Know About the Latest Deduction in New Tax Regime

Tax laws in India keep evolving. Therefore, both individuals and businesses must remain updated with the latest modifications. The Indian tax system witnessed a major transformation in 2024, with the Union Budget aiming to simplify the tax structure and boost compliance. A major aspect of this modification is deductions in new tax regimes or notable changes in allowable deductions.

Understanding Standard Deduction in New Tax Regime

The standard deduction in the new tax regime goes like this:

• Increase in Tax Deduction Limits in 2024

The Union Budget 2024 allows total tax deductions in the new tax regime for income up to Rs. 7 lakh. Under section 87A of the Income Tax Act, you need not pay any tax if you claim a standard deduction of Rs. 50 000 on income up to Rs. 7.5 lakhs.

• Streamlined Income Tax Slabs in 2024

No taxes are levied on income up to Rs. 3 lakhs annually. However, there is a 5% tax rate on income between Rs. 3 lakhs and Rs. 6 lakhs, 10% for income between Rs. 6 lakhs and Rs. 9 lakhs, 15% on income between Rs. 9 lakhs and Rs. 12 lakhs, 20% on income between Rs. 12 lakhs and Rs. 15 lakhs, and 30% on income above Rs. 15 lakhs.

• Increase in Basic Tax Deduction Limit in 2024

The basic tax exemption limit of Rs. 2.5 lakhs as per the old tax regime has been increased to Rs. 3 lakhs in the new tax regime. This latest deduction is applicable from 1 April 2023 and continues in 2024.

• Standard Deductions As Per Section 80TTB of the Income Tax Act

As per section 80TTB deduction of the Income Tax Act, salaried individuals can benefit from standard deductions of Rs—50 000 under the new tax regime. The section also allows family pensioners to claim standard Rs. 15 000 deductions under the new tax regime.

The deduction allowed in the new tax regime is the investments or expenses made by taxpayers that can be subtracted from their gross total earnings to get a taxable income. These deductions can reduce a company's or an individual's tax liability.

Deductions Not Allowed Under the New Tax Regime

Note that there are a few non-claimable deductions in the new tax regime, which include:

• Professional Tax
• The standard deduction under Section 80TTA and Section 80TTB
• Helper Allowance
• HRA or House Rent Allowance
• Deductions under sections 80C, 80D, 80CCC, 80CCD, 80DD, 80DDB, 80EE, 80EEA, 80G, and more from Chapter VO-A of the IT Act.
• LTA or Leave Travel Allowance
• Entertainment allowance on salaries
• Mino child income allowance
• Child education allowance
• Other special allowance under section 10(14)
• Interest in home loan against vacant or self-occupied property
• Employee’s contributions to the NPS account
• Donations to trusts and political parties

Deductions on Business Earnings Not Allowed in New Tax Regime

A few deductions in the new tax regime not available to businesses include:

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

Considering the deductions in the new tax regime, it is crucial for businesses and individuals to use financial strategies that can offer optimal tax results. They must explore alternative investments, reassess objectives, leverage tax-exempt allowances, maximize standard deductions, and follow financial advice to effectively navigate all changes in the new tax regime.