Deductions allowed under new(current) tax regime. Megathread

[tomwedding]

In my previous post, I covered the popular deductions that have been disallowed under the current(new) tax regime.

In this post, I will be covering the important deductions that are still allowed under the new tax regime.

Here we go:

1. Standard deduction of Rs. 50000 from salary
2. Contribution to pension scheme by employer at:

a. 14% of salary in case of government employees

b. 10% in case of others

1. Contribution by central government to the Agniveer fund.
2. Section 80JJAA, ie 30% of additional employee cost for new employees for 3 assessment years( for employees enrolled in PF and having salary less than 25000)
3. Gratuity:

a. Fully exempt for government employees.

b. Gratuity received by individual on retirement/ incapacitation or dependents on death upto Rs. 10 lakhs calculated as follows:

i. Half month salary( Average taken for last 10 months of employment) X Completed years of service.

c. ( If covered under the Payments of Gratuity Act)Gratuity received by individual on retirement/ incapacitation or dependents on death upto Rs. 10 lakhs calculated as follows:

i. 15/26 x last drawn salary X completed years of service or part thereof exceeding 6 months.

1. Commute pension: Commuted pension is when you withdraw a lumpsum amount by foregoing a part of the monthly pension amounts. That is, you reduce the monthly pension to receive a lumpsum amount immediately. Here is how the deduction is calculated:

a. It is fully exempt for government employees

b. Commuting upto half of the pension is exempt if you did not receive gratuity. Commuting one-third of the pension is allowed if you have received gratuity.

1. Leave encashment, ie payments against unclaimed leaves:

a. Fully exempt for government employees

b. For others: It is calculated as follows:

i. Your average salary for the last 10 months prior to encashment is divided by 30 for considering your daily wage rate.

ii. The daily wage rate is multiplied with the remaining earned leaves, subject to a maximum accrual of 30 earned leaves per year. This means that if your earned leaves for a year were 40 and you took 20 leaves, the exemption will be provided for 10 leaves for that year, ie 30-20 instead of 40-20

iii. The maximum exemption is 300 days or Rs. 25 lakhs, whichever is lower

1. Compensation under voluntary retirement scheme, subject to a maximum exemption of Rs. 5 lakhs. Employee should not be claiming any tax benefit on such compensation elsewhere.
2. Amount received under Life Insurance policy( Including bonus), if premium paid does not exceed:

a. 10% of capital sum insured.

b. 2.5 lakhs per year in case of Unit Linked Insurance Policies

c. 5 lakhs per year for policies that are not Unit linked and are issued on or after 1st April 2023.

But, point b and c are not applicable if sum is received after death of the insured.

1. Interest payments from a recognised Provident fund, if the interest is accrued on employee contribution that did not exceed Rs. 2.5 lakhs per year. This is applicable in cases where the employer and employee both contribute to the Provident fund. In case the employer does not contribute, the limit is Rs. 5 lakhs per year.
2. Employer contribution to the provident fund, as long as the contribution does not exceed 12% of salary and Rs. 7.5 lakhs per year.
3. Interest received on a Sukanya Samridhi Account
4. 60% of amount paid at the time of premature closing of a pension scheme account.
5. Withdrawing upto 25% of the contributions made to the pension scheme account.
6. Payments from Agniveer fund
7. Scholarships

It is also important to discuss the valuation of perquisites available to a salaried person as planning them can lead to a significant amount of tax savings.

Notble ones are as follows:

1. Rent free accommodation provided by the employer:

a. If owned by the employer: The perquisite will be value at 10%(in cities with population above 40lakhs as per 2011 census), 7.5%(for cities with population between 10-40 lakhs) and 5% for rest.

b. If leased by the employer: Lower of actual lease paid or 10% of the salary.

In case of furnished accommodations, the value of the perquisite increases by 10% of the value of the furniture.

1. Accomodation provided on concessional rent:

a. If owned/hired by the employer: Specified rate- rent recovered from you.

b. If accomodated in a hotel: lower of {24% of salary or the actual charges paid} minus charges recovered from you.

c. Specified rate is calculated as follows:

i. 15% of salary in cities having a population of 25 lakhs or more as per 2001 census

ii. 10% of salary for cities having population between 10 to 25 lakhs as per 2001 census

iii. 7.5% for rest of places.

1. Car provided by the employer:

a. If used exclusively for office purposes: Exempt.

b. If used for both ie office and personal use and the maintenance expenses are paid by the employer: Rs, 1800/month for cars with engine capacity of less than 1.6 litres. It will be Rs. 2400/month for the rest.

c. If used for both ie office and personal use and the maintenance expenses are paid by the employee: Rs, 600/month for cars with engine capacity of less than 1.6 litres. It will be Rs. 900/month for the rest.

d. If driver provided by the company alongwith the car: Rs. 900/month

And that would be the major deductions or benefits still allowed under the new tax regime.

 

[shadowflame]

@tomwedding For someone earning 12 lakhs, who doesn't pay rent but invests in mutual funds, health insurance etc, will the new tax regime be good?

 

[joe2]

@shadowflame Read this article

https://cleartax.in/s/income-tax-slabs

To know more about

 

[eatpraylove]

@tomwedding Thank you for the thread , I wihs it was well formatted.

 

[achduke]

@tomwedding Under point 10, does that mean interest from PPF will start to get taxed once it crosses 5 lacs a year?

 

[tomwedding]

@achduke No, it means that if you contribute more than Rs. 5 lakhs/year into Provident fund, then interest on such additional contribution(over 5 lakhs) will be fully taxable.

 

[achduke]

@tomwedding Thanks

 

[pwbarnes]

@tomwedding I'm confused about the leave encashment. I got paid for 30 days. Tax was deducted during the encashment, when I quit my job. Is this along exempt from tax?

 

[mariachristi]

@pwbarnes Ask this on the discord channel if you have discord

 

[rushu]

@tomwedding Can I claim conveyance allowance as well as standard deduction under new regime? There is no clarification regarding the same.

 

[isbel13]

@tomwedding I have a doubt, My wife comes under 15 lakh PA slab, I have a car in my name, can she claim depreciation for the car as if she was renting from me, if so how?

 

[brione]

@isbel13 Are you her employer? If no, I don’t understand how you expect it to work?

Rule is for company provided car. Not employee rented car.

 

[isbel13]

@brione I've read somewhere that I need to make a agreement saying that she is paying certain amount to me and can claim deductible

 

[brione]

@isbel13 Hopefully you misremember brother. Car deduction is only for employer leased/provided car.

 

[tomwedding]

@isbel13 If she is salaried, it has to be a perquisite from the employer.

If she is self employed, I suggest opting for new scheme and 44ADA. It is possible that she won't be paying any taxes