HRA & LTA in New Tax Regime: Explore Exemptions for FY 2024-25
HRA helps salaried individuals reduce their taxable income if they live in a rented home, while LTA provides tax relief on travel expenses. However, under the new tax regime, both HRA and LTA exemptions are no longer available. This change may lead to an increase in taxable income for many employees.
With the introduction of the new tax regime, salaried individuals need to reassess their tax-saving strategies. The government has provided an alternative tax structure with lower tax rates, but it has also removed several exemptions and deductions. Among these, two key allowances that impact taxpayers are House Rent Allowance (HRA)Â and Leave Travel Allowance (LTA).
To make an informed choice between the old and new tax regimes, it is important to understand how these allowances were previously used for tax savings and how their removal affects tax planning for FY 2024-25.
Table of Contents
Budget 2025: Key Tax Updates
The Union Budget 2025 introduced several modifications to the income tax structure. Below are some key highlights:
Increase in Basic Exemption Limit: The exemption limit has been increased from ₹3 lakh to ₹4 lakh, meaning individuals earning up to this amount will not have to pay any tax under the new regime.
Revised Income Tax Slabs:
Annual Income (₹) | Tax Rate |
Up to 4,00,000 | Nil |
4,00,001 to 8,00,000 | 5% |
8,00,001 to 12,00,000 | 10% |
12,00,001 to 16,00,000 | 15% |
16,00,001 to 20,00,000 | 20% |
20,00,001 to 24,00,000 | 25% |
Above 24,00,000 | 30% |
Increase in Standard Deduction: The standard deduction available to salaried individuals has been raised from ₹50,000 to ₹75,000, offering additional tax relief.
Higher Rebate Under Section 87A: Taxpayers with an annual taxable income of up to ₹12 lakh will now receive a full tax rebate, effectively making their tax liability zero.
Understanding these changes is essential to evaluating whether the new tax regime is beneficial for you, especially in the absence of exemptions such as HRA and LTA.
HRA Exemption in Old vs. New Tax Regime
Under the old tax regime, salaried employees could claim an HRA exemption if they lived in rented accommodation. The exemption amount was calculated based on salary, HRA received, rent paid, and location (metro or non-metro city). However, under the new tax regime, HRA is fully taxable as the exemption is no longer available.
Example of HRA Calculation in Old Regime
Assume an individual earns a basic salary of ₹60,000 per month and receives an HRA of ₹25,000 per month. They pay ₹22,000 as rent and live in Delhi (a metro city). The HRA exemption would be the lowest of the following three values:
Actual HRA received: ₹25,000
50% of basic salary (for metro cities): ₹30,000
Rent paid - 10% of basic salary: ₹22,000 - ₹6,000 = ₹16,000
Thus, the exempt HRA amount is ₹16,000 per month (₹1,92,000 annually). Under the new tax regime, this full ₹25,000 per month HRA will be taxable.
Additional Considerations
Employees who work remotely but pay rent in a high-cost city may find the old tax regime more beneficial.
Those living in non-metro cities, where lower rent is paid, may not see as significant an impact.
If an employer provides rent-free accommodation instead of HRA, different tax rules apply, and an employee may still benefit under the old regime.
Impact on Taxpayers
Employees living in rented accommodation who relied on HRA to lower tax liability will experience a higher taxable income.
Individuals in metro cities where rents are high may be impacted the most.
Those who claimed significant deductions earlier must reconsider their tax planning strategy.
LTA in the New Tax Regime
What is LTA?
Leave Travel Allowance (LTA) is a tax-free benefit given to employees for travel within India. Under the old regime, LTA was exempt from tax under Section 10(5)Â if used for actual travel expenses incurred by the employee and their family.
LTA Exemption in Old vs. New Tax Regime
The old tax regime allowed LTA exemption twice in a block of four years for domestic travel expenses. The new tax regime does not allow this exemption, making the full LTA taxable.
Example of LTA Calculation in Old Regime
If an employee received ₹40,000 as LTA for a family trip and spent ₹35,000 on travel within India, they could claim ₹35,000 as an exemption under the old tax regime. However, under the new tax regime, the entire ₹40,000 will be taxable.
Impact on Taxpayers
Employees who used LTA for tax savings will see a higher taxable salary.
Those who travel frequently within India may reconsider their tax regime choice.
Employers may restructure salary packages to compensate for the loss of LTA exemption.
Conclusion
HRA and LTA were key tax-saving allowances under the old tax regime. Their removal in the new tax regime increases taxable income for many salaried employees. While the new regime offers lower tax rates and a simplified structure, it lacks the flexibility of claiming exemptions.
Before making a choice, it is important to calculate tax liability under both regimes. If exemptions such as HRA and LTA help reduce tax significantly, the old regime remains a better option. However, if you prefer a more straightforward tax calculation with reduced compliance requirements, the new tax regime may suit your needs better.
FAQs
1. Is HRA exemption available under the new tax regime?
No, HRA exemption is not available under the new tax regime. If you opt for the new tax structure, your entire HRA component will be taxable.
2. Can I still receive HRA in my salary under the new tax regime?
Yes, you will continue to receive HRA as part of your salary, but it will be fully taxable under the new regime.
3. Is LTA exemption applicable under the new tax regime?
No, LTA is fully taxable under the new tax regime. The exemption allowed under the old tax regime no longer applies.
4. How is HRA calculated under the old tax regime?
HRA exemption under the old tax regime is calculated as the minimum of the following:
Actual HRA received
50% of basic salary for metro cities (40% for non-metro cities)
Rent paid minus 10% of basic salary
5. Can I claim both HRA and a home loan deduction under the old tax regime?
Yes, if you are paying rent for a residence and also have a home loan for a different property, you can claim both HRA exemption and home loan deductions under the old tax regime.
6. How often can I claim LTA under the old tax regime?
LTA can be claimed for two trips within a block of four years. The current block is from 2022 to 2025.
7. Can I claim LTA for international travel?
No, LTA exemption is only available for domestic travel within India.
8. Is it beneficial to opt for the new tax regime if I claim HRA and LTA?
If a significant portion of your tax savings comes from HRA and LTA exemptions, the old tax regime may be more beneficial for you. However, if you do not claim many deductions, the new tax regime might be simpler and offer lower tax rates.
9. Can I switch between the old and new tax regimes?
Yes, salaried individuals can choose between the old and new tax regimes every financial year while filing their income tax return.
10. If my employer does not provide HRA, can I still claim rent deductions?
If you do not receive HRA but still pay rent, you can claim a deduction under Section 80GGÂ under the old tax regime, subject to specific conditions.
11. What happens if I mistakenly opt for the wrong tax regime?
If you select the wrong tax regime while filing your return, you can revise it before the due date. However, business owners and professionals cannot switch back once they opt for the new regime.
12. Will HRA and LTA exemptions be reinstated in future budgets?
There has been no official confirmation regarding the reinstatement of HRA and LTA exemptions in the new tax regime. The government aims to simplify the tax structure by introducing the Direct Tax Code 2025, which also does not offer any change in HRA and LTA exemptions in the new tax regime.
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