3 Simple Tax Deductions in the New System Made ITR Easily

The question that comes to mind while filing income tax is whether to choose the new tax regime or the old one? 3 simple tax deductions in the new system made ITR easily. The old tax regime has some tax deductions, which still makes it attractive. However, the number of people choosing the new regime has increased in the recent past. Out of the total 7.28 crore income tax returns (ITRs) filed for the financial year 2024-25, 5.27 crore returns were under the new tax regime, while 2.01 crore returns were filed under the old tax regime. This shows that about 72% of taxpayers have adopted the new system.

3 Simple Tax Deductions:

The new system has fewer tax slabs. Apart from this, in the budget, the Finance Minister had announced to exempt income of Rs 12 lakh from tax. However, some popular tax deductions of the old system like House Rent Allowance (HRA), Leave Travel Allowance (LTA), interest on home loan have not been included in the new system. In the new system, taxpayers can avail three major exemptions. Let’s know about them.

Standard deduction
The benefit of standard deduction is available for salaried employees and pensioners in the new tax system. This deduction was Rs 50,000 for FY 2023-24, which has been increased to Rs 75,000 from FY 2024-25. This change will help taxpayers reduce their taxable income, thereby reducing their tax liability.

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National Pension System (NPS)
Under the new tax system, contributions made by the employer to the National Pension System (NPS) are tax exempt. This exemption is given under section 80CCD (2). However, there is no exemption on contributions made by the employee himself. The employer’s contribution can be up to 10% of the employee’s basic salary and dearness allowance, which is tax free.

Gratuity
Gratuity received at the time of retirement is also tax free in the new tax regime. This exemption is provided under Section 10(10) of the Income Tax Act. For government employees, the entire gratuity amount is tax free, while for non-government employees, gratuity up to a maximum of Rs 20 lakh has been exempted from tax. Apart from this, the amount received under Voluntary Retirement Scheme (VRS) is also tax free under Section 10(10C). Similarly, leave encashment at the time of retirement is exempted under Section 10(10AA).

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