scorecardresearchIncome Tax Saving Deadline: Choosing the best tax saving plan under the old tax regime versus the new tax rules

Income Tax Saving Deadline: Choosing the best tax saving plan under the old tax regime versus the new tax rules

Updated: 11 Mar 2022, 08:28 AM IST
TL;DR.

You can choose between the old and new tax regimes depending on the benefits you wish to avail yourself.

Paying taxes

Paying taxes

Many people are in a rush to buy investments before March 31, 2022. The idea is to save on taxes under the old regime. While this is a regular exercise for most Indians who plan and decide their investments surrounding their tax-saving strategies, many have questioned if they must pay under the old tax regime or shift to the new tax regime. A lot depends on the tax payee’s income, cash flows, savings habits, and investments before deciding which tax regime would benefit more than the other. Whether you are salaried or earning income from your own business, every year you have to decide how you would like to pay your taxes.

Tax Rates under the new regime versus the existing tax regime

New Slab RatesTax Rate (in %)Existing Slab RatesTax Rate (in %)
Income from 2.5 lakh to 5 lakh5%Income from 2.5 lakh to 5 lakh5%
Income from 5 lakh to 7.5 lakh10%Income from 5 lakh to 10 lakh20%
Income from 7.5 lakh to 10 lakh15%Income beyond 10 lakh30%
Income from 10 lakh to 12.5 lakh20%  
Income from 12.5 lakh to 15 lakh25%  
Income beyond 15 lakh30%  

The new versus the old

As per the new tax regime, income taxpayers are subject to lower tax rates with greater availability of more tax slabs. However, the scope for deductions or exemptions is much less. For example, you cannot claim the following exemptions and deductions under the new tax regime.

  • Standard deduction under Section 80TTA/80TTB, professional tax and entertainment allowance on salaries
  • Leave Travel Allowance (LTA)
  • House Rent Allowance (HRA)
  • Minor child income allowance
  • Helper allowance
  • Children’s education allowance
  • Special allowances under Section 10(14)
  • Interest on housing loan taken on a self-occupied property or vacant property
  • Exemption or deduction for any other perquisites or allowances
  • Deduction from family pension income

Now know what the old tax regime has in store for you. You can avail of the following deductions if you choose to continue filing your taxes under the old income tax slab.

  • Deduction up to 1.5 lakh on payments towards life insurance premiums, pension schemes, and provident fund
  • Additional deduction up to 1,50,000 on contributions made by the employer to NPS
  • Tax benefit under Section 24(B) up to 1.5 lakh on interest payments on a home loan or a home improvement loan on self-occupied property
  • Deduction up to 75000 on expenses for maintenance or medical treatment of a disabled dependent
  • Deduction up to 40,000 under Section 80DD (1B) claimed on expenses made on medical treatment of self and dependent family members for specified diseases
  • Deduction under Section 80E on interest payment on education loan taken for the higher education of self or dependent child or spouse
  • Additional deduction under Section 80EE up to 50,000 claimed towards interest payment made against the loan taken to acquire residential house property by first-time homebuyers
  • Deduction under Section 80GG on house rent payment
  • Deduction up to 1.5 lakh under Section 80EEB towards interest paid on loan taken to purchase an electric vehicle

Let us understand with the help of an example how and where one tax regime scores over the other with the following examples. 

Example 1: Know how the new regime serves better than the old in terms of tax outflow

Income (Rs)Amount (Rs)Old regime (Rs)New regime (Rs)
Salary12,50,00012,50,00012,50,000
Less: Standard deduction(50,000)(50,000)-
Less: Professional tax(2,400)(2,400)-
Gross Total Income1,197,6001,197,60012,50,000
Less: Deduction u/s 80C(1,50,000)(1,50,000)-
Total Income 1,047,6001,047,600-
Income tax 1,26,7801,25,000
Add: Education cess @ 4% 5,0715,000
Total Tax 131,8511,30,000

Example 2: Know how the old regime serves better than the new in terms of tax outflow

Income (Rs)Amount (Rs)Old regime (Rs)New regime (Rs)
Salary1,000,0001,000,0001,000,000
Less: Standard deduction(50,000)(50,000)-
Less: Professional tax(2400)(2400)-
Gross Total Income947,600947,6001,000,000
Less: Deduction u/s 80C(1,50,000)(1,50,000)-
Total income797,600797,6001,000,000
Income Tax  72,02075,000
Add: Education cess @ 4% 2,8813,000
Total Tax  74,90178,000

The choice of tax regime will depend on the deductions that you wish to avail. However, many taxpayers prefer the new tax regime owing to the lock-ins mandated on investments under Section 80C of the Income Tax Act. However, once you avail of the old tax regime, you cannot opt in again for the new tax regime in the future.

First Published: 11 Mar 2022, 07:27 AM IST