What Are the Key Deductions Allowed Under the New Tax Regime?

The new tax regime introduced has brought significant changes to the Indian tax landscape. With the aim of simplifying the tax structure and providing taxpayers with more flexibility, the new regime offers an alternative option for individuals to calculate their taxes. Under this new regime, taxpayers have the choice to opt for a lower tax rate without availing certain deductions and exemptions available under the old tax regime.

In this blog post, we will explore the key deductions allowed under the new tax regime. While the new regime provides a simplified approach to tax calculation, it is crucial to understand the deductions that are still available to ensure that taxpayers can make the most informed decisions when choosing between the new and old tax regimes.

Deductions Allowed Under the New Income Tax Regime: Understanding the Eligible Deductions

1. Employer’s Contribution to Notified Pension Account (Section 80CCD(2))

Under the new tax regime, employees can still claim deductions for the employer’s contribution to a notified pension account under Section 80CCD(2) of the Income Tax Act. However, it’s important to note that this deduction cannot exceed 10% of the employee’s previous year’s salary.

2. Additional Employee Cost (Section 80JJAA)

Section 80JJAA allows for deductions of up to 30% of additional employee cost incurred by the employer. This deduction aims to encourage employment generation and provides relief to businesses.

3. Transport Allowance for Differently-Abled Employees

Differently-abled employees, also known as divyang, are eligible for deductions on transport allowance. This allowance covers the commuting expenses between their place of residence and their place of work.

4. Conveyance Allowance for Office Duties

Conveyance allowance given to employees for the performance of office duties is still eligible for deduction under the new tax regime. This allowance covers expenses related to transportation incurred during work-related activities.

5. Tour and Travel Allowance

Any allowance provided by employers to meet the cost of official tours and travels is considered an eligible deduction under the new income tax regime. This includes expenses incurred for business-related travel and accommodation.

6. Daily Allowance for Duty Travel

When an employee has to work at a location other than their normal place of duty, any daily allowance provided to cover ordinary charges is eligible for deduction. This allowance helps employees meet their day-to-day expenses during duty travel.

7. Donations to Charitable Institutions 

Donations made to eligible charitable institutions and funds are still eligible for deduction under the new tax regime. Taxpayers can claim deductions under Section 80G of the Income Tax Act, subject to specified conditions and limits.

Tax Planning Strategies for the New Regime

With the implementation of the new tax regime in FY24, taxpayers should be aware of the changes and opportunities to effectively manage their taxes:

• Strategize your investments: Make wise investment choices by selecting instruments that qualify for tax deductions, such as the Public Provident Fund (PPF), Equity-Linked Saving Scheme (ELSS), National Pension Scheme (NPS), and tax-saving fixed deposits. These options not only help you save on taxes but also offer favorable returns.
• Maximize your tax deductions: Ensure that you take advantage of all available tax deductions. For instance, claim deductions on home loans, education loans, health insurance premiums, and medical expenses. These deductions can significantly reduce your taxable income.
• Harness the benefits of Section 80C: Make full use of Section 80C by investing in eligible schemes like PPF, ELSS, NPS, and tax-saving fixed deposits. It is important to note that the maximum limit for this section is ₹1.5 lakh, so plan your investments accordingly.
• Evaluate the new tax regime for potential benefits: The new tax regime provides lower tax rates but eliminates deductions. If you don’t have substantial deductions to claim, it may be advantageous to choose the new regime.
• Timely filing of tax returns: To avoid penalties or interest payments, make sure to file your tax returns on time. Opting for e-filing can expedite the process and make it more convenient.