ITR Deductions: Have you opted for the New Tax Regime (NTR) and still trying to understand ways to maximise your tax savings? The key is to understand the available benefits and any new changes that have been brought in this regime.
The Income-tax Act, of 1961 provides for two tax regimes:
– The old regime which allows various deductions and exemptions
– The new regime that offers lower tax rates without many exemptions
About the New Tax Regime
The government of India has modified the NTR to make it more attractive and increase its adoption among taxpayers. In Budget 2025, Finance Minister Nirmala Sitharaman announced a revised slab rate wherein there will be no income tax payable up to income of Rs 12 lakh (i.e. average income of Rs.1 lakh per month other than special rate income such as capital gains) under the new regime.
In the NTR, the proposed revised tax rate structure is as follows:
Till Rs 4 lakh: Nil
Rs: 4-8 lakh: 5 per cent
Rs: 8-12 lakh: 10 per cent
Rs 12-16 lakh: 15 per cent
Rs 16-20 lakh: 20 per cent
Rs 20- 24 lakh: 25 per cent
Above Rs 24 lakh: 30 per cent
However, for the financial year 2024-25 and assessment year 2025-26, taxpayers will have to consider the revised slab rates as per Budget 2024, as follows;
Tax Slab for FY 2024-25 (AY 2025-26);
Up to Rs 3 lakhs: Nil
Rs 3 lakhs to Rs. 7 lakhs: 5 per cent (Tax rebate under Section 87A up to Rs 7 lakhs)
Rs 7 lakhs to Rs 10 lakhs: 10 per cent
Rs 10 lakhs to Rs 12 lakhs: 15 per cent
Rs 12 lakhs to Rs 15 lakhs: 20 per cent
More than Rs 15 lakhs: 30 per cent
3 key deductions to maximise your savings under the new tax regime;
Now that you know about recent changes in NTR and which slab to consider for income tax return filing in 2025, let’s look over key deductions and exemptions that you can still avail under the ITR.
While the new regime is known for its simplified slabs and lower rates, it doesn’t entirely do away with your opportunities to do better tax planning. There are some key provisions such as the standard deduction, NPC contribution, and exemptions available for specific groups (such as senior citizens) which can help you optimise your tax savings.
Standard Deduction
Taxpayers can save easily with the ‘standard deduction’ which is a fixed amount that is available for deduction (i.e., can be subtracted) from your total income. This basic deduction will reduce your taxable income and is available under both regimes.
Finance Minister Sitharaman increased the standard deduction amount from Rs 50,000 to Rs 75,000 in the Union Budget 2024. This means that salaried taxpayers can avail of the standard deduction of Rs 75,000 while filing their ITR in 2025.
National Pension Scheme (NPS)
This is a government-backed pension scheme that is designed to provide financial securities to individuals after retirement. One can claim a tax deduction for contributing to the National Pension System Fund (NPSF) under Section 80CCD (1B). Taxpayers can deduct up to 14 per cent of their basic salary invested in NPS. The employer’s contribution to the NPS is still eligible for deduction.
Employee’s Provident Fund (EPF)
Managed by the Employees’ Provident Fund Organisation (EPFO), the Employee’s Provident Fund (EPF) is another government-backed retirement savings scheme that saves up funds from the salary of employees for their retirement. The employer’s contribution to EPF (12 per cent of basic salary) is also tax-deductible under the new regime.
The salaried class can further explore the following exemptions/deductions wherever they are applicable under the NTR;
- Transport allowances in case of a specially-abled person.
- Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
- Any compensation received to meet the cost of travel on tour or transfer.
- Daily allowance received to meet the ordinary regular charges or expenditures you incur on account of absence from his regular place of duty.
- Perquisites for official purposes
- Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment under section 10(10AA)
Each taxpayer should calculate their income tax carefully while also analysing their tax-saving investments and then choose the tax regime which is most suitable for them. To better understand all the deductions and exemptions, one should consult a tax expert to get individual advice.
