New tax system cut: The Government of India has implemented a new tax system to simplify individual income tax. Out of the total 7.28 crore income tax returns (ITRs) filed for FY 2024-25, 5.27 crore returns were under the new tax system, while 2.01 crore returns were filed under the old tax system. This shows that about 72% of taxpayers have adopted the new system.
Although the tax rates are low in the new tax system, it has removed many popular discounts and cuttings, such as house rent allowance (HRA), Leave Travel Alloun (LTA), interest on home loan, section 80C, etc. Nevertheless, taxpayers can avail three major discounts. Usually people know about only one, they have less information about the remaining two.
1. Standard Cuts
The benefit of standard deduction in the new tax system is available for salaried employees and pensioners. The deduction was ₹ 50,000 for FY 2023-24, which has been increased from FY 2024-25 to ₹ 75,000. This change will help taxpayers to reduce their taxable income, which will reduce their tax liability.
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2. employer’s contribution to National Pension System (NPS)
Under the new tax system, tax exemption is available on the contribution made by the employer to the National Pension System (NPS). This exemption is given under Section 80CCD (2). However, there is no discount on the contribution 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.
3. Gratuity
The gratuity at the time of retirement is also tax free in the new tax system. This exemption is provided under Section 10 (10) of the Income Tax Act. The entire gratuity amount for government employees is tax-free, while a maximum gratuity of up to ₹ 20 lakh for non-government employees is free.
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Apart from this, the amount received under the Voluntary Retirement Scheme (VRS) also gets tax exemption under Section 10 (10C). Also, at the time of retirement, the benefit of exemption under Section 10 (10AA) on Leave Incashing is also available in the new tax system.
