Two deductions are available exclusively to salaried individuals for those planning to opt for the new tax regime for the 2024–2025 fiscal year. The new tax regime has zero tax liability for individuals with incomes up to Rs 7 lakh, and it is now the default regime for taxpayers.
The Union Budget 2023–24 made the new tax regime more enticing, but it does not include the standard deductions that were part of the previous tax regime.
Under the new system, salaried deductions are still able to claim some deductions, though.
All salaried individuals and pensioners are eligible for this simple benefit. Employers deduct Rs 50,000 from the gross salary as a standard deduction when calculating the net taxable salary or pension income. You may claim this deduction without requiring any paperwork.
The employer's Form 16, which details the taxes withheld from employee salaries during the fiscal year, includes Part B, which shows this deduction. As per Section 16(ia) of the Income-tax Act, individuals are eligible to claim this deduction when filing their income tax return (ITR) under the heading "Income from salaries/pension".
Furthermore, family pensioners are also qualified for the standard deduction; however, their rate is lower, at Rs 15,000 as opposed to Rs 50,000 for both salaried individuals and pensioners. Taxation of family pensions falls under the category of "Income from other sources."
This deduction has been allowed since the new tax laws were implemented in the 2020–21 fiscal year.
When money is deposited into an employee's Tier-I NPS account by their employer, it is applicable. The income tax laws specify the highest allowable deduction for both government and private employees.
According to Section 80CCD (2), employees in the private sector are eligible to deduct up to 10% of their salary, while those in the government are eligible to deduct up to 14% .
Tax laws on income include basic pay and dearness allowance in the definition of salary.
The employer's portion of an employee's Tier I NPS account typically counts towards the employee's cost to the business (CTC), which has the potential to lower take-home pay.
The gross salary that the employer is required to pay is inclusive of the employer's NPS contribution. When completing their income tax return (ITR), employees are required to claim the deduction under Section 80CCD (2). Details about the employer's contribution to the NPS account are included in Part B of Form 16.
Because the contribution is made directly to the NPS account by the employer, just like Employees' Provident Fund (EPF) contributions are made, employees do not need to show proof of their NPS contribution in order to avoid having their TDS from salaries increased. Employees should, however, confirm the proof submission policy with their employer.
