It is widely perceived that the new tax regime offers minimal tax-saving options except the relaxed slab rates and a higher rebate. However, many tax-saving options can be utilized in the new regime, and some of the benefits are exclusively available for the new regime. The beneficial regime for a taxpayer depends on one’s income level and the extent of tax-saving investments made.

New Regime Exclusive Benefits

Standard Deduction

Under the new tax regime, salaried employees are allowed a standard deduction of Rs.75,000, compared to Rs.50,000 under the old regime.

Exemption on Family Pension 

• Pension received by the family of deceased employees other than ex-servicemen: One-third is exempt up to a maximum of Rs.25,000. 
• The maximum limit is Rs.15,000 under the old regime.

Benefits Under Both Regimes

Home Loan Interest on Let-Out Property

• As per section 24(b), interest paid for a home loan can be claimed as a deduction without limits for a let-out property. This deduction can be claimed irrespective of the regime chosen.
• The deduction for self-occupied property is capped at a maximum of Rs.2 lakhs and is available only under the old regime.

Employer’s Contribution to Pension Scheme

• Under section 80CCD(2), the employer’s contribution to the National Pension System is exempt up to 14% of basic pay under the new regime. 
• This limit is 12% of basic pay under the old regime.

Contribution to the Agniveer Scheme

For participants of the Agnipath Scheme, both the employer’s and employee’s contributions to the Agniveer Corpus Fund can be claimed as a deduction under section 80CCH.

Deduction for Additional Employee Cost 

• Running your own business? You can claim deduction on salaries paid to new employees.
• Under section 80JJAA, 30% of the cost incurred by newly hired employees could be deducted upon satisfaction of certain conditions.
• If the business is newly started, 30% of the total employee cost can be claimed as a deduction, as all employees are newly hired.

Exemption on Gifts

• Gifts received in cash or kind from relatives are always tax-exempt.
• Gifts received at special occasions like weddings and inheritances are also always tax-exempt.
• Gifts received in any other situation than specified above are totally exempt when they are up to Rs.50,000. Gifts received above the limit are fully taxable.
• Gifts can be received in cash or in kind. If an asset is received in a concessional amount, the concession would be exempt if its value does not exceed Rs.50,000.

Commuted Pension

• The pension amount received as a lump sum on retirement is called commuted pension. 
• Commuted pension received by an employee upon retirement is partly exempt.
• The quantum of exemption allowed differs based on whether the employee is being provided gratuity.
• If the employee receives a gratuity, one-third is exempt, whereas if the employee does not receive a gratuity, half is exempt.

Note: For government employees, the whole of the commuted pension is exempt, whether or not they receive a gratuity.

Gratuity

Gratuity exemption can be claimed for both regimes. Gratuity exemption is calculated based on whether the gratuity is covered under the Payment of Gratuity Act or not.

When Covered Under Payment of Gratuity Act

Least of the following is exempt:

• Actual gratuity received
• Rs.20 lakhs
• Last drawn salary *15/26 for every completed year of service. (part-year served is considered as a full year for computation of gratuity)

When Not Covered Under Payment of Gratuity Act

Least of the following is exempt:

• Actual gratuity received
• Rs.20 lakhs
• Last drawn salary/2 for every completed year of service. (part-year served is ignored)

Note: 

Gratuities received by central government employees, veterans from the armed forces, and members of the civil services are fully exempt.

Leave Encashment

Least of the following is exempt

• Rs.25 lakhs
• Leave encashment amount received
• Last 10 months salary
• Cash equivalent of unavailed leave based on average salary of past 10 months (cannot exceed 30 days per year of service)

Note: 

1. Leave encashment received during service is fully taxable. 
2. If government employees receive leave encashment, it is fully exempt.

Withdrawal of PF

• If an employee has reached 5 years of service and withdraws his balance in the PF account, the whole amount withdrawn is exempt.
• Even if he has not completed 5 years of service, it is exempt if the employment got terminated for reasons beyond his control (e.g., ill health, termination of employer’s business)

Retrenchment Compensation

• Let’s first understand the meaning of retrenchment compensation. 
• Industries that employ ‘workmen’ are entitled to provide compensation when they transfer the employee or terminate them due to business closure.
• Compensation is provided not because of the inefficiency of workers but because the business cannot handle them.
• The lowest of the following is exempt
  • Compensation Received
  • Rs. 5,00,000
  • 15 days Avg pay x Completed years of service

Allowances Exempt Under New Regime

The following allowances are exempt under the new tax regime:

• Allowances to meet the cost of the tour and transfer.
• Daily allowances when the taxpayer is outstation for business purposes.
• Conveyance allowance as reimbursement on official duty.
• Transport allowance provided for the journey between residence and place of work only in case of differently abled employees. (Rs. 3,200 per month)
• Allowances granted to government employees outside India. (e.g., foreign diplomats)

Perquisites Exempt Under New Regime

Perquisite is any non-cash benefit the employer provides employees, ideally included in the salary.

Perquisites can be chosen so that the salary structure allows the maximum advantage to the taxpayer. The following perquisites are exempt from salary computation under new and old regimes.

• Telephone provided by the employer for the employee’s residence.
• Transport facility provided to employees through rail or airways to employees, either free or at a concessional rate.
• Payment of insurance premium by employer on staff group insurance scheme.
• Personal accident policy (usually employers take policies in business interest only. Therefore, it does not need to be included in the salary of the employee)
• Recreational facility provided by the employer. - e.g., club membership
• Reimbursement of medical expenses for specified diseases
• Reimbursement or payment of health insurance premium (eligible for deduction under section 80D)
• The following perquisites are taxable only for employees who are directors or employees holding more than 20% of beneficial interest in the company.
  • Sweeper and gardener provided by the employer.
  • Free concessional tickets.
  • Use of motor car.
  • Gas, electricity and water supplied by the employer.
  • Free or concessional education facilities provided to employees and their families.

Final Word

The primary objective of the new tax regime is to simplify taxation by offering lower tax rates with minimal deductions. However, it still provides several tax-saving opportunities. On the other hand, the old tax regime offers a wide range of deductions and exemptions, although the tax slabs are relatively higher. To take the best advantage of the available benefits, taxpayers need to have a good understanding of the deductions under both regimes. The beneficial regime for a taxpayer depends on one’s income level and the extent of tax-saving investments made.