In the 2020 Budget declaration, the finance minister introduced a new tax regime to simplify tax planning. The new regime offers additional tax slabs. However, it does not account for most sections providing tax benefits, such as 80C, 80D, 80G, etc.
While the new regime appears convenient for those not making investments or in lower income brackets, higher-income earners might find it somewhat disappointing. But what if we told you that multiple provisions under the new regime allow you to get tax benefits?
Tax Slabs Under New Regime
Here is the tax rate for different income brackets under the new regime for FY 2024-25.
| Income Bracket | Tax Rate |
| Upto ₹3,00,000 | Nil |
| Between ₹3,00,001 and ₹7,00,000 | Rebate of 5% u/s 87A |
| ₹7,00,001 and ₹10,00,000 | 10% |
| Between ₹10,00,001 and ₹12,00,000 | 15% |
| Between ₹12,00,001 and ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Tax Savings in New Regime
Here are some approaches you can take to save raxes according to the new regime:
1. Standard Deduction
The recent budget introduces revisions to the standard deduction available to salaried individuals. This deduction, a fixed amount subtracted from income, has been raised to ₹75,000, marking a notable increase from the previous ₹50,000 limit under the previous regime.
2. NPS Contribution
Under Section 80CCD(2), your employer’s contribution towards the National Pension Scheme on your behalf qualifies for tax exemption under both regimes. However, the exemption limit is set at 14% of salary (plus Dearness Allowance); previously, this limit was 10%.
For example, if your basic income is ₹1 lakh and your company can contribute ₹14,000 (14% of basic pay) to the NPS on your behalf, this contribution will be tax-exempt.
3. Family Pension Income
A family pension is a monthly payment provided by an employer to the legal heirs of a deceased employee.
As per Section 57(iia) provisions, you qualify for a standard deduction on family pension income of up to ₹15,000 or a deduction of one-third of the pension amount, whichever is lower.
For example, if your pension is ₹60,000, the available exemption is the lesser of ₹15,000 or ₹20,000 (one-third of ₹60,000).
This makes the taxable pension ₹60,000 minus ₹15,000, totalling ₹45,000.
4. Home Loan Interest Rate
As per the law, if you own more than two properties, the additional are treated as ‘deemed to be let out’ for tax computation. If you have rented out a property, the rent you receive is termed as Gross Annual Value (GAV). However, for ‘deemed to be let out’ property, the GAV will be similar to the rent of the identical property size in the same place.
In the new regime, if the let-out property is financed, the interest paid towards the home loan is deducted from the Gross Annual Value (GAV). Remember, the maximum deduction limit under this section is ₹2 lakh, which does not apply to self-occupied property.
In addition to the above, a standard deduction of 30% is applicable to the property’s net annual value.
5. PF Contribution
In the provident fund, 12% of your basic salary is contributed by you, and your employer contributes the same percentage on your behalf. According to taxation rules, the contribution made by your employer is deducted from your taxable income under both regimes.
For example, if your monthly basic salary is ₹30,000 and you and your employer contribute ₹3,600 each, your employer’s contribution of ₹3,600 qualifies for the deduction.
6. Transport Allowance
In many organisations, the employer reimburses the transportation costs incurred by an employee for commuting from their residence to the office. The exemption limit for this allowance, effective from the financial year 2018-19, is capped at ₹3,200 per month.
It is essential to mention that under the new regime, this tax benefit applies only to physically disabled employees.
Another allowance related to commuting is the conveyance allowance, which qualifies for tax exemption up to the actual amount spent.
7. ELSS Mutual Funds for Tax Savings
Equity Linked Savings Schemes (ELSS) are a popular tax-saving option under Section 80C of the Income Tax Act. By investing in these funds, individuals can claim deductions of up to ₹1.5 lakh annually from their taxable income.
ELSS funds primarily invest in equities, providing the potential for higher returns over the long term. They come with a lock-in period of three years, making them an ideal choice for those looking to grow wealth while reducing their tax burden.
Find out Top-Rated ELSS Mutual Funds.
8. Tax-Saving Mutual Funds for Reduced Tax Liabilities
Tax-saving mutual funds, like tax-saving fixed deposits or PPF, offer a straightforward way to lower taxable income. These funds provide deductions under Section 80C, helping individuals to save on taxes.
By investing in these funds, individuals can efficiently reduce their taxable income, potentially saving thousands of rupees. While ELSS offers higher growth potential, other tax-saving funds focus more on security and guaranteed returns, allowing taxpayers to choose a strategy that suits their financial goals and risk appetite.
Look at Tax Saving Mutual Funds with High Returns.
9. Agniveer Corpus Fund
Agniveer Corpus Fund is a part of the Agnipath Scheme of 2022. Under this scheme, each Agniveer contributes 30% of their monthly salary to the fund, and the government matches this contribution.
As per Section 80CCH, enrolling in this scheme lets you decrease your taxable income by the combined sum you and the Central Government contributed towards your Agniveer Corpus Fund.
Effective from 1st April 2023, payments received from the Agniveer Corpus Fund by an individual enrolled in the Agnipath Scheme or their nominee are tax-exempt, as outlined in the new Clause 12(C) under Section 10.
Conclusion
Though the new tax regime limits traditional exemptions, it offers various provisions that can help you save on taxes. There are multiple ways to cut down your taxable income, whether through increased standard deductions, contributions to the NPS, or exemptions on family pension income and home loan interest.
