Exemptions, allowances and deductions help in the reducing the tax liability of the taxpayers. However, all the exemptions, allowances and deductions are not available under both the tax regimes. While the new tax regime has lower income tax slab rates, it does not have the option to claim all the exemptions, allowances as well as deductions. On the other hand, the old tax regime has higher income tax slab rates but it has more options of saving taxes, as it allows to claim all the exemptions, allowances and deductions.
Exemptions, allowances and deductions under the old and new tax regime
List of exemptions and allowances under the Old and New Tax Regime
| Particulars | Old Tax Regime (FY 2022-23 or 2023-24) | New Tax Regime (FY 2022-23) | New Tax Regime (FY 2023-24) | New Tax Regime (FY 2024-25) |
| House Rent Allowance Exemption | Allowed | Not Allowed | Not Allowed | Not Allowed |
| Leave Travel Allowance Exemption | Allowed | Not Allowed | Not Allowed | Not Allowed |
| Children Education Allowance | Allowed | Not Allowed | Not Allowed | Not Allowed |
| Entertainment Allowance | Allowed | Not Allowed | Not Allowed | Not Allowed |
| Voluntary Retirement Exemption | Allowed | Allowed | Allowed | Allowed |
| Gratuity Exemption | Allowed | Allowed | Allowed | Allowed |
| Leave Encashment Exemption | Allowed | Allowed | Allowed | Allowed |
| Conveyance Allowance for travel between home and office | Allowed | Allowed | Allowed | Allowed |
| Perquisites for official purposes | Allowed | Allowed | Allowed | Allowed |
| Daily Allowance | Allowed | Allowed | Allowed | Allowed |
| Transport Allowance for specially-abled person | Allowed | Allowed | Allowed | Allowed |
| Gifts received from employers (Limit: ₹5000) | Allowed | Allowed | Allowed | Allowed |
| Other allowances including food allowance of Rs. 50/meal subject to 2 meals a day | Allowed | Not Allowed | Not Allowed | Not Allowed |
Also Read: Major Exemptions & Deductions Availed by Taxpayers in India
Deductions under the old and new tax regime
| Particulars | Old Tax Regime (FY 2022-23 or 2023-24) | New Tax Regime (FY 2022-23) | New Tax Regime (FY 2023-24) | New Tax Regime (FY 2023-24) |
| Taxable income eligible for tax rebate | Rs. 5,00,000 | Rs. 5,00,000 | Rs. 7,00,000 | Rs. 7,00,000 |
| Maximum amount of tax rebate available | Rs. 12,500 | Rs. 12,500 | Rs. 25,000 | Rs. 25,000 |
| Standard Deduction | Rs. 50,000 | Not Allowed | Rs. 50,000 | Rs. 75,000 |
| Interest available on home loan under Section 24b on self-occupied or vacant property | Rs. 2,00,000 | Not Allowed | Not Allowed | Not Allowed |
| Interest available on home loan under Section 24b on let-out property | Allowed as per the interest amount | Allowed as per the interest amount | Allowed as per the interest amount | Allowed as per the interest amount |
| Deduction under Section 80C (Investment in LIC, EPF, PPF, Tax Saving FD’s etc.) | Rs. 1,50,000 | Not Allowed | Not Allowed | Not Allowed |
| Employee’s self contribution to NPS (Section 80CCD(1B)) | Rs. 50,000 | Not Allowed | Not Allowed | Not Allowed |
| Employer’s contribution to NPS (Section 80CCD(2)) | Allowed | Allowed | Allowed | Allowed |
| Contributions to Agniveer Corpus Fund – Section 80CCH | Entire amount that has been contributed | Did not exist | Entire amount that has been contributed | Entire amount that has been contributed |
| Deduction on medical insurance premium under Section 80D | Rs. 25,000/Rs. 50,000 | Not Allowed | Not Allowed | Not Allowed |
| Interest on education loan – deduction under Section 80E | Allowed as per the interest on loan amount | Not Allowed | Not Allowed | Not Allowed |
| Interest on electrical vehicle – deduction under Section 80EEB | Allowed as per the interest on loan amount | Not Allowed | Not Allowed | Not Allowed |
| Donation to trusts – deduction under Section 80G | If made in cash – Rs. 2000 (max) Others – any amount | Not Allowed | Not Allowed | Not Allowed |
| Donation to political parties – deduction under Section 80GGB/GGC | Any amount donated (apart from cash) | Not Allowed | Not Allowed | Not Allowed |
| Deduction on Savings Bank Account Interest under Section 80TTA/TTB | Rs. 10,000 / Rs. 50,000 | Not Allowed | Not Allowed | Not Allowed |
| Deductions to individuals with disability under Section 80U | Rs. 75,000 / Rs. 1,25,000 | Not Allowed | Not Allowed | Not Allowed |
| Other deductions | Allowed | Not Allowed | Not Allowed | Not Allowed |
Also Read: Know About The Income Tax Slab Rates For FY 2023-24
How to select Old Tax Regime or New Tax Regime?
When deciding to select between the old tax regime and the new tax regime, it is important to take into account the tax allowances, exemptions, and deductions available under both tax regimes. After deducting all eligible allowances, exemptions as well as deductions, the net taxable income can be determined.
Choosing the regime with the lower tax liability is the logical approach, and it is essential to inform the employer about this choice so that the appropriate Tax Deducted at Source (TDS) can be deducted.
Conclusion
In conclusion, the interplay of exemptions, allowances, and deductions in the old and new tax regimes shapes the landscape of financial responsibility for Indian taxpayers. While the old tax regime allows to claim all the exemptions, deductions and allowances, the new tax regime does not allow so. However, under the new tax regime, the income tax liability starts from Rs. 3 lacs and lower tax slab rates. In essence, the choice between the old and new tax regimes embodies a strategic financial decision, highlighting the imperative for taxpayers to align their approach with evolving fiscal landscapes and personal objectives.
Also Read: Tax Rebate under the Old & New Tax Regime
FAQs
Exemptions, allowances, and deductions are terms commonly made use of, in the field of taxation to refer to specific provisions. These provisions provide relief to taxpayers by reducing their taxable income or lowering their tax liability. While they serve a similar purpose, there are slight differences in their application:
Exemptions: Exemptions refer to a provision that entirely excludes certain types of income from the computation of taxable income. It means that the income will not be subject to tax. Examples of exemptions include agricultural income, certain income of charitable trusts, and income from certain investments.
Allowances: Allowances are specific amounts that the individuals get to cover certain expenses in relation to their employment or specific circumstances. These allowances can be either partially or fully exempt from income tax. Some common allowances include House Rent Allowance (HRA), travel allowance, as well as children education allowance. The exempt portion of these allowances is not a part of taxable income.
Deductions: Deductions are specific expenses, investments, or contributions that can be subtracted from the total income to arrive at the taxable income. These deductions lower the taxable income and, in turn, reduce the tax liability. Having said that, deductions are generally allowed within specified limits and conditions. Examples of deductions include contributions to provident funds, life insurance premiums, tuition fees. In addition, there are certain investments like the National Pension Scheme (NPS) or specified mutual funds.
The salaried individuals can switch between the old and new tax regime every year, at the time of filing Income Tax Return. But the individuals having income from business have only once in a lifetime option to switch between the old and new tax regime.
