In the updated tax regime, the government has withdrawn some of the tax deductions and exemptions in the former regime for lower slab rates. Popular and commonly used investments under Section 80C of Income Tax Act such as Public Provident Fund, National Pension Scheme, ELSS, NSE etc are not allowed to claim the exemptions in the new regime.
Taxpayers who were availing the exemptions may have to forgo most of the existing exemptions and tax deductions to get lower tax rates. However, one of the most important exemptions will remain available for taxpayers, which comes under Section 80CCD(2) of the Income Tax Act, 1961. It pertains to contributions made by the organization or the employer into the employee’s account of pension plans such as the National Pension System (NPS). Not every employer contributes to NPS and one may have to request restructure the salary if required. So that a part of your salary gets credited on your NPS account from the employer.
Income Tax rate New Regime vs Old Regime
| Wage slabs | Old regime | New regime |
| Up to 2.5 lakh | Nil | Nil |
| 2.5-5 lakh | 5% | 5% |
| 5-7.5 lakh | 20% | 10% |
| 7.5-10 lakh | 20% | 15% |
| 10-12.5 lakh | 30% | 20% |
| 12.5-15 lakh | 30% | 25% |
| Above 15 lakh | 30% | 30% |
Tax benefits under Section 80C – Old Regime
Section 80c of Income Tax Act is applicable for individuals and HUF only. Corporations and businesses are not allowed to avail the tax exemptions and deductions under section 80C. Section 80c allows tax deduction up to 1 lakh every year from my taxpayers total taxable income. The investments eligible for deduction under section 80c of the Income Tax Act are ELSS, NPS, SCSS, PPF, NSC, ULIP, fixed deposit and Sukanya Samriddhi Yojana. The 80C can be divided into following substances subsections.
| Section 80C | Investments in Provident Funds such as EPF, PPF, payment made towards life insurance, Equity Linked Saving Schemes (ELSS), payment towards the principal sum of a home loan, SSY, NSC, SCSS, etc. |
| Section 80CCC | Payment made towards pension plans and mutual funds. |
| Section 80CCD(1) | Investment and contribution made towards certain Government-backed schemes such as National Pension System, Atal Pension Yojana, etc. |
| Section 80CCD(1B) | Investments of up to Rs.50,000 in NPS |
| Section 80CCD(2) | Employer’s contribution towards NPS (up to 10%, comprising basic salary and dearness allowance. |
Tax benefits under section 80CCD2 – New Regime
The maximum deduction that can be availed is 14 percent for the central government employees and 10 percent for others. If an employee who has a basic salary of 5 LPA, is contributing to the National Pension Scheme, he/she can avail standard deduction upto 50,000 based on the new tax regime. However the ceiling limit for the deduction is 1.5 Lakhs according to the section 80CCE that includes the limit of Section 80C.
The tax benefits under the section 80CCD2 can only be availed by individuals who are working and earning a fixed income. It can not be availed by non-salaried individuals. Under the new regime, tax benefit on EPF contributions will no longer be available. From the EPF investments which do not have any tax benefits, a portion of the lump sum goes to the employee’s pension scheme.
According to the notifications, the new tax regime is only an option and one can also stick to the old tax regime while filing returns for the fiscal assessment year 2021-22. Although the new tax regime doesn’t not allow annual contribution to PPF for deduction, the interest earned on public provident fund contributions or maturity proceeds from PPF and are exempt from tax in the new tax regime as well.
Although the new tax regime comes with the catch off removal of many deductions and exemptions it comes with more tax slabs and the lesser tax rates for individuals. Authorities have given the taxpayers an option to choose between a new and old regime. The current tax system has higher tax rates but more options for tax saving and planning. The new one has a lower tax rate with no exemptions and minimal deductions. As per the budget proposal, the individual can switch between new and old tax regimes every year as per convenience. The new income tax regime is mostly beneficial for people with low or no investments in above mentioned or similar policy schemes.