On February 1, Finance Minister Nirmala Sitharaman provided a major tax relief in the Union Budget. She announced that there will be no tax on incomes up to Rs 12 lakh per year.
Salaried individuals can now earn up to Rs 12.75 lakh annually without paying any tax, thanks to the standard deduction benefit available to them.
Impact of the New Income Tax Regime
Following the budget announcement, the new income tax regime has become more appealing.
Under this regime, individuals earning up to Rs 12 lakh per year won’t have to pay any tax.
However, if a person invests in tax-saving instruments, the old tax regime might still be more beneficial.
Tax experts explain that for someone earning Rs 20 lakh per year, even with tax-saving investments, they will pay more tax under the old regime compared to the new one.
Who Benefits More from Each Regime?
For example, if an individual earns Rs 20 lakh and claims a deduction of Rs 5.25 lakh under the old regime, their tax liability will be Rs 2.4 lakh.
In comparison, under the new regime, the tax will be Rs 2 lakh. However, people with an income between Rs 13.75 lakh
and Rs 15.75 lakh will benefit more from the old regime due to the availability of various deductions, which are not available under the new regime.
Overview of the Old Regime
The old income tax regime, introduced in 2020, was designed for taxpayers who claim deductions.
While tax rates are higher compared to the new regime, it offers several deductions under sections like 80C, 80D,
and 24B of the Income Tax Act, making it beneficial for those who invest in these tax-saving instruments.
The regime allows deductions on a wide range of expenses, including tuition fees, health insurance, and home loan interest.
Key Deductions Available in the Old Regime
Section 80C: Allows deductions on various investments, including life insurance premiums, PPF, and more, up to Rs 1.5 lakh. It also covers tuition fees for up to two children.
Section 80D: Offers deductions on health insurance premiums—Rs 25,000 for individuals under 60 and Rs 50,000 for those above 60.
Section 24B: Provides a deduction of up to Rs 2 lakh on interest paid on home loans.
Additional Tax Savings from HRA
Another advantage of the old regime is the exemption available on House Rent Allowance (HRA), which can significantly reduce a taxpayer’s taxable income. This exemption is not available under the new tax regime.
In conclusion, while the new tax regime is simpler and beneficial for some, the old regime still offers substantial benefits for taxpayers who actively claim deductions.
