Deductions: Old vs New Tax Regime

Navigating the New Personal Income Tax Regime: Understanding Exemptions and Deductions

Individuals considering the switch to the new lower personal income tax regime must grasp the implications on their deductions. In this new framework, most of the deductions claimed under the old tax structure are rendered ineligible. Notable exclusions from the new tax regime encompass Section 80C, encompassing investments in PF, NPS, life insurance premiums, and home loan principal repayments. Additionally, deductions under Section 80D for medical insurance premiums, HRA (House Rent Allowance), and interest paid on housing loans are also off the table. Tax benefits for the disabled and charitable donations likewise fall under the non-eligible category in the new tax regime.

Opting for the new tax regime entails choosing reduced tax rates sans the various exemptions and deductions. Individuals must meticulously evaluate their tax liability under both the old and new tax structures before making an informed decision.

Here's a rundown of popular exemptions and deductions individuals will forgo under the new regime:

(i) Leave Travel Allowance (LTA): Currently available to salaried employees twice in a block of four years.

(ii) House Rent Allowance (HRA): Typically part of salaried individuals' compensation, exempt up to specified limits for those in rented accommodations.

(iii) Deductions under Section 80TTA and 80TTB: Interest on deposits in savings accounts and senior citizens' deposits, respectively.

(iv) Entertainment allowance and employment/professional tax: As contained in section 16.

(v) Interest paid on housing loan: Deductible from income from house property, usually resulting in a loss from house property.

(vi) Deduction for family pension: Allowed under clause (iia) of section 57.

(vii) Section 80C Deductions: Provident fund contributions, life insurance premiums, school tuition fees, ELSS, NPS, PPF, etc.

However, deductions under subsection (2) of section 80CCD (employer contribution to employee's pension scheme, mostly NPS) and section 80JJAA (for new employment) remain claimable.

(ix) Deduction for medical insurance premiums: Under section 80D.

(x) Tax benefits for disability: Sections 80DD and 80DDB.

(xi) Tax break on interest paid on education loan: Under section 80E.

(xii) Tax deduction for donations to charitable institutions: Under section 80G.

All deductions under Chapter VIA, including sections 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc., are ineligible for those opting for the new tax regime.

These exclusions constitute a fraction of the total 70 deductions and tax exemptions unavailable in the proposed new tax framework.