Can You Claim Both HRA and LTA in the New Tax Regime?
With the government’s initiative to streamline tax structures, the new tax regime was introduced as an alternative to the existing system. While it offers lower tax rates, it also does away with several deductions that taxpayers have relied on for years. Among these are House Rent Allowance (HRA) and Leave Travel Allowance (LTA), which were significant components of tax planning for salaried individuals. As a result, many taxpayers now face uncertainty about whether they can still claim these exemptions and if the new regime is truly beneficial for them.
For individuals trying to decide between the old and new tax regimes, understanding the differences in tax treatment of HRA and LTA is crucial. This article will break down how these exemptions worked earlier and what changes the new tax system has introduced.
Table of Contents
Understanding House Rent Allowance (HRA) Under the Old Regime
HRA is a common component of a salaried employee’s income package, designed to assist those living in rented accommodation. Under the old tax regime, a portion of HRA was exempted from tax, reducing the employee’s taxable salary.
Eligibility for HRA Exemption
To claim an HRA exemption under the old tax regime, an individual must:
Be a salaried employee receiving HRA as part of their salary structure.
Be residing in rented accommodation and paying rent.
Provide valid rent receipts and rental agreements for proof.
Not be claiming HRA for a self-owned property.
If the annual rent paid exceeds ₹1 lakh, the landlord’s PAN details must be submitted.
HRA Exemption Calculation
The amount of HRA exemption is calculated as the minimum of the following three values:
Actual HRA received from the employer.
50% of the basic salary if living in a metro city (40% for non-metro cities).
Rent paid minus 10% of the basic salary.
Example for HRA Calculation
Ramesh, a salaried employee in Bangalore (non-metro city), has the following details:
Basic Salary: ₹70,000 per month
HRA Received: ₹25,000 per month
Rent Paid: ₹20,000 per month
Criteria | Amount (₹) |
Actual HRA Received | 25,000 |
40% of Basic Salary (Non-Metro) | 28,000 |
Rent Paid - 10% of Basic Salary | 20,000 - 7,000 = 13,000 |
Since ₹13,000 is the lowest, Ramesh can claim ₹13,000 per month or ₹1,56,000 annually as HRA exemption under the old tax regime.
Understanding Leave Travel Allowance (LTA) Under the Old Regime
LTA is another key exemption available to salaried employees under the old tax regime. It allows employees to claim tax benefits on expenses incurred during travel within India.
Conditions for Claiming LTA
The exemption covers only domestic travel within India.
It applies to the employee and their immediate family (spouse, children, parents, and siblings if dependent).
Only actual travel fare expenses (airfare, train, or bus tickets) can be claimed.
LTA can be claimed twice in a block of four years.
Accommodation, food, and local travel expenses are not covered.
HRA and LTA in the New Tax Regime
With the introduction of the new tax regime, the structure of deductions has changed significantly. While the regime offers lower tax rates, it removes various exemptions and deductions that were previously available, including HRA and LTA exemptions.
What Has Changed?
HRA is fully taxable under the new tax regime. Employees receiving HRA cannot claim any exemption.
LTA is no longer eligible for tax exemption in the new tax regime.
No deductions under Section 80C, 80D, or home loan interest benefit.
Should You Choose the Old or New Tax Regime?
The choice between tax regimes depends on an individual’s salary structure and tax-saving preferences. The old tax regime benefits individuals who claim multiple deductions, whereas the new tax regime is suitable for those who prefer a simpler tax filing process with lower tax rates.
Comparison: Old vs. New Tax Regime for HRA and LTA
Feature | Old Tax Regime | New Tax Regime |
HRA Exemption | Available | Not Available |
LTA Exemption | Available | Not Available |
Deductions (80C, 80D, etc.) | Available | Not Available |
Lower Tax Rates | No | Yes |
Best For | Employees with high deductions | Employees preferring simplicity |
Conclusion
The removal of HRA and LTA exemptions in the new tax regime has changed how salaried employees plan their taxes. While the new regime offers lower tax rates, it may not be the best choice for those who previously relied on exemptions to minimize tax liability. Taxpayers should carefully evaluate their individual financial situation, income structure, and available exemptions before choosing between the old and new tax regimes. Consulting a tax expert or using an online tax calculator can help in making an informed decision.
FAQs
1. Can I still claim HRA exemption in the new tax regime?
No, HRA exemption is not available under the new tax regime. If you receive HRA as part of your salary, it will be fully taxable. Under the old tax regime, HRA provided significant tax savings, but this benefit has been eliminated in the new system. If HRA forms a major portion of your salary and you rely on it for tax savings, you may want to consider opting for the old tax regime instead.
2. Is LTA exempt under the new tax regime?
No, LTA exemption has been removed under the new tax regime. Previously, under the old tax regime, LTA was exempt for specified travel expenses incurred within India, subject to certain conditions. Now, if your employer provides LTA, the entire amount will be added to your taxable income and taxed as per your applicable slab rate.
3. Can my employer still provide HRA and LTA under the new tax regime?
Yes, employers can still offer HRA and LTA as part of your salary structure, but these allowances will be fully taxable. The new tax regime does not restrict employers from providing these components; it only removes the associated tax benefits. Employees should factor in this additional tax liability when evaluating their take-home salary under the new system.
4. Should I choose the new tax regime if I claim HRA and LTA?
If you rely heavily on HRA and LTA exemptions to reduce your taxable income, the old tax regime may be more beneficial for you. The new tax regime does offer lower tax rates, but without deductions, it may not always be the most tax-efficient choice. Before deciding, you should calculate your tax liability under both regimes and compare the benefits.
5. What happens if I mistakenly opt for the new tax regime?
If you mistakenly opt for the new tax regime while filing your Income Tax Return (ITR), you can revise your tax filing before the deadline. Salaried employees have the flexibility to switch between the old and new regimes every financial year, so if you find that the new regime is not beneficial for you, you can revert to the old tax regime in the next year.
6. Can I claim rent deductions under the new tax regime?
No, under the new tax regime, deductions related to rent payments, including HRA, are not allowed. Previously, under the old tax regime, taxpayers who lived in rented accommodation could claim deductions under Section 10(13A) of the Income Tax Act. However, the new tax regime does not allow such exemptions, meaning that your entire salary, including HRA, will be subject to taxation.
7. What happens if I submit false claims for HRA or LTA?
Falsely claiming deductions for HRA or LTA can lead to serious consequences, including tax penalties and scrutiny by the Income Tax Department. If an employee submits fake rent receipts or travel expense documents to claim exemptions fraudulently, the IT Department may conduct an investigation. If found guilty of tax evasion, the taxpayer may have to pay penalties, interest, or even face legal consequences.
8. Can I switch between the old and new tax regimes every year?
Yes, salaried employees can choose between the old and new tax regimes each financial year when filing their ITR. However, individuals with business income do not have this flexibility and can switch regimes only once in a lifetime. If you’re a salaried individual, this flexibility allows you to analyze your tax liability annually and select the regime that offers the most tax savings.
9. Is there any way to lower tax liability without HRA and LTA exemptions?
Yes, while HRA and LTA exemptions are not available under the new tax regime, there are still some ways to reduce tax liability. The new tax regime offers a standard deduction of ₹75,000, which is higher than the ₹50,000 deduction available in the old tax regime. Additionally, lower tax rates apply under the new system, which may reduce overall tax liability for some taxpayers.
10. Can I claim HRA if I stay with my parents?
Under the old tax regime, you could claim HRA even if you stayed with your parents, provided you were paying rent to them and had documentary proof such as a rent agreement and bank transactions. However, under the new tax regime, HRA is fully taxable, meaning no such deductions can be claimed, even if you pay rent to your parents.
11. Can LTA be reinstated in the new tax regime in future budgets?
As of now, there is no confirmation from the government regarding the reinstatement of LTA in the new tax regime. However, tax policies and exemptions are subject to periodic review. Future budgets may bring changes, so taxpayers should stay updated with announcements from the Ministry of Finance and the Income Tax Department.
12. How do I decide which tax regime is better for me?
The best way to determine which tax regime is better for you is to compare your tax liability under both regimes. Consider the following:
If you claim multiple exemptions and deductions (HRA, LTA, 80C, 80D, home loan interest), the old tax regime may be more tax-efficient.
If you prefer a simplified structure with lower tax rates and do not utilize many deductions, the new tax regime could be beneficial.
Use an income tax calculator to compute tax liability under both regimes before making a decision.
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