In her Budget 2023, the finance minister Nirmala Sitharaman has focused on changing the income tax brackets to make this tax system more appealing. The New Tax Regime (NTR), also known as the simplified personal tax regime, went into effect in the fiscal year 2020–21. Except for the deduction for employer contributions to the NPS, there were no exemptions or deductions under this regime, despite the lower tax rates.
In addition, the government has permitted certain deductions that qualified individuals may use in the new tax system beginning on April 1, 2023. Under the new tax system, starting on April 1, 2023, the following deductions are proposed to be made available to qualified individuals in Budget 2023.
- Standard deduction for salaried workers and retired people:
A standard deduction is essentially a tax deduction that can be taken regardless of an individual’s investment or expenditure. Since this type of standard deduction for income taxes is allowed at the standard rate, there are no disclosures, investment proofs, or expense bills required.
Starting in FY 2023–2024, salaried taxpayers will be eligible for the standard deduction of Rs under the new tax system. 50,000. The government made a wise decision by extending the standard deduction benefit to the new tax system in order to encourage salaried individuals to choose it.
- Contribution from employers to the new pension system:
If your employer makes contributions to your NPS account, you can deduct those contributions from your gross income as a salaried employee. This deduction is requested in accordance with Section 80CCD (2) of the Income Tax Act of 1961.
The enhanced deduction of 14% of basic pay for employer contributions to NPS is currently available to central and state government employees under section 80CCD (2) of the Income Tax Act. The limit is only 10% for private sector employees.
- Invested in the Agniveer Corpus Fund:
In Finance Bill 2023, it is planned to exempt from income tax the Agniveer Corpus Fund contribution received by Agniveers registered in the Agnipath Scheme in 2022. Members of Agniveer should also be able to deduct from their gross income any contributions to their Seva Nidhi accounts that are made by taxpayers or the Central Government.
