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7 Deductions You Can Claim Under the New Tax Regime Though contributions made to PPF and Sukanya Samriddhi will not enjoy 80C tax benefits under the optional new tax regime, interest amount and maturity proceeds continue to be tax exempt

By Shipra Singh

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Those opting for the new tax regime proposed in Budget 2020 will have to forego some 70 deductions and exemptions. These include some major tax benefits like investments under Section 80C, standard deduction of INR 50,000, House Rent Allowance (HRA), medical insurance premium, NPS contribution and Leave Travel Allowance (LTA), among others.

However, not all is lost under the optional new regime. For instance, even though contributions made to Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY) will not enjoy tax benefits under 80C, interest amount, if any, and maturity proceeds will continue to be tax exempt.

Entrepreneur India tells you about some of the lesser known deductions that have been retained in the new tax regime.

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Home Loan on Rented Property

Tax benefit on interest paid on a home loan is one of the major deductions removed in the new tax regime. However, fine print of the budget shows that this applies only to home loans on self occupied property.

For taxpayers who have taken a loan on a rented out property, interest can be claimed as deduction under section 24(b) even under the new tax regime.
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Gratuity

An employee gets eligible for gratuity from his employer after working in the same organization for five or more years. According to the income tax laws, gratuity of up to INR 20 lakh in a lifetime is tax exempt in the case of private organizations. For government employees, there is no upper cap on tax-free gratuity amount.

Under the new tax regime, taxation rules for gratuity will remain the same.

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Lump Sum Pension

Commuted Pension or lump sum pension refers to receiving a part of the retirement pension in lump sum instead of deferred monthly payouts. As per the tax rules, for employees of private organization one-third of the commuted pension will be tax exempt if gratuity is received, whereas if gratuity is not received, half of the commuted pension will be tax exempt.

Lump sum pension will continue to be tax exempt under the new regime.

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Leave Encashment at the time of retirement

If you have leaves accumulated at the time of retirement, most companies encash them. As per the tax rules, leave encashment of up to INR 3 lakh is tax exempt, which will continue to be so under the new tax regime.

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Interest and Maturity Amount from PPF and Sukanya Samriddhi

Deduction on investment made to Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY) under Section 80C has been removed under the new tax regime. However, interest accrued or maturity amount in both the cases will continue to be tax exempt.

The proposed new scheme will rip PPF and SSY off their EEE tax status.

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Life Insurance Maturity Proceeds

Likewise PPF and SSY, tax benefit on life insurance premiums under Section 80C will not be available under the new tax regime. But, maturity proceeds from the policy will continue to be tax exempt under section 10(10D).

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Employer's Contribution to NPS

Employer's contribution in National Pension Scheme (NPS) on account of the employee will continue to be tax exempt under Section 80CCD(2). Self contributions up to INR 1.4 lakh under 80C and additional INR 50,000 under Section 80CCD (1B) is removed in the new tax regime.

However, in another change, employer's contribution to NPS, superannuation fund and EPF has been capped at INR 7.5 lakh under the new regime.

Shipra Singh

Entrepreneur Staff

Freelance Journalist

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