interest earned is up to Rs. 3,500 and Rs. 7,000 for joint accounts.
However, in the new tax structure, the interest received from the bank and post office savings account is not valid for deduction u/s 80 TTA. However, only post office savings account holders can still avail exemption up to a certain extent. If you are availing this exemption you can derive your gross taxable income by deducting the interest earned under the head other sources.
Life Insurance Maturity Amount
In the new tax regime, a taxpayer cannot avail of a tax deduction on the life insurance premium. However, the maturity amount that a taxpayer receives from a life insurance company is exempted u/s section 10(10D) in the new tax regime.
PPF & Sukanya Samriddhi Account Interest and Maturity Amount
Under the new tax regime, PPF contributions are not eligible for tax deductions u/s 80 C. The interest earned and the maturity amount of the PPF Account and Sukanya Samridhi Yojana will be eligible for tax exemption under the new tax regime.
Payment Received from National Pension Scheme
Even in the new regime, the lump sum maturity amount received from the National Pension Scheme will be eligible for tax exemption.
In the new tax regime, a maximum of 60% of the NPS corpus can be withdrawn and is tax-free on Tier- I NPS account on maturity. However, it is mandatory to use the 40% remaining corpus amount on maturity for buying annuity plans. Also, any partial withdrawals remain exempted from tax.
And as per the current Income tax regime of 2019-2020, an individual can avail tax exemption benefits upon withdrawal of a maximum of 25 % of his own NPS contribution amount. For own contributions, an individual can avail tax benefits up to Rs. 1.5 lakh u/s 80CCD (1) and Rs. 50,000 u/s 80CCD (1B).
The new tax regime does not offer tax benefit on the employee's own contribution but if it an employer’s contribution to the employee’s account, it is eligible for deduction u/s 80CCD (2). Furthermore, partial withdrawals up to a limit and the payment received from the National Pension Scheme at the time of closure are exempted from tax in the new regime.
Leave Encashment on Retirement
Many companies encash the unused leaves at the time of retirement of their employees. The limit to avail tax benefits for leave encashment by non-government employees is up to Rs. 3 lakh. Even in the new regime, a taxpayer will continue to avail of tax exemption for the same.
Voluntary Retirement Scheme Amount
As per the new regime if a taxpayer opts for voluntary retirement then the monetary benefits by him are eligible for tax exemption. The maximum limit is up to Rs 5 lakh in both the current and the new tax structure.
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