If your annual income stands at ₹7 lakh, choosing the new regime proves advantageous due to the introduced tax rebate.
Alternatively, adhering to the old tax regime would necessitate investments for deductions and exemptions.
Let's examine an illustrative example under both tax structures:
Gross Salary: ₹7,50,000
House Rent Allowance: ₹50,000
Standard Deduction: ₹50,000
80C, 80CCC, 80CCD (1): ₹1,50,000
Total Exemption and Deductions: ₹2,50,000
Net Taxable Income: ₹5,00,000
Up to ₹2,50,000: Nil
₹2,50,001 to ₹5,00,000 (5%): ₹12,500
₹5,00,001 to ₹10,00,000 (20%): Nil
Above ₹10,00,000 (30%): Nil
Choosing the old tax regime enables you to avail tax deductions and exemptions under various sections of the Income Tax Act, such as Section 80C , Section 80D and more:
Section 80C: Exemption of up to ₹1.5 lakh on investments in pension funds, mutual funds, ULIPs, government savings schemes, life insurance premiums, home loan principal amount, education fees, etc.
Section 80CCD: Additional exemption of ₹50,000 for investments in the National Pension Scheme.
Section 80D: Tax deduction on health insurance premium payments for self or parents.
80TTA: Deduction on savings account interest.
80G: Deductions for donations to charitable organisations.
Other tax benefits: This encompasses House Rent Allowance, Professional Tax, Relocation Allowance, Leave Travel Allowance, Mobile Reimbursement, etc.
Total Exemption: ₹50,000
Total Deduction: Nil
Net Taxable Income: ₹7,00,000
Income up to ₹3,00,000: Nil
₹3,00,001 to ₹6,00,000 (5%): ₹15,000
₹6,00,001 to ₹9,00,000 (10%): ₹10,000
₹9,00,001 to ₹12,00,000 (15%): Nil
₹12,00,001 to ₹15,00,000 (20%): Nil
Above ₹15,00,000 (30%): Nil
While you can leverage various exemptions and deductions in the old tax regime, the new tax regime offers a balance through the Tax Rebate under Section 87A.
Notably, the tax rebate limit under Section 87A has been raised from FY 2023-24. By choosing the new tax regime, you qualify for a tax rebate of ₹25,000 on income up to ₹7 lakh, compared to the previous ₹12,500 for income up to ₹5 lakh in the old tax regime.
In addition to the standard deduction in the new tax regime, you can also claim these deductions:
Section 80CCD (2): Employer's contribution to NPS
Section 80CCH: Investment in the Agniveer Corpus Fund