Deductions Under the New Tax Regime: What’s In It For Salaried Employees

The new tax regime was introduced in budget 2020-21 and since then the government has provided several incentives to taxpayers to shift to the new tax regime. 

In the recent budget, it was announced that those earning up to Rs 12 lakh in the new tax regime do not need to pay any taxes, making the new tax regime more attractive. 

The new tax regime offers lower tax slabs, but most of the deductions available under the old tax regime, like popular deductions under Sections 80C and 80D, are not available under the new tax regime. We take a look at the few exemptions/deductions available under the new tax regime. 

Standard Deduction 

A salaried employee can claim a higher standard deduction of Rs 75,000 if he opts for a new tax regime. The deduction is limited to Rs 50,000 in the old tax regime. It is important to note that an income of up to Rs 12 lakh becomes tax-free after this deduction is applied. 

Family Pension 

'Family pension' refers to the monthly pension received by the family or heir of a deceased employee. “While the pension received by the employee is taxable under the head 'Salaries,' family pension is taxed under 'Income from Other Sources.' A standard deduction can be claimed on family pension, limited to the lower of the following,” says  Rahul Singh, senior manager, Taxmann, tax and corporate advisor. 

a) One-third of the family pension; or  

b) Rs 25,000 under the new tax regime.  

If the old tax regime is chosen, the maximum deduction available is Rs 15,000.

Employer’s Contribution To NPS

“When an employer contributes to the NPS, the contribution is taxable as part of the employee's salary income. However, the employee can claim a deduction under Section 80CCD(2), subject to certain limits based on the type of employer and tax regime opted for,” says Singh. 

a) 14 per cent of salary– If contributed by the central or state government.  

b) 14 per cent of salary– If contributed by any other employer the employee’s total income is taxable under the new tax regime.

If an employee opts for the old tax regime, the limit of 14 per cent is reduced to 10 per cent. 

Deduction For Contribution To Agniveer Corpus Fund

An individual enrolled in the Agnipath Scheme ('Agniveer) is eligible to claim a deduction under section 80CCH for the amount contributed to the Agniveer Corpus Fund.