New Tax Regime: Can one claim LTA, profession tax, academic and uniform allowances?

Deductions allowed under New Tax Regime

The new tax regime has removed most of the deductions that were earlier available under the old regime. Today’s Ask Wallet Wise query explains which deductions can still be claimed under the new regime.

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Is profession tax and allowances like academic allowance and uniform allowance eligible for income tax deduction from gross taxable income under the new tax regime?

Expert Advice: To get accurate data on taxpayers’ income for policymaking, the government introduced the new tax regime through the Finance Act 2020. It offers lower slab rates but does not allow most exemptions and deductions that were earlier available under the old regime.

Deductions not available under the new regime include those under Chapter VIA, such as Section 80C, 80D, 80TTA and 80TTB.

For salaried individuals, exemptions on several allowances have also been removed. Leave Travel Allowance (LTA), House Rent Allowance (HRA), children’s education allowance, and hostel allowance are now taxable if you opt for the new regime. The basic exemption of Rs 1,500 for clubbing a minor child’s income is also not available.

The deductions still allowed under both regimes are:

Standard deduction from salary: Rs 75,000 under the new regime (compared to Rs 50,000 under the old regime).

Employer’s contribution to NPS: Up to 14% of basic salary under the new regime (vs. 10% under the old regime).

Further, allowances paid to employees to meet expenses incurred for official duties are still allowed under the new regime.

Now, to your specific query. Profession tax is not allowed as a deduction while computing salary income under Section 16(iii) in the new regime. Uniform allowance and academic allowance are not specifically listed under Rule 2BB. However, if these are genuinely incurred in the performance of duties, they can be exempt under the new regime, provided the employee submits proof of expenses to the employer. As per CBDT FAQs, uniform allowance is exempt to the extent of actual expenditure incurred for official purposes.

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