Income Tax Deductions : The new tax regime, which was implemented in 2020 and became the default system in 2023, has often been believed to provide fewer exemptions. Contrary to popular opinion, this system still allows for a variety of deductions and exclusions. Taxpayers, including paid workers and pensioners, can use these deductions to lower their tax liability.
Highlights for Income Tax Deductions in Budget 2025
Finance Minister Nirmala Sitharaman stated a tax exemption on income up to Rs 12 lakh per year in her 2025 Budget. Furthermore, new tax slabs were implemented, but no changes were made to the previous tax structure. The new tax structure eliminates many of the exemptions and deductions offered under the previous system while still providing numerous benefits.
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Here are seven types of deductions possible under the new tax system:
Standard Deduction
Salaried employees and pensioners are eligible for a standard deduction of Rs 75,000.
Benefits of retirement
Both the new and old tax regimes exempt retirement gratuities and payments for unused leave from taxation.
Exemption for the National Pension System (NPS)
Employer contributions to the NPS up to 14% are totally tax-exempt under Section 80CCD. Similarly, contributions to the Provident Fund are tax-free.
Exemption under Agneepath Scheme
Contributions to the Agneepath corpus fund are tax free under Section 80CCH.
Deduction for the family pension
The new tax structure allows family pension recipients to claim a deduction of up to Rs 25,000.
Exemptions from allowances
Various employer allowances are excluded, including
Leave Travel Allowance (LTA) under Section 10(5), House Rent Allowance (HRA) under Section 10(13A), Special Allowances under Sections 10(14) and 10(17), and Entertainment Allowance under Section 16(2).
Tax Exemption for Gifts
Gifts of up to Rs 50,000 from any source in a year are tax-free, even under the new tax regime.
Maximising tax savings.
With these new deductions, taxpayers should review their tax planning techniques to maximise savings. Individuals can use these exemptions to decrease their tax burden and benefit from the new tax structure.
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