What are the available deductions under the new tax regime?

Old tax regime vs. new tax regime, which one should you choose in FY24? The choice isn’t straightforward. Very few tax deductions are available under the new tax regime. However, insertion of more tax slabs, moderation of tax rates and some sweeteners offered in the form of special rebates do perform a counterbalancing act.

As such, it’s imperative to understand the difference between old and new tax regime before you make a comparison on tax saving options.

Old tax regime Vs new tax regime: slabs and tax rates…

The old tax regime encourages taxpayers to save money and invest in specified investment avenues to avail tax deductions. On the other hand, the new regime empowers taxpayers to take better control of their expenditure and savings and look beyond the permitted tax savings instruments.

This is one of the primarily reasons why new tax regime offers you fewer tax deductions as compared to the old tax regime.

Comparison of tax saving options under the old and new tax regime

The biggest drag under the new tax regime is the absence of majority of chapter VI-A deductions—i.e. deductions on account of specified investments, contributions to various schemes and some permissible expenses.

Which deductions can you claim under the new tax regime?

Points to remember…

• New regime doesn’t offer any additional incentive in the basic exemption limit to senior citizens and super senior citizens (those above 80).
• Under the new tax regime, taxpayers can’t claim interest paid on a home loan if the property is self occupied or it remains vacant. The deduction is available only on let out properties and that too only to the extent of rental income at max.
• Assessees have to compulsorily file tax returns if their taxable income exceeds Rs 3 lakh under the new tax regime even if their tax liability is zero.
• Basic exemption limit under new tax regime is Rs 3 lakh however section 87A makes income upto Rs 7 lakh completely tax free.
• Under new tax regime, only transportation allowance paid to differently-able employees to travel to-and-fro the place of residence and office is exempt.
• Conveyance allowance for meeting the official tour cost is exempt including other allowance paid to meet ordinary expenses at a place away from the normal workplace.

Which tax regime should you prefer old or new?

If your income is upto Rs 7 lakh then the new regime may suit you more than the old regime. However, for higher income groups, the quantum of deductions that can be claimed under old tax regime might be the deciding factor.

For instance, consider the example below

For illustration purposes only

In the above example, opting for the old tax regime would be beneficial. But that may not be the case always.

Consider this example…

 Note:  The ceiling of the presumptive taxation scheme u/s 44AD and section 44ADA has been enhanced to Rs 3 crore and Rs 75 lakh respectively in finance act 2023, provided 95% of the transactions are performed on non-cash basis.

For illustration purposes only

If you are finding it difficult to make the right choice, worry not. Income Tax Department has created a calculator for you. You can fill in the necessary inputs and compare your tax liability under both the regimes to decide which one is more beneficial for you.

Can I switch between old and new tax regime occasionally?

Yes, if you are a salaried person and, no, if you have income from business and profession. In other words salaried individuals can file the form 10IE every financial year to opt in or opt out of old/new tax scheme. However, taxpayers with business income can switch only once in their lifetime.

In summary

Deductions/exemption is just one part of choosing the right tax regime. Take the holistic approach and do your math meticulously before opting for any tax regime. Particularly, in case you have business income or income from profession. Please don’t hesitate to take expert help, if required.