Section 80C, 80D, and HRA in the New Tax Regime: Understanding Exemptions and Deductions
With the introduction of the new tax regime in FY 2020-21, taxpayers now have the option to choose between the old tax regime, which allows multiple exemptions and deductions, and the new tax regime, which offers lower tax rates but eliminates most deductions, including HRA, Section 80C, and Section 80D benefits.
For salaried individuals and taxpayers accustomed to tax-saving investments under Section 80C (PPF, LIC, ELSS, etc.), health insurance premium deductions under Section 80D, and House Rent Allowance (HRA) exemptions, the new tax regime poses an important question: Is it beneficial to switch?
This article provides a detailed analysis of how HRA, Section 80C, and Section 80D work under the new tax regime, their impact on taxable income, and how taxpayers can optimize their tax planning in the absence of deductions.
Table of Content
What is the New Tax Regime?
The new tax regime was introduced in Budget 2020 and became effective from FY 2020-21. It offers lower tax rates compared to the old tax regime but removes various deductions and exemptions that taxpayers previously used to reduce their taxable income.
Income Tax Slabs Under the New Tax Regime (FY 2024-25)
Annual Income | New Tax Regime Tax Rate |
Up to ₹3,00,000 | 0% |
₹3,00,001 - ₹7,00,000 | 5% |
₹7,00,001 - ₹10,00,000 | 10% |
₹10,00,001 - ₹12,00,000 | 15% |
₹12,00,001 - ₹15,00,000 | 20% |
Above ₹15,00,000 | 30% |
The key difference is that the new tax regime does not allow exemptions like HRA or deductions under Section 80C and 80D.
HRA, 80C, and 80D in the New Tax Regime: What’s Allowed and What’s Not?
The old tax regime allowed taxpayers to claim exemptions and deductions to reduce taxable income, whereas the new tax regime eliminates most of them. Here’s how HRA, Section 80C, and Section 80D are treated under the new regime:
Tax Component | Old Tax Regime | New Tax Regime |
HRA Exemption | Allowed under Section 10(13A) | Not Allowed |
80C Deductions | Allowed (up to ₹1.5 lakh) | Not Allowed |
80D Deductions | Allowed (up to ₹75,000) | Not Allowed |
Standard Deduction | ₹50,000 | ₹50,000 (Increased from FY 2023-24) |
HRA in the New Tax Regime: Can You Claim House Rent Allowance?
Under the old tax regime, employees living in rented accommodation could claim HRA exemption under Section 10(13A), significantly reducing taxable income.
HRA Exemption Formula Under the Old Tax Regime:
HRA exemption is calculated as the least of the following three amounts:
Actual HRA received from the employer.
50% of basic salary (for metro cities) or 40% (for non-metro cities).
Rent paid - 10% of basic salary.
However, under the new tax regime, HRA is fully taxable, meaning employees cannot claim rent expenses as an exemption. This increases taxable income and the overall tax liability for individuals paying high rent.
80C, 80D, and HRA in the New Tax Regime: Impact on Taxpayers
1. Loss of 80C Deductions in the New Tax Regime
Under the old tax regime, Section 80C allowed deductions up to ₹1.5 lakh for investments like:
Public Provident Fund (PPF)
Life Insurance Premiums (LIC)
Equity Linked Savings Scheme (ELSS)
National Savings Certificate (NSC)
5-Year Fixed Deposit
Employee Provident Fund (EPF)
With the removal of Section 80C in the new tax regime, taxpayers who rely on these deductions to reduce taxable income lose significant tax-saving opportunities.
2. Impact of Losing 80D Health Insurance Deductions
Under Section 80D, taxpayers could claim deductions on health insurance premiums:
₹25,000 for self, spouse, and children.
₹50,000 for senior citizen parents.
₹75,000 for taxpayers and parents both above 60 years.
With the removal of this deduction, taxpayers in the new tax regime must pay tax on the full income without any relief for medical insurance premiums.
3. HRA, 80C, and 80D in the New Tax Regime: Is the Switch Beneficial?
The new tax regime benefits individuals who do not claim many deductions. However, for salaried employees who pay rent, invest in tax-saving instruments, and pay health insurance premiums, the loss of HRA, Section 80C, and Section 80D can lead to higher tax liability.
Should You Choose the New Tax Regime or Stick to the Old Regime?
The decision to switch depends on how many deductions you claim:
If you heavily invest in PPF, EPF, and LIC under Section 80C, the old regime is better.
If you pay high rent and rely on HRA, the old tax regime offers better tax savings.
If you have medical insurance and claim deductions under Section 80D, the old regime remains beneficial.
If you do not claim deductions, the new tax regime offers lower tax rates and a simplified filing process.
Tax Planning Tip:
Before switching, taxpayers should calculate tax liability under both regimes using an Income Tax Calculator to determine the most tax-efficient option.
Conclusion
The new tax regime provides lower tax rates but eliminates key deductions, including HRA, Section 80C, and Section 80D. While it simplifies tax filing, it may not be beneficial for taxpayers who rely on exemptions for rent, tax-saving investments, and health insurance.
Choosing between the old and new tax regimes requires careful evaluation of available deductions and tax benefits. Taxpayers should compare their taxable income under both regimes to determine the most suitable option.
For individuals who actively invest and claim exemptions, the old tax regime remains a better choice. However, for those seeking a simpler approach with reduced tax rates, the new tax regime offers an alternative with fewer complications.
FAQs
1. Can I claim HRA under the new tax regime?
No, HRA exemption under Section 10(13A) is not available under the new tax regime. If you opt for the new regime, your entire HRA component becomes taxable, increasing your overall tax liability. The old regime allows HRA exemption based on salary, rent paid, and city category.
2. Why has the government removed 80C, 80D, and HRA benefits in the new tax regime?
The primary goal of the new tax regime is simplicity and lower tax rates. The government introduced this system to reduce dependency on tax-saving investments and to provide a straightforward taxation structure without deductions.
3. Is Section 80C available under the new tax regime?
No, deductions under Section 80C (PPF, ELSS, NSC, LIC premiums, etc.) are not allowed in the new tax regime. Taxpayers opting for the old tax regime can still claim ₹1.5 lakh in deductions under Section 80C.
4. What happens if I opt for the new tax regime and later want to switch back?
Salaried individuals can switch between the old and new tax regimes every financial year while filing their ITR. However, business owners who opt for the new tax regime once cannot revert to the old tax regime unless they stop their business income.
5. Are there any deductions available in the new tax regime?
The new tax regime offers very few deductions, including:
Standard deduction of ₹50,000 (introduced in FY 2023-24).
Employer’s contribution to NPS (Section 80CCD(2)).
EPF and gratuity exemptions remain intact.
6. How does the new tax regime affect individuals who pay rent?
Since HRA is not exempted, salaried employees who pay high rent lose a significant tax-saving benefit. If rent expenses are substantial, the old regime might still be a better choice.
7. Can I still claim medical insurance premium deductions under 80D in the new tax regime?
No, Section 80D deductions for medical insurance premiums (up to ₹75,000 for senior citizens and ₹25,000 for self/family) are not available in the new tax regime. However, individuals can still buy medical insurance for financial protection against health expenses.
8. Is the new tax regime beneficial for all taxpayers?
The new tax regime is beneficial for individuals who do not claim many deductions. If you have high investments in PPF, ELSS, LIC, NPS, or medical insurance, then the old regime may offer better tax savings.
9. Can I claim deductions on home loans in the new tax regime?
No, home loan interest deductions under Section 24(b) and principal repayment under Section 80C are not available in the new tax regime. However, the interest exemption for self-occupied and let-out properties under certain conditions remains applicable.
10. What should I consider before choosing between the old and new tax regimes?
Consider the following factors:
Your total income and tax bracket.
How much you invest in 80C instruments like EPF, PPF, and ELSS.
Whether you pay rent and require HRA exemption.
Medical insurance premiums and 80D benefits.
Whether lower tax rates in the new regime compensate for lost deductions.
11. Will the government restore 80C, 80D, and HRA in the new tax regime in the future?
There is no confirmation from the government about reinstating HRA, Section 80C, or Section 80D in the new tax regime. The primary purpose of this regime is to simplify tax filing and reduce dependency on deductions.
12. How can I calculate which tax regime is better for me?
Use an income tax calculator to compare your tax liability under both regimes. If the tax savings from deductions (HRA, 80C, 80D) are more than the tax benefit of lower rates in the new regime, the old tax regime is better.
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