In the new tax regime, individual taxpayers will not be allowed to take the benefit of certain exemptions and deductions available in the Income Tax Act,1961. Although optional, the taxpayers will weigh the advantage of sticking to the old regime or to opt for the new tax regime. While most tax-saving investments such as PPF, life insurance plans etc will no longer be available to the taxpayers opting for the new regime, will they be able to avail the other tax benefits available to them?
Section 80C benefit on the premium paid in life insurance policies or the investments made in PPF will not be available in the new tax regime. However, even if one opts for the new tax regime, the maturity proceeds of the life insurance policies will not lose their existing tax benefit. "Under Section 10(10D) of the Income Tax Act, the sum assured and any bonus paid on maturity or surrender of the life insurance plan is tax-free. Maturity proceeds continue to be exempt under Section 10(10D) even in the new regime," says Harsh Jain, Co-founder, and COO, Groww.
Also, the interest earned and the maturity proceeds of the Public Provident Fund (PPF) will continue to be tax-free. "The amount received on the maturity of PPF Account and the yearly interest credited on the PPF balance one can still claim tax exemptions for income earned," informs Archit Gupta, Founder, and CEO, ClearTax.
The gratuity up to the limit of Rs 20 lakh received by employees of the private sector and government sector will also remain tax-exempt. "You require a minimum of 5 years of eligibility and qualifying service to get the gratuity as a one-time lump sum benefit," says Jain. For employees who have received VRS money, the same will continue to be tax-exempt under section 10(10C) of the I-T Act. "The VRS proceeds up to Rs 5 lakh is tax-exempt. You must receive this in terms of a scheme as voluntary separation," says Jain.
As per the Act, the least of the following is exempt from tax:
1) The actual amount received as per the guidelines i.e. least of the following
a) 3 months salary for each completed year of services
b) Salary at the time of retirement multiplied by No. of months of services left for retirement; or
2) Rs. 5,00,000
Another important deduction still available under the new tax regime will be the contributions towards NPS. However, such contributions will have to be made by the employer towards employee’s NPS account. "Under the new regime, a taxpayer can claim a deduction for the employer's contribution to NPS under section 80CCD(2) up to 10 per cent of basic salary," says Gupta.
However, not employees will be in a position to enjoy such a benefit. "In a case where the employer does not contribute to NPS, the employee cannot claim any deduction under 80CCD(2). Hence, the employee cannot claim any deduction or exemption listed in the 70 deductions and exemptions withdrawn under the new tax regime. The employees may, however, choose to opt for the existing regime and claim all tax deductions if the same is beneficial to them," says Gupta.