Tax exemption of components under New Tax Regime

In this article we will discuss how to configure salary components as tax exempted for employees under new tax regime along with old regime employees. This will enable employees who opted for the new tax regime to avail tax exemption on the components that are allowed for exemption for e.g. Children Education Allowance.

As per Rule 2BB(3) allowances that are provided for specific purposes like children education allowance, transport between office & home, special compensatory allowances, etc. will be exempted for employees even if the employee chooses to opt for the new tax regime.

To be compliant with this amendment, we have introduced a new option under the component configuration to mark the component as tax exempted under the new tax regime. For more details on Rule 2BB(3) and exemptions allowed as per this rule, please click here.

Let us now take a look at how to configure salary components as tax exempted for employees under the new tax regime on Keka - 

Go to the Payroll (1) section, then go to the Settings (2) tab, and click on Components (3). You will be directed to the Recurring Components tab under which you can click on +Add new component (4).

An overlay page will appear where you can configure the component settings. Enter the relevant details, and tick the checkbox that says This component is tax exempted (non taxable) (1) if the component is tax exempted under the old tax regime.

Now, you will have additional configuration options available to you. Here, you can mark if the given component is tax exempted under the new tax regime as well by clicking on This component is also exempted under New tax regime (1). When enabled, you will see a disclaimer asking you to go through Rule 2BB(3) before enabling this setting in order to prevent any compliance concerns later on.

Once you are satisfied with the configured settings, click on Add Component to finish setting up the component.

Tax exemption of components under the New Tax Regime can only be enabled for an allowance, reimbursable component or a deduction.

We hope you now have a good understanding of how to enable tax exemption of components under the new tax regime. Please feel free to reach out to out product experts for any queries.

Related Links:

Managing Income Tax Regime Choices

How to check what tax regime an employee is in?