The new tax regime applicable from 1st April 2020 is optional. A person opting for the new tax regime will have to forego many of the deductions available under the income tax law like Section 80C, 80D, 80TTA for deduction on savings account interest earned from a bank account.
It is to be noted that, the government did not change some deductions which are available on some income in the new tax regime. Thus, if you are the one who is opting for the new tax regime, then you must know incomes that are exempted from income tax, in the new tax regime.
1. Gratuity Income
The gratuity income received from employer is exempted to a certain limit in the new tax regime. Private-sector employees, gratuity up to Rs 20 lakh in a lifetime is exempted from income tax. However, for government employees, gratuity is exempt from tax irrespective of any amount. Interestingly, in the private sector, gratuity received due to the death of an employee will be tax-exempt irrespective of any amount.
2. Life Insurance Policy Maturity
As in the old tax regime, maturity proceeds received from a life insurance policy are exempt from capital gains tax under Section 10(10D) of I-T Act 1961. The same deduction is still available in the new tax regime.
3. EPF/NPS Account
Employer's contribution to the employee's EPF and NPS or to any other superannuation fund has been exempt from tax. But, unlike the old tax regime, there is an upper limit of Rs 7.5 lakh in a year on this deduction. If there is any contribution to EPF, NPS and superannuation fund beyond Rs 7.5 lakh in a year then, it will be added to the income of the employee and will also be taxed according to his slab. For, any interest or gains earned from the excess contribution will be subject to tax in the employee’s hand.
4. Post Office Savings Account
Interestingly, interest which is received on post office savings account is also exempt from income tax under Section 10 (15)(i) of the I-T Act 1961. For the individual accounts, this exemption is made up to Rs 3,500 in a year. But, for joint accounts, this limit is available up to Rs 7,000 per year.
5. EPF and PPF
Interest which is received from Employees' Provident Fund (EPF) account is exempted from income tax even in the new tax regime also (if it does not exceed 9.5% per annum). However, the new tax regime does not allow annual contribution to PPF for deduction. The interest earned on PPF contribution or maturity proceeds from PPF are exempt from tax in the new tax regime.
