By altering its income tax slabs and rates, Budget 2023 has made the new income tax regime more appealing. In addition, the government has permitted a few deductions that eligible individuals can use starting on April 1, 2023, under the new tax system.
Here is a closer look at these deductions.
Standard deduction
Only taxpayers who earned income during the applicable financial year under the heading “Income from salaries” are eligible for this deduction. Therefore, salaried people and pensioners can only deduct the standard deduction of Rs. 50,000 from their income from wage or pension.
This deduction may be requested without providing the employer with any supporting documentation. An employer automatically accounts for the standard deduction when calculating taxes on wages.
According to the new tax law, family pensioners are eligible for a standard deduction of Rs 15,000 per year. A family pensioner’s income is taxed under the “Income from other sources” heading.
Based on the budget speech, “Only the previous system still permits the standard deduction of Rs 50,000 for salaried individuals and Rs 15,000 for family pension deductions. It is suggested that the new system also permit these two deductions.”
As a salaried employee, you are qualified to claim a deduction for the contribution made from gross income if your company makes contributions to your NPS account. According to Section 80CCD (2) of the Income-tax Act of 1961, this deduction is requested.
The maximum amount that an employee may be entitled to under this clause varies depending on whether they work for the government or the private sector. A government employee may deduct a maximum of 14% of their salary, compared to a private sector employee’s maximum deduction of 10% of their pay. Here, salary refers to base pay plus a daily stipend.
Here is an illustration to help you comprehend. Let’s say an employee in the private sector earns an annual base salary of Rs. 8 lakh. Every financial year, his employer contributes Rs 60,000 to the employee’s NPS account. An employee may claim Rs 80,000 (10% of Rs 8 lakh) under section 80CCD (2). Therefore, the employer’s contribution of Rs 60,000 qualifies for a deduction. However, the employee may only deduct Rs 80,000 if the employer made an annual contribution of Rs 1 lakh.
Keep in mind that if an employer contributes more than Rs 7.5 lakh to the NPS, EPF, and superannuation fund in a fiscal year, the extra contribution will be taxable to the employee. Additionally, any interest or returns received on the surplus donation will also be taxed.
Contribution made by Agniveer to Agniveer Corpus Fund
According to Finance Minister Nirmala Sitharaman, Agniveer may deduct from income any money paid or deposited to the Agniveer Corpus Fund under the recently introduced section 80CCH of the Income-tax Act.
The Budget 2023 Speech stated that “The Agniveers enrolled in the Agnipath Scheme, 2022, are recommended to receive their payment from the Agniveer Corpus Fund tax-free. It is planned to allow the Agniveer to deduct his or the Central Government’s contribution to his Seva Nidhi account when calculating total income.”
According to the Budget Memorandum, “It is further proposed to insert a new section 80CCH to the Act to provide that an assessee, being a person enrolled in the Agnipath Scheme and subscribing to the Agniveer Corpus Fund on or after the 1st day of November, 2022, shall be allowed a deduction of the full amount of the amount deposited by him as well as the amount contributed by the Central Government to his account in the Agniveer
Additionally, Agniveer Corpus Fund’s maturity payment is tax-free.
As stated in the Budget Memo, “The Agniveer Corpus Fund is to receive 30% of each Agniveer’s monthly, personalised Agniveer Package. Additionally, the “Agniveer Corpus Fund” will receive a matching donation from the government. Additionally, the government will give the subscriber interest on the donations that are still in his account, as approved from time to time. Agniveers will receive a one-time “Seva Nidhi” package, which will include their contribution plus interest, as well as a matching contribution from the government equivalent to the total amount of their contribution plus interest, upon completion of the four-year engagement term.”
