A Taxpayer's Guide to Claiming Exemptions and Deductions.

A Taxpayer’s Guide to Claiming Exemptions and Deductions.

Key Tax Regimes

There are two tax regimes available to taxpayers: the old tax regime and the new tax regime. The new tax regime is the default for all assessees from FY 2023-24 onwards. ²However, individuals and HUFs can still opt for the old tax regime.

New Tax Regime

Under the new tax regime, the following deductions and exemptions are allowed:

Standard Deduction For salaried individuals, the standard deduction is ₹75,000, and for pensioners, it’s ₹25,000 (from FY 2025-26).
Rebate under Section 87A This has been increased to ₹60,000 from the previous ₹25,000 (from FY 2025-26).
Employer’s NPS Contribution A deduction of 14% of salary for the employer’s contribution to the employee’s NPS account can be claimed.
Agniveer Corpus Fund Contributions to this fund are deductible under Section 80CCH(2).
Conveyance Allowance A conveyance allowance of ₹3,200 per month is available for visually impaired or orthopedically handicapped individuals.
Deduction under Section 80JJAA This deduction is for businesses that incur additional costs for employing new workers.

Old Tax Regime

If you opt for the old tax regime, you can claim a wider range of deductions, including:

House Rent Allowance (HRA) and deductions for house rent under Section 80GG.
Home loan interest up to ₹2,00,000, with additional deductions for first-time homebuyers.
Investments under Section 80C such as PPF, ELSS, and tuition fees.
Health insurance premiums under Section 80D.
Deductions for medical treatment of handicapped dependents or for specified diseases.
Interest on education loans under Section 80E and on loans for electric vehicles under Section 80EEB.
Donations to charitable institutions and political parties.
Interest on savings account deposits under Section 80TTA and Section 80TTB for senior citizens.
Deductions for persons with disabilities under Section 80U.
Standard deduction of ₹50,000 for salaried individuals and pensioners.
Rebate under Section 87A up to ₹12,500 for those with an income up to ₹5 lakh.
Relief for salary paid in arrears or advance under Section 89.

Employer’s Responsibilities

Employers play a crucial role in ensuring correct TDS deductions. Their responsibilities include:

Identifying the employee’s chosen tax regime.
Collecting and verifying Form 12BB with supporting evidence for deductions if the old regime is chosen.
Calculating and deducting TDS correctly.
Issuing Form 16 with all the necessary details.
Filing quarterly TDS returns on time.

Wrongful Claims

The Income Tax Department has noted a growing trend of wrongful claims for refunds, often by employees claiming ineligible exemptions. ²⁸The department uses AI and data analytics to identify high-risk cases.

Consequences of Wrong Claims

If you make a wrongful claim, you could face several consequences:

Notices and Scrutiny The department may issue notices and take up your case for detailed scrutiny.
Demand for Tax If the claim is not justified, a demand for the tax will be raised.
Penalty A penalty of up to 200% of the misreported income can be levied under Section 270A.
Prosecution In cases where the tax evaded is more than ₹25 lakhs, imprisonment from 6 months to 7 years can be imposed. ³³For smaller amounts, the imprisonment can be from 3 months to 2 years.

Correcting Wrong Claims

If you’ve made an incorrect claim, you can rectify it by:

Revising your original return if the time limit permits.
Filing an updated return under Section 139(8A).

Updated Return

An updated return can be filed within 4 years from the end of the relevant assessment year (w.e.f. 1.4.25). ³⁷However, you will have to pay additional tax, which ranges from 25% to 70% of the tax and interest, depending on how late you file the updated return.

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