The Indian government has recently made some major changes in the income tax system, especially in deductions in the new tax regime. These are meant to make the tax system simpler and to give incentives for more taxpayers to shift to the new regime.
(TaxGuru)
(India Today)
Major Changes in Tax Deductions
In the new tax regime, some deductions that were earlier in place have been taken away or altered. The major changes are as follows:
Standard Deduction Hiked: Standard deduction for salaried individuals has been hiked from ₹50,000 to ₹75,000.
(Press Information Bureau)
(IndiaFilings)
(India Today)
Family Pension Deduction: For family pensioners, the deduction has been increased from ₹15,000 to ₹25,000.
(TaxBuddy.com)
(Tax Heal)
Employer’s NPS Contribution: Employer’s contribution to National Pension Scheme (NPS) under Section 80CCD(2) is deductible up to 14% of salary for central government employees and 10% for others.
(TaxGuru)
(IndiaFilings)
Other Deductions Eliminated: Deductions under sections such as 80C (investments in LIC, PPF, etc.), 80D (medical cover), and 24(b) (interest on home loan) are not permitted under the new regime.
(Business Today)
Implications for Taxpayers
The elimination of various deductions requires taxpayers to re-evaluate their tax planning approaches. Although the new regime provides lower rates of taxation, the lack of deductions may lead to a greater taxable income for others. It is important to compare both regimes to ascertain which one is more advantageous depending on personal financial circumstances.
Government’s Rationale
The government also wants to make tax filing easier and lower compliance costs. By providing a simple tax regime with less deductions, the new regime will be more transparent and easy to understand for taxpayers.
Conclusion
The recent adjustment of tax deduction under the new regime reflects a move towards a simplified tax regime. Taxpayers must carefully assess the old and new regimes in order to make well-informed decisions that suit their financial objectives.
