Budget 2025: Here are the deductions allowed under New Tax Regime; will these be enhanced further? 

Taxpayers in India have the choice to choose between two tax regimes: the Old Tax Regime and the New Tax Regime. The Old Tax Regime is popular among taxpayers as it offers deduction and exemptions on income tax calculation. 

In the Old Tax System, tax rates are higher, ranging from 2.5% to 30%, but taxpayers can take advantage of various exemptions and deductions. Conversely, the New Tax System offers lower tax rates, ranging from 0% to 30%, but there are fewer deductions and exemptions available.

Under the Old Tax Regime, incentives for saving were provided through deductions and exemptions like those detailed in Section 80TTB, specifically designed to benefit senior citizens. 

In contrast, the New Tax Regime, introduced in 2020, simplifies the filing process with lower tax rates, which can be especially beneficial for individuals in lower income brackets despite a reduction in available deductions and exemptions.

Starting from 2024, the default tax-filing regime is the New Tax Regime which has a simplified process but limited deductions. Meanwhile, the old regime, which provides various deductions, is still an option but not the default anymore. Taxpayers must assess which regime suits them best based on their financial objectives. 

Deductions offered under New Tax Regime

Standard Deduction: The Budget 2024 has increased the standard deduction by Rs.25,000, bringing the new limit to Rs.75,000 under the new regime. This applies to all taxpayers opting to file their taxes under the new regime, as compared to the previous limit of Rs.50,000.

Basic Exemption Limit: The New Tax Regime's basic exemption limit is Rs 3 lakh. This means that individuals with income up to Rs.3 lakh will not be liable to pay any tax under the new regime.

Tax Rebate: Individuals with a taxable income of up to Rs.7 lakh may qualify for a rebate equal to their payable income tax on taxable income or Rs.25,000, whichever is lower.

Exemption on Life Insurance: The maturity amount obtained from a life insurance policy, where the premium is within 10% of the sum assured, will be tax exempt. For example, if you hold an endowment policy with an annual premium of Rs.23,500, providing a sum assured of Rs.25 lakh and a maturity amount of Rs.28 lakh, the received amount will be tax free as the premium paid is less than 10% of the sum assured.

Tax Exemption on Voluntary Retirement Scheme (VRS): Amounts received under the Voluntary Retirement Scheme (VRS) up to Rs.5 lakh will not be subject to taxation.

Gratuity Exemption from Employer: Under the new tax system, gratuity payments of up to Rs.20 lakh received from your employer will be free from tax liabilities.

Tax Deductions for Daily, Conveyance and Travel Allowances

Under the new tax regulations, taxpayers have the opportunity to claim daily and conveyance allowances as deductions.

For daily allowances, individuals who receive a set amount while on tour or transfer can deduct the total amount received without incurring any tax liability. For example, if an individual goes on a 5-day business trip and receives a daily allowance of Rs.1,000, they can claim Rs.5,000 (Rs.1,000 x 5 days) as a tax deduction.

Similarly, for conveyance allowances, taxpayers can claim up to Rs.1,600 per month for transportation expenses. For instance, if an individual receives Rs.1,500 per month for commuting, they can claim Rs.18,000 (Rs.1,500 x 12 months) as a tax deduction for the year.

Specially-abled taxpayers can claim transport allowances, up to a specified limit, as a tax deduction. For example, if a specially-abled individual receives Rs.3,000 per month as a travel allowance, they can claim Rs.36,000 (Rs.3,000 x 12 months) as a tax deduction.

Tax-Free Travel Expenses: Under the new regime, individuals who incur travel expenses while on official tours or transfers can claim these expenses without facing taxation. For instance, if an employee goes on a work tour and spends Rs.700 per day for 7 days on travel within the city, and is reimbursed Rs.4,900 by their employer, this reimbursement will be tax-free for the individual.