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Think the new tax regime has wiped out all your tax-saving opportunities? Not quite. While most traditional deductions and allowances are gone, a few key exemptions and deductions still remain. Understanding these can help you legally reduce your taxable income without the need for complex tax planning. Here's what you can still claim.
1. Employer contributions to NPS and EPF are still tax-free
- NPS (National Pension Scheme): Employer contributions up to 14 per cent of Basic + DA (Dearness Allowance) are fully exempt from tax. This applies to both government and private-sector employees.
- EPF (Employees' Provident Fund): Employer contributions up to 12 per cent of Basic + DA remain tax-exempt.
- The total exemption for contributions by employers to EPF and NPS, combined, is capped at Rs 7.5 lakh per year.
Example: If your monthly Basic + DA is Rs 1 lakh, and your employer contributes Rs 14,000 (14 per cent) to the NPS, this entire amount is exempt from tax.
2. Interest on a home loan for a let-out property can still be deducted
If you have taken a home loan for a property you have rented out, you can still claim a deduction on the interest paid under Section 24(b).
- The entire home loan interest paid on a let-out property can be deducted from the rental income of that property.
- However, if the interest paid exceeds the rental income, the resulting loss cannot be offset against any other income (such as salary or business income) under the new tax regime.
- Also, any unadjusted loss cannot be carried forward to future years.
Example: If you are paying Rs 3 lakh as annual interest on a home loan for a let-out property, and earning a rent of Rs 5 lakh, you can claim a deduction of Rs 3 lakh. Only Rs 2 lakh from the rent would be taxable.
3. Leave encashment and gratuity on resignation or retirement remain tax-free
If you have unused leave at the time of resignation or retirement, you can encash it without paying tax, up to a limit. Similarly, gratuity payments received from an employer are also tax-exempt under certain conditions.
- Leave encashment:
- For government employees: Fully tax-free.
- For non-government employees: Up to Rs 25 lakh is tax-free.
- Gratuity: If you have worked for at least five years, gratuity received upon resignation or retirement is tax-free up to Rs 20 lakh.
Example: If you receive Rs 15 lakh as a gratuity on resignation or retirement, you do not pay any tax on it.
4. Standard deduction of Rs 75,000 applies automatically
Under the new tax regime, all salaried employees and pensioners get a flat deduction of Rs 75,000 from their taxable income.
- Unlike other deductions, you do not need to invest or provide any proof to claim this.
- It is automatically applied while calculating taxable income.
Example: If your total taxable salary is Rs 15 lakh, the Rs 75,000 standard deduction reduces it to Rs 14.25 lakh, lowering your tax liability.
5. Certain gifts remain tax-free, including wedding gifts
Under the new tax regime, not all gifts are taxed. Some are completely exempt, allowing you to receive money or assets without tax implications.
- Gifts from close relatives (parents, spouse, siblings, children) are always tax-free, no matter the amount.
- Gifts from non-relatives are tax-free, up to Rs 50,000 per year. Any amount beyond this is taxable as 'Income from Other Sources'.
- Wedding gifts are fully tax-exempt, regardless of the amount or who gives them.
Example: If you receive a Rs 75,000 gift from a friend, only Rs 25,000 will be taxable. But if the same gift is received as a wedding gift, the entire amount is exempt from tax.
Also read: Budget 2025 discussion: Does the new tax regime suit every taxpayer?
This article was originally published on February 12, 2025.
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