In India, taxpayers have the flexibility to choose between two tax regimes based on what suits them best. The old regime provides for exemptions and deductions under sections like 80C, 80D, HRA (House Rent Allowance), LTA (Leave Travel Allowance), etc, helping individuals reduce their taxable income. However, this regime entails higher slab rates. In contrast, the new regime features lower slab rates but does not permit exemptions or deductions, except for standard deductions and NPS offered by the employer.
Therefore, taxpayers need to select the regime that suits best them.
“If an individual is opting for the old regime, there are several avenues available for taxpayers to save taxes and maximise the take-home salary, such as Section 80C allows deductions up to Rs 1.5 lakh for investments in instruments like PPF, ELSS, etc. Similarly, Section 80D offers deductions on health insurance premiums up to Rs 75,000,” says Divya Baweja, Partner at Deloitte India.
“The income tax filers in the old tax regime will be eligible to claim various deductions and exemptions, whereas the same needs to be forgone by individuals opting for the concessional tax regime (i.e. the default tax regime). Therefore, the taxpayer should determine which regime is more beneficial for them by calculating their tax liability in both cases after considering the tax exemption and deductions available in respective cases,” says Suresh Surana, Founder of RSM India.
Accordingly, taxpayers opting for old tax regime can take advantage of the following mentioned deductions/ exemptions:
Standard Deduction
A standard deduction under section 16(ia) of the IT Act of upto Rs. 50,000 can be claimed against salary and pension income. It is pertinent to note that taxpayers can avail of such standard deduction under both old and concessional tax regimes.
Chapter VI-A of the Income Tax Act (hereinafter referred to as “IT Act”)
Section 80C of Chapter VI-A allows a maximum deduction of Rs 1,50,000, in aggregate, for sums paid or deposited in the previous year by the taxpayer in term deposit for period exceeding 5 years, Equity Linked Savings Scheme, subscription in National Saving Certificate (NSC), tax-advantage bonds, notified mutual funds or UTI, contribution to public provident fund, contribution to recognised provident fund/ approved superannuation fund, payment towards life insurance premiums, stamp duty expenses, repayment of home loan etc.
Section 80TTA of Chapter VI-A allows a deduction of up to Rs 10,000 on the income earned from interest on savings made in a bank, cooperative society or post office.
Deduction under section 80D of IT Act of up to Rs. 25,000 (Rs. 50,000 in case of senior citizens) can be claimed for Mediclaim premium paid by an individual in respect of medical insurance or contribution to Central Government Health Scheme / notified scheme for self, spouse, dependent children or parents u/s 80D of the IT Act.
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House Rent Allowance
An employee can also avail of a House Rent Allowance (HRA) benefit for rent paid and a Leave Travel Allowance(LTA) exemption against expenses. These deductions/exemptions have specific limits and conditions outlined under the tax laws.
Every salaried employee who is in receipt of HRA and resides in a rental accommodation may avail the benefit of this exemption provided he/she does not own any residential accommodation. The least of the following shall be exempt:
Actual HRA Received
40% of Salary (50% if house is situated in Mumbai, Kolkata, Delhi or Chennai)
Rent paid in excess of 10% of salary
Leave Travel Concession u/s 10(5) of the IT Act
Employees in receipt of Leave Travel Allowance (LTA) can claim a deduction of expenditure incurred (for self and family) towards travelling in India. The family would comprise of spouse and children, parents, brothers and sisters who are wholly or mainly dependent on her/him. The exemption of LTA can be availed for two journeys performed in a block of 4 calendar years, i.e. 2022-2025, as per the prescribed conditions.
“Individuals should consider factors like their investment goals, financial commitments, and the impact on their take-home salary while choosing between the two regimes. It is prudent to calculate taxes under both regimes to determine the most beneficial option based on their circumstances,” says Baweja.
“Employees shall note that all the efforts shall be in vain if proper disclosure of investments, deductions and preferred tax regime is not made to the employer so as estimate the total income of the employee and accordingly deduct TDS under section 192,” Surana added further.