The new income tax regime has come into effect from April 1, 2020. Individual taxpayers have the option to select between new and old. The government is trying to increase taxpayers’ interest in the new tax regime.
Income tax deduction: The government is trying to make the new regime of income tax attractive. Last year, Finance Minister Nirmala Sitharaman had made several big announcements in the Union Budget to make the new regime attractive. The government wants to increase the interest of individual taxpayers in the new tax regime. Currently, individual taxpayers have the option to choose between the new and old tax regime. The option to switch between the two is also open for him. Many taxpayers are unable to decide which of the new and old regimes is beneficial for them.
Benefits of old tax regime
The new and old tax regimes have their own advantages and disadvantages. Tax rates are lower in the new tax regime. But, deductions are not available under different sections of income tax. The most prominent among these are deduction under section 80C, deduction under section 80D and deduction under section 24B. Section 80C relates to deduction on life insurance policies, PPF, ELSS and children’s tuition fees. 80D is related to the deduction available on health policy. Section 24B relates to deduction on interest payment on home loan.
Who benefits from the new tax regime?
Deduction facility is not available on Section 80C, Section 80D and 24B in the new tax regime. Experts say that the new tax regime is beneficial for those taxpayers who do not claim any deduction. If a person has taken a home loan and claims deduction on home loan interest every financial year, then his tax liability reduces significantly. Similarly, tax liability is reduced due to deduction on premium of life insurance policy and health policy.
Deductions in the new tax regime
Finance Minister Nirmala Sitharaman had also allowed two types of deductions under the new tax regime in the Union Budget presented in 2023. In this, the first annual standard deduction is Rs 50,000. The second section is the deduction available on employer’s contribution to NPS under section 80CCD(2). Pensioners can also avail the benefit of standard deduction. They can claim either Rs 15,000 or 33.33 per cent of their pension, whichever is less.
These benefits also in the new tax regime
One thing that is important to keep in mind is that pensioners can claim standard deduction only if the pension is taxable as salary income. If a taxpayer selects pension under other income then he will not get the benefit of standard deduction. In the new tax regime, exemptions are available on voluntary retirement, gratuity and leave encashment. In the new regime, disabled people also get deduction on transport allowance.
