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Earning Rs 12-15 lakh annually? Old or new income tax regime, which one helps you save more tax


The government is doing its bit to make the new tax regime attractive enough for most taxpayers to migrate to it. So those earning a salary income of up to Rs 7.5 lakh will end up paying zero tax in the financial year 2023-24 if they opt for the new tax regime. Even at a higher income level, the tax outgo under the new tax regime always remains significantly lower than under the old tax regime, unless you use deductions.

So, the new tax regime is mostly better for people who are unable to claim various deductions and exemptions under the old tax regime. But, if you are qualified to claim some deductions, how do you decide if the old or new tax regime is better for you?

The answer will depend on your income level and the amount of deduction that you can use. While some deductions for salaried individuals are very popular and widely used — such as standard deduction, Section 80C, Section 80D, Section 24(b) and house rent allowance (HRA) — there are many other deductions that are specific to a certain set of taxpayers and certain types of expenses. Both help taxpayers bring down their tax outgo under the old tax regime.

The minimum deduction to save higher tax: The most critical factor that will help you decide whether you will be better off with the old regime or the new tax regime is the amount of deduction that you can use based on your eligibility. The table below gives the minimum deduction for various income levels between Rs 12 lakh and Rs 15 lakh. If the total deduction that you can use is equal to or greater than this minimum deduction, then you are better off with the old tax regime, as you will pay at the most a tax that is equivalent to the new tax regime or lower. However, if your total deductions are below this threshold, then you will be better off with the new tax regime.
For instance, if your income is Rs 14 lakh, you would need at least Rs 3.75 lakh as total deduction to have the same tax liability of Rs 1.2 lakh in the old tax regime and in the new tax regime. However, if you are able to claim a higher amount as deduction, you will pay lesser tax under the old regime.

Minimum deduction needed under old tax regime
Gross income Min deductions Equal tax outgo
Rs 12 lakh Rs 3.5 lakh Rs 82,500
Rs 12.5 lakh Rs 3.62 lakh Rs 90,000
Rs 13 lakh Rs 3.62 lakh Rs 1.03 lakh
Rs 13.5 lakh Rs 3.62 lakh Rs 1.1 lakh
Rs 14 lakh Rs 3.75 lakh Rs 1.2 lakh
Rs 14.5 lakh Rs 3.92 lakh Rs 1.3 lakh
Rs 15 lakh Rs 4.08 lakh Rs 1.4 lakh
For income in FY24, figures are rounded off

How to maximise your tax savings: Once you are sure that you can easily manage the minimum deduction required at your income level, the next thing you need to check is the additional opportunities available to claim higher deductions. Some widely used options can help you easily claim a deduction of Rs 5 lakh. These are Rs 50,000 standard deduction, Rs 1.5 lakh under Section 80C, Rs 2 lakh on home loan interest or HRA, Rs 50,000 on NPS investment under Section 80CCD(1B) and Rs 50,000 on health insurance premium under Section 80D. A combination — which may be available to few people — of a home loan interest of a let-out house and HRA can help one get significantly higher deduction. If you make donations to exempted institutions, that can also get a deduction. As shown in the table below, all these options can help you pay very little tax — maybe even zero tax — on a salary income of Rs 13.5 lakh. So, the more deductions you can utilise, the higher your tax saving.

Tax saving scenario at Rs 13.5 lakh annual income in FY 2024
Particulars Old tax regime without deductions New tax regime without deductions Old tax regime with deductions New tax regime with deductions
Annual income Rs 13.5 lakh Rs 13.5 lakh Rs 13.5 lakh Rs 13.5 lakh
Less: Standard deduction 0 0 Rs 50,000 Rs 50000
Less: Section 80C 0 0 Rs 1.5 lakh 0
Less: Section 80CCD(1B); in NPS 0 0 Rs 50,000 0
Less: Section 80D; health insurance premium (Rs 25,000 self, Rs 50,000 parents) 0 0 Rs 75,000 0
Less: Section 24(B); home loan interest (self occupied/let-out property) 0 0 Rs 2 lakh 0
Less: HRA {Section 10 (13A)}/education loan (80E)/affordable housing (80EEA)/elective vehicle (80EEB) 0 0 Rs 2.25 lakh 0
Less: Section 80G; donation to exempt institution 0 0 Rs 1 lakh 0
Net taxable income Rs 13.5 lakh Rs 13.5 lakh Rs 5 lakh Rs 13 lakh
Tax payable Rs 2.175 lakh Rs 1.2 lakh Rs 12,500 Rs 1.1 lakh
Less: Section 87A rebate 0 0 Rs 12,500 0
Final tax payable Rs 2.175 lakh Rs 1.2 lakh Nil Rs 1.1 lakh

What are the other deduction options that you can use?
As the example above shows, you can achieve nil tax liability under the old tax regime. There are some deductions that are specific to certain expenses and investments — including interest on loan for affordable housing (Section 80EEA), interest on loan for electrical vehicle (Section 80EEB), interest on education loan (Section 80E), house rent allowance {Section 10 (13A)}, donation to exempt institutions (Section 80G), expenses for treatment of specific diseases (Section 80DDB) and deduction for disabled persons (Section 80U).

You have to check your past and current expenses and investments — and get a sketch about your future expenses and investments — to understand the eligibility for these tax deductions. If you can continue with the deductions or are likely to become eligible for higher deductions in future, the old tax regime may deliver higher tax savings.



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