OLD Tax Regime or New Tax Regime: Which Tax Regime to Opt; Check why Old Tax Regime is still Attractive

OLD Tax Regime or New Tax Regime: Though in Budget 2023 the government has ensured to make the New Income Tax regime very attractive, the Old tax regime has its own benefits. The new Tax Regime calculates lower Income Tax, it is the Old Income Tax Regime which allows claiming exemptions and deductions as per the Income Tax Act.

For Income of up to Rs. 7 Lakhs, the New Tax Regimes ensures zero tax liability. Thus for income up to Rs. 7 Lakh, the New Tax Regime should be selected. As the new tax regime allows the standard deduction to the salaried individual, Tax-free Income under New tax Regime will be Rs. 7.5 lakhs. However, if your taxable income is above Rs 7.5 lakh, you will have to pay income tax on the entire income. Also deductions like Section 80C, 80D, House Rent Allowance (HRA) and 24 (Loss under the head House Property) are not available in the new tax regime.

Once the Income Crosses threshold crosses Rs. 7 lakh or 7.5 lakh in the case of a salaried person, we need to do the analysis of Tax benefits occurring in the New Tax Regime and Deductions available to us in the Old Tax Regime and then decide accordingly. Old Regime works better for people who want to claim Income Tax Exemptions and deductions. Let’s see why the old Tax Regime may be beneficial for you.

Refer: How Rental Income of upto Rs. 10 Lakh can be Tax-Free: Read to Know Further

Old Tax Regime Provides Benefit of Tax Saving Plus Investment:

The Old tax system allows you to save taxes and make regular investments.”There are numerous ways like ELSS, LIC, PF etc. to save taxes under the previous tax system. In a way we can also say that Old regime promotes tax savings and wealth Building as well. Investments that reduce taxes are not rewarded by the new tax system. In that regard, saving is a mandate of the previous tax system, although one that saves taxes. Under Section 80C, you can deduct up to Rs 1.5 lakh for qualifying investments.

Savings for retirement:

Employees in the private sector now have the chance to reduce their taxable compensation by investing in NPS through their company. Both the new and the old tax regimes offer this choice. On the other hand, the previous tax system offered more opportunities for tax savings. Employers have the ability to withhold up to 10% of your base pay from you and apply it to your net positive salary (NPS). This effectively lowers your taxable income and helps you save taxes.

Extra Tax Deduction plus Savings for retirement:

Without even putting a single penny in NPS, the majority of the time, the Rs 1.5 lakh Section 80C limit is used up by EPF contributions, child tuition, and home loan principal repayment. Here’s where you have a genuine chance to participate in NPS above the Rs 1.5 lakh cap and take advantage of an income tax deduction thanks to an extra Rs 50,000 investment option under Section 80CCD (1B).

Promotes Financial Protection

Doing a LIC policy will give you tax deduction of up to Rs 1.5 lakh u/s 80C. Medilaim for yourself, your spouse, parents, and children can give you a deduction of up to Rs. 100,000 u/s 80D thus promoting Financial Protection and Tax savings.

House Rent Allowance

You can save a significant amount of money on taxes if you live in a rented home and receive house rent allowance (HRA) as part of your pay. Residents in metropolitan areas are eligible for up to 50% of their pay in health reimbursement (HRA), which can reduce their taxable income and result in significant tax savings. In certain circumstances, if the residence is a rental property located in a separate city, you may be able to receive the HRA benefit even though you have a mortgage. In a similar vein, you can save even more money by claiming this exemption for the cost of your travel expenses if you receive Leave Travel Allowance in addition to your income.

Deduction for Home Loan

Because home loan interest rates are among the lowest for retail loans, they are seen as one of the least expensive borrowing options. This enables a large number of people to purchase a home with just a down payment and use a home loan to cover the remaining balance. Under Section 24(b), a house loan borrower may deduct up to Rs 2 lakh for interest payments each financial year. This is applicable to both rental properties and homes that are occupied by one person.