Are there tax savings for following the Old Tax Regime with exemptions?

Ans: Hi
The difference between the old and new tax regime is that many deductions and exemptions are not available if an individual opts for the new tax regime.

Standard deduction, PT deduction, Mediclaim, Life Insurance, PF, NPS, Donations etc., are some of the common deductions that would not have been available to an individual opting for the new tax regime. The benefit that the individual would get by opting the new tax regime is that she / he would get lower rates of tax slab as compared to an individual opting for old tax regime.

With the new budget proposals, the FM intends to extend atleast 3 distinct benefits to individuals opting for the new tax regime.

1. Standard deduction would be available to be claimed
2. Slab rates of tax has been rationalized (improved) to give better tax relief to the individual
3. Individuals opting for new tax regime have got enhanced Nil tax window of Rs. 7 Lakhs as compared to old tax regime limit of Rs. 5 Lakhs. As your income even after the standard deduction would be above Rs. 7 Lakhs, this benefit is not really applicable to you.

If we look at an income of Rs. 10 Lakhs with standard deduction of Rs. 50000; you would pay Rs. 52,500 under the new tax regime (current budget proposal) as compared to Rs. 67,500 under the new tax regime (last year budget). So effectively comparing apple to apple, you have an additional saving of Rs. 15,000 in taxes

Ans: Hi Saroj
No changes to the slab rates in the old tax regime but the surcharge rate has been cut off at 25% for all individuals regardless of old or new tax regime

Ans: You can claim tax exemption for:

Transport allowances in case of a specially-abled person.
Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
Any compensation received to meet the cost of travel on tour or transfer.
Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.
Perquisites for official purposes.
Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA).
Interest on Home Loan on let-out property (Section 24)
Gifts up to Rs 5,000
Deduction for employer’s contribution to NPS account (Section 80CCD(2)).
Deduction for additional employee cost (Section 80JJA).
Budget 2023 introduced a standard deduction of Rs 50,000 under New Tax Regime applicable from FY 2023-24.
Budget 2023 also introduced deduction under Section 57(iia) being expenses towards income from family pension.
Budget 2023 further introduced deduction of amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2).

Ans: No tax deductions are applicable in the new regime, except higher standard deduction of 75K.

Ans: The new tax regime in India, introduced in the Budget 2020, offers lower tax rates but without the benefit of most deductions and exemptions available under the old tax regime. It’s designed to simplify the tax system and provide an alternative to taxpayers who prefer a straightforward approach to tax calculation.

Comparing Old vs. New Tax Regime
Under the old tax regime, you could reduce your taxable income by claiming deductions under various sections like Section 80C, 80D, HRA, LTA, etc. However, the new tax regime offers a lower tax rate but does not allow most of these deductions.

Here’s a quick comparison:

Old Tax Regime: Allows deductions under various sections like 80C, 80D, HRA, LTA, etc.

New Tax Regime: Offers lower tax rates but without most deductions and exemptions.

Tax Slabs Under the New Regime
The tax slabs under the new tax regime are as follows:

Income up to Rs. 2.5 lakh: No tax

Income from Rs. 2.5 lakh to Rs. 5 lakh: 5% tax

Income from Rs. 5 lakh to Rs. 7.5 lakh: 10% tax

Income from Rs. 7.5 lakh to Rs. 10 lakh: 15% tax

Income from Rs. 10 lakh to Rs. 12.5 lakh: 20% tax

Income from Rs. 12.5 lakh to Rs. 15 lakh: 25% tax

Income above Rs. 15 lakh: 30% tax

Deciding Between Old and New Regime
To decide whether to opt for the new tax regime, consider the following:

Total Income: Higher income levels might benefit more from the lower tax rates in the new regime, especially if you don't claim many deductions.

Deductions Claimed: If you claim significant deductions under the old regime, sticking with it might be more beneficial. If you don’t claim many deductions, the new regime could be better.

Investment Discipline: If you prefer not to invest in tax-saving instruments or if your lifestyle doesn't support certain deductions, the new regime offers simplicity.

Strategies to Save Money in the New Tax Regime
If you decide to opt for the new tax regime, here are a few strategies to maximize your savings:

Income Tax Rebate (Section 87A): If your taxable income is up to Rs. 5 lakh, you can still claim a rebate under Section 87A, which reduces your tax liability to zero.

Avoid Unnecessary Investments: Under the new regime, you are not required to invest in tax-saving instruments like ELSS, PPF, or NSC just for the sake of deductions. This can free up your cash flow for other investments or expenses.

Focus on Direct Investments: You can focus on investments that suit your financial goals rather than being driven by tax-saving needs. This could include mutual funds, stocks, or even building an emergency fund.

Simplified Tax Filing: The new regime simplifies tax filing as you don’t need to track and claim various deductions. This can save you time and reduce the complexity of your tax return.

Optimize Employer Benefits: If you have employer-provided benefits like NPS contributions, you might still want to consider the old regime. However, under the new regime, your take-home salary might be higher since you’re not contributing to tax-saving investments.

Finally
Choosing the new tax regime can simplify your tax planning and may reduce your tax outgo if you don’t rely heavily on deductions. It’s essential to weigh your income, deductions, and financial goals before making the switch. If you're still unsure, you can consult a Certified Financial Planner to evaluate your specific situation and determine the best approach for you.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in