Salaried individuals can claim these deductions under the new tax regime. Details Here.
New Income Tax Regime: The new tax regime, which offers zero tax liability on income up to Rs 7 lakh, has become the default option for taxpayers of the country. Salaried individuals opting for the new tax regime for the financial year 2024-25 have two available deductions to choose from. However, the new regime lacks the standard deductions of the old tax regime, salaried people can still claim some deductions under it.
New Income Tax Regime: Standard Deduction
Under the Standard Deduction, direct benefit is provided to salaried individuals and pensioners. Employers, while calculating the net taxable salary/pension income, deduct Rs 50,000 as a standard deduction from the gross salary of employees, without requiring any further documentation.
Notably, these direct deductions will be reflected in Form 16’s Part B featuring the taxes deducted from the salary of the individual in the year. Employees can claim these deductions under the head “Income from salaries/pension” as per Section 16(ia).
Additionally, family pensioners can also avail of the standard deduction, at a reduced rate of Rs 15,000. Notably, the Income Tax Department taxes family pension under the head “Income from other sources.”
New Income Tax Regime: Section 80CCD (2) Deduction Under NPS
The deduction, which is available since 2020-21, applies when an employer deposits funds into an employee’s Tier-I NPS account. The income tax regulations outline the maximum deduction allowed for both private and government employees.
It is worth noting that, private sector employees can avail upto 10 percent of their salary as a deduction. On the other hand, government employees can claim upto 14 percent deduction under section 80CCD (2). As per income tax laws, Salary consists basic pay plus dearness allowance.
The gross salary of an employee includes the employer’s NPS contribution, which he/she can claim as a deduction under Section 80CCD (2) while filing an income tax return (ITR). Employees should check Form 16’s Part B, which contains information regarding the employer’s contribution to the NPS account.
The employer’s contribution to the NPS might be taxed for the employee if it crosses a particular limit. Tax laws stipulate that if the employer’s combined yearly contributions to the EPF, NPS, and Superannuation Fund exceed Rs 7.5 lakh, then the employee would have to pay tax on the extra amount. Additionally, any profit from the surplus contribution, such as interest or dividends, would also be taxed.