The official tax calculator that the income tax department recently introduced is a helpful tool for people to select the regime with reduced tax liability.
However, you should also be conscious of the exemptions to which you will still be entitled before making a final choice. These six tax breaks are part of the new system (as also the older regime).
Rs. 50,000 is the standard reduction
This is the most well-known tax advantage provided under the system, and it was introduced in Budget 2023 to make the new system more appealing to taxpayers. It is provided by default, so claiming it doesn’t require you to do anything or provide any supporting documentation.
But not every taxpayer qualifies for this benefit. It is only available to pensioners and salaried workers, just like under the previous regime. This tax break is not available to business owners or workers who work for themselves. This deduction is also available to family pensioners, who receive pensions following the passing of the retiree who is eligible for them.
Companies’ involvement in employee NPS
This is one of the less well-known financial advantages that are accessible under both regimes. This deduction is kept even though two other National Pension System-related tax deductions—Rs. 1.5 lakh under Section 80C of Up and Rs. 50,000 under Section 80CCD (1B)—do not fit into the new regime’s overall plan.
Section 80CCD permits a deduction for an employer’s payment to the National Pension System (NPS) of up to 10% (or 14% for government workers) of an employee’s basic pay plus dearness allowance (2).
The annual cap on employer perks that are tax-free is set at Rs. 7.5 lakh. If the total benefits exceed this limit, the extra money will be considered taxable perquisites for the workers.
Employer contributions to EPF of up to 12% of base pay
Your company makes a 12 percent contribution to your EPF account from your base salary. As long as the total retirement benefits you obtain from your employer do not exceed the Rs 7.5 lakh threshold per year, this sum is also tax-free.
Life insurance maturity profits are exempt from taxes
Investment-cum-insurance life policies are frequently favored by high-net-worth individuals who view tax-free maturity proceeds as an enormous plus, in addition to gullible policyholders who fall for dubious sales pitches. This advantage is accessible under both regimes, once more.
If you have purchased plans that were packaged with an investment, such as a unit-linked insurance policy (Ulip) or an endowment plan, it does come with some restrictions.
The government has imposed limits on Ulips maturity proceeds beginning with the fiscal year 2021–2022 Therefore, the maturity proceeds on policies bought after February 1, 2021, will be taxed if the total premiums paid are over Rs 2.5 lakh. Similar limitations have been added to conventional non-Ulip policies, primarily investment plans, in Budget 2023. The income made at the end of the tenure will be subject to tax if the total premiums for such policies purchased after April 1, 2023, exceed Rs 5 lakh.
Proceeds received by designated family members upon the demise of the policyholder are never taxable.
The standard deduction for revenue from rentals
You may deduct up to 30% of the annual value of any property you own and have leased out from your taxable income.
Annual value, in its simplest form, is the gross yearly value (actual rent or reasonable rent at market prices) less any paid municipal taxes.
Sukanya Samriddhi Yojna or PPF development progress
The maturity profits from your investments in the Sukanya Samriddhi Yojana and Public Provident Fund (PPF) will not be subject to tax. Investments made in these accounts, however, will no longer qualify for the previous regime’s section 80C deductions up to Rs 1.5 lakh.
