Allowances you can claim under new tax regime to reduce your taxable income (2024)

Submitting Form 12BB to your employer on time can significantly reduce TDS for the majority of the year. Photo: Shutterstock

The government introduced the new tax regime to streamline the process of filing taxes, aiming to make it more straightforward for taxpayers. The main goal was to simplify the tax filing experience by eliminating the need for taxpayers to navigate through numerous deductions and exemptions to decrease their taxable income. Instead, the focus shifted to offering reduced tax rates. In this overhaul, deductions for expenses such as rent, travel, medical, certain allowances, and interest on loans for self-occupied properties were scaled back. Nonetheless, even under this new system, taxpayers have the ability to claim certain exemptions:

Here's a breakdown of some key allowances as per Shilpi Jain, Partner, Ved Jain and Associates*

1. Standard Deduction: This replaces several deductions previously available under the old regime. In the new regime, a standard deduction of Rs. 50,000 is offered to all taxpayers, regardless of their income level.
2. Retirement Benefits: Both gratuity and leave encashment received upon retirement remain non-taxable.
3. Employer Contributions to NPS/PF: Contributions made by the employer towards NPS (National Pension System) or PF (Provident Fund) are not taxed under the new regime. While the old regime allowed tax exemptions on employee contributions under Section 80C, these are not deductible under the new system.
4. Long-Term Capital Gains (LTCG): Taxpayers can still avail themselves of the deduction on long-term capital gains from the sale of equity shares or equity-oriented mutual funds, up to a limit of Rs 1 lakh, under the new regime.

Jain explains this with the following example:

Annual Salary: Rs 8,00,000

Employer's Contribution to NPS: Rs 40,000

Gratuity Received on Retirement: Rs 2,00,000

Leave Encashment on Retirement:Rs 1,50,000

Long-Term Capital Gains from Equity Shares: Rs 1,20,000

Total Income earned : Rs 13,10,000

Deductions from this income

Standard Deduction : Rs 50,000

Gratuity : Rs 2,00,000

Leave Encashment: Rs 1,50,000

LTCG : Rs 1,00,000

Employer's contribution to NPS : Rs 40,000

Total deductions : Rs 5,40,000

Net Taxable Income : Rs 7,70,000

Under New tax regime, you can also claim tax exemption for the following, as per ClearTax:

1. Transport allowances in case of a specially-abled person.
2. Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
3. Any compensation received to meet the cost of travel on tour or transfer.
4. Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.
5. Perquisites for official purposes
6. Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)
7. Interest on Home Loan on let-out property (Section 24)
8. Gifts up to Rs 50,000
9. Deduction for additional employee cost (Section 80JJA)

Point to note:

1. Section 80C deductions are not available under the new tax regime.
2. HRA exemption is not allowed in the new tax regime.