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How to save tax in new tax regime (2024-25)

Maximise your tax savings under the new regime. Get the latest insights into the new tax regime of 2024-2025

Published: Jun 5, 2024 08:30:35 PM IST
Updated: Jun 13, 2024 04:53:55 PM IST

How to save tax in new tax regime (2024-25)

Indian finance and taxation systems have undergone significant transformations over the decades, evolving in response to the country's dynamic economic terrain. The foundation of India's taxation framework is a mix of direct and indirect taxes, with direct taxes primarily comprising income tax and corporate tax and indirect taxes, including the Goods and Services Tax (GST), customs duties, and excise duties.

On the direct tax front, the Indian government has consistently worked to simplify tax laws and make the tax system more equitable. Introducing the new tax regime is a notable development in this regard.

The new tax regime aims to simplify income tax for individual taxpayers by offering lower tax rates in exchange for preceding most deductions and exemptions available under the old regime.

What is the new tax regime for FY 2024-25?

In the interim Budget 2024, Finance Minister Nirmala Sitharaman maintained the status quo on income tax slab rates, leaving them unchanged for the financial year 2024-25, which begins on April 1, 2024. Taxpayers must again decide between the old and new tax regimes to minimise their tax liability.

The income tax slabs in the 2024-2025 new tax regime will remain unchanged for the financial year 2024-25 (assessment year 2025-26), as no updates were announced in the interim budget.
Income tax slabs under the new tax regime for FY 2023-24 and FY 2024-25, as sourced from ClearTax.

Also Read: Income tax slabs for senior and super senior citizens (new and old tax regimes) for 2023-24

Income Tax Slabs (Rs) Income Tax Rate (%)
Up to Rs 3 lakh Nil
Rs 3 lakh to Rs 6 lakh 5% (Tax Rebate u/s 87A)
Rs 6 lakh to Rs 9 lakh 10% (Tax Rebate u/s 87A up to Rs. 7 lakh)
Rs 9 lakh to Rs 12 lakh 15%
Rs 12 lakh to Rs 15 lakh 20%
Income above Rs 15 lakh 30%

Also Read: Income tax returns filing: Know which ITR you should file

Tax saving options under New Tax Regime 2024-2025.

Under the New Tax Regime, you can claim tax exemptions for the following:

  • Specially abled taxpayers can claim transport allowances up to a specified limit.
  • Section 80JJAA of the Indian Income Tax Act of 1961 provides tax deductions to employers who create jobs in the formal sector. Employers can claim a deduction of up to 190 percent of the additional employee costs incurred by hiring new eligible employees during a fiscal year.
  • Conveyance allowances received to cover conveyance expenses incurred as part of employment. This is an additional component beyond the basic salary and may be exempt from tax under Section 10(14)(ii) of the Income Tax Act.
  • Employees can claim an exemption up to Rs. 1,600 per month or Rs. 19,200 per year, regardless of their tax bracket. Any amount paid above this limit is taxed under "Income from Salaries."
  • Gifts or cash up to Rs. 50,000 in a financial year are exempt from tax. If you receive gifts exceeding this amount, the entire gift becomes taxable.
  • Reimbursements for travel expenses incurred during an official tour or transfer are exempt from tax.
  • Since the new tax regime began in FY 2020-21, a deduction under Section 80CCD (2) has been available for employer contributions to an employee’s Tier-I NPS account. Private sector employees can claim up to 10 percent of their salary, while government employees can claim up to 14 percent, with salary including basic pay plus dearness allowance.
  • The daily allowance is provided to cover ordinary daily expenses incurred by an employee on tour or during the journey associated with a transfer.
  • Homeowners can claim up to Rs 2 lakh deduction on their home loan interest if they or their family reside in the property. This deduction also applies if the house is vacant. If the property is rented out, the entire interest on the home loan is deductible.
  • Perquisites are typically taxed at 30 percent of the total value of the fringe benefits.
  • Under Section 10(10C) of the Income Tax Act, 1961, the amount received by an employee as a voluntary retirement scheme (VRS) is exempt from tax, subject to certain conditions. The exemption limit is Rs 5 lakhs.
  • Gratuity received by an employee from their employer is exempt from tax under Section 10(10) of the Income Tax Act, 1961. As per the latest amendment, the exemption limit is up to Rs 20 lakhs.
  • Leave encashment received by an employee at the time of retirement or superannuation is exempt from tax under Section 10(10AA) of the Income Tax Act, 1961. The exemption limit is Rs 3 lakhs for private sector employees and the actual amount for government employees
  • The 2023 budget introduced a standard deduction of Rs 50,000 under the New Tax Regime, effective from the financial year 2023-24.
  • The budget introduced a deduction under Section 57(iia) for family pension income. This deduction allows individuals to reduce their taxable income by a certain amount, providing tax relief for those receiving family pensions.
  • The budget also included a new deduction for amounts paid or deposited into the Agniveer Corpus Fund under Section 80CCH(2).

Also read: India forex reserves 2024: Exploring current status and historical trends

Who is Eligible for the new tax regime on section 115 BAC

Section 115BAC of the Income Tax Act, introduced in the Union Budget 2020, offers a new tax regime with lower tax rates and reduced deductions. Individuals and Hindu Undivided Families (HUFs) can opt for this new tax regime if they forgo certain deductions and exemptions available under the existing tax regime.

To be eligible for the new tax regime under Section 115BAC, a taxpayer must:

  1. Be an individual or a Hindu Undivided Family (HUF).
  2. When filing their income tax return for the relevant assessment year, opt for the new tax regime.
  3. Forgo certain deductions and exemptions available under the existing tax regime, including but not limited to:

  • Standard deduction
  • Section 80C deductions (such as PPF, EPF, life insurance premium, ELSS, etc.)
  • Section 80D deductions (health insurance premium)
  • Section 24 deductions (home loan interest)
  • Leave travel allowance (LTA)
  • House rent allowance (HRA)
  • Deductions under Chapter VI-A (except for sections 80CCD (2) and 80JJAA)

Taxpayers must carefully evaluate their circumstances to determine whether choosing a new or old tax regime would benefit them.