There are multiple deductions and exemptions available in the Income-tax Act, 1961 which individuals can take advantage to save taxes on the income earned during FY 2023-24. However, the amount of tax that an individual can save would depend upon two factors- the tax regime chosen and the expenses or the investments made by the individual for claiming the said deductions. It is important to note that no change has been made in the income tax slabs for FY 2024-25 (April 1, 2024-March 31, 2025) in the interim budget 2024.
The new tax regime is the default tax regime from this FY. A salaried individual has to opt specifically for the old tax regime. If an individual opts for the old/existing tax regime, then the individual will be eligible to claim the tax-exemptions such as house rent allowance (HRA), leave travel concession (LTC) and deductions under sections such as 80C (maximum up to Rs 1.5 lakh in financial year), 80D (deduction on the medical policy premium paid), 80E (Interest paid on education loan) etc. Do keep in mind that there are only two deductions available under the new tax regime.
Let us take a look at 11 tax deductions that both private and government employees can claim under the old and new tax regimes.
Deductions and exemptions for eligible investments or expenses
Section 80C: A maximum deduction of Rs 1.5 lakh per financial year can be claimed by individuals under section 80C. The 80C tax benefit can only be claimed by those taxpayers who opt for the old tax regime.
The eligible investments under section 80C are vast and includes investment in Public Provident Fund, Employees’ Provident Fund (EPF), equity-linked savings scheme (ELSS), tax-saving fixed deposits (FD), National Savings Certificate (NSC) etc. Even certain expenses can also be claimed under section 80C provided the expenses are actually incurred. Some of these include life insurance premium, children’s school fees, repayment of home loan principal, etc.
Section 80 CCD(1B): By making investments in the National Pension System (NPS), individuals can claim up to Rs 50,000 deduction which is additional over and above the deduction under section 80C.
“The deduction under section 80CCD(1B) of up to Rs 50,000 is over and above the threshold limit of Rs 1.5 lakh under section 80C. Hence combining both the deductions an individual can claim up to Rs 2 lakh as a tax deduction under the old tax regime,” says Neeraj Agarwala, partner, Nangia Anderssen India, a tax and business consulting group.
Section 80 CCD (2): Deduction under section 80 CCD (2) can only be claimed if an individual’s employer (government or private) contributes to the individual’s NPS account. The maximum deduction that a private sector employee can claim is 10% of his/her salary where salary means basic plus dearness allowance (DA). Government employees can claim up to 14% of salary as a deduction under section 80 CCD (2).
There is also another condition which is employer’s contribution to NPS, EPF and a superannuation fund is eligible for deduction only up to Rs 7.5 lakh in a financial year. If the total contribution by the employer exceeds Rs 7.5 Lakh in a financial year, then the excess contribution would be taxable in the employee’s hands as perquisites and any interest or dividend earned on it will also be taxable in employee’s hand.
The 80CCD (2) deduction is available under the new and old tax regimes .
Section 80D: Deduction under section 80D is available only if an individual has purchased a health insurance policy for self, spouse, dependent childrens or their parents. Further, it is only available under the old tax regime.
Individuals, who are below the age of 60, can claim up to Rs 25,000 as deduction under section 80D for health insurance premium paid for self, spouse and dependent children. Further, if the individual is paying health insurance premium for parents aged below 60 years, then an additional amount i.e. Rs 25,000 can be claimed as a section 80D tax deduction.
“If an individual is paying health insurance premium for senior citizen parents (those aged 60 years or above), then instead of Rs 25,000 additional deduction the individual can claim up to Rs 50,000 additional tax deduction under section 80D. Moreover, an individual can also claim a tax deduction of Rs 5,000 for any payments made towards preventive health check-ups. But this amount (Rs 5,000) shall be available within the overall limit of Rs 25,000/Rs 50,000 under section 80D,” says Dr. Suresh Surana, founder, RSM India, a tax and business consulting group.
Deduction for professional tax: Every individual irrespective of the nature of income has to pay professional tax in certain specified states. For salaried individuals’ professional tax is deducted by their employer and deposited with the respective state government. “If professional tax is paid by the employer on behalf of its employee, then it is first included in the salary of the employee in their Form 16 as a perquisite and then the same amount is allowed as deduction without any limit,” says Agarwala.
Deduction for professional tax is available under the old regime only. “Section 16(iii) allows salaried individuals to deduct the professional tax paid while computing the taxable salary if they have chosen, he old tax regime. But individuals opting for the new lower tax regime under Section 115BAC are not entitled to claim the said deduction for professional tax paid,” says Kumarmanglam Vijay, Partner, JSA Advocates & Solicitors.
Leave Travel Allowance (LTA): LTA is a reimbursement that the employee can claim in connection with himself and his family (spouse, children, parents, brothers and sisters) who are wholly dependent on the employee and travelling on leave to any place in India. The Income-tax act has defined what are the parameters to follow to get the amount which can be claimed as deduction for LTA.
“The LTA exemption applies only to the domestic travel expenses, such as airfare, train or bus fare, incurred by the employee. Other expenses, such as transportation within the destination, sightseeing, hotels, and food expenses are not covered under LTA.,” says Agarwala.
The LTA tax exemption is available only for those who opt for the old tax regime.
House Rent Allowance (HRA): If an individual, who has opted for the old tax regime, is paying rent for living in a house and also gets an HRA component as part of his salary structure, then he/she can claim tax exemption on HRA. Having said that, if an individual does not get HRA as part of his/her salary but pays rent then also he/she can claim tax exemption on HRA after a specified calculation with maximum limit of Rs 60,000 as annual rent.
Deduction for Leave Encashment: According to 10 (10AA) leave encashment refers to encashment of unutilised earned leave at the time of retirement. “Government employees have no monetary limit for claiming deduction of leave encashment. Non-government sector employees however have a specified calculation to follow in order to know the exact amount of leave encashment that can be claimed as a deduction,” says Surana.
This tax deduction on leave encashment is only available for those under the old tax regime.
Deduction for home loan’s interest: Under section 24 (b) if an individual is residing in the house for which he/she has taken a home loan then a deduction for interest paid on such a home loan can be claimed as a deduction. The maximum amount that can be claimed as deduction for home loan interest is Rs 2 lakh in a given financial year. Section 24 (b) deduction is available for the home loan’s interest component, for the principal component deduction of up to Rs 1.5 lakh under section 80C is available.
This deduction is available for those who opt for the old tax regime and new tax regime in a limited capacity.
Section 80E: Under section 80E an individual can claim deduction for interest component under an educational loan. There is no limit on the maximum amount of deduction that can be claimed under section 80E, and neither is an individual required to upload any documentary evidence for claiming such a deduction. This deduction is allowed for maximum of 8 years.
Only those who opt for the old tax regime can avail of the 80E tax deduction.
The loan should have been taken from any financial institution or any approved charitable institution to pursue his higher education or for higher education of his relative.
Section 80 EEB: An individual can claim up to Rs 1.5 lakh per financial year as deduction for interest on an electric vehicle loan. However, the loan must be sanctioned between April 1, 2019 and March 31, 2023.
Standard deduction: A standard deduction of Rs 50,000 is available to salaried individuals under both the old and the new income tax regimes.