The new income tax regime is easy to use. There is no need to provide investment proof in it. There is also less chance of making mistakes in filing income tax return. However, most deductions and exemptions are not available in it.
The new income tax regime has become attractive due to the government making income up to Rs 12 lakh per annum tax-free. The new regime is easy for taxpayers. There is no need to provide proof of investment in it. There is also less chance of making mistakes in filing income tax return. But, tax experts say that salaried taxpayers whose income is up to Rs 12 lakh may have to pay more tax. The reason for this is that the benefit of deductions is not available in the new regime.
If there is capital gain, you may have to pay more tax.
Taxspanner CEO Sudhir Kaushik said that it is easy to file Income Tax Return in the new regime. The taxpayer does not have to provide proof of investment. But the problem is with capital gains. In the new income tax regime, if the total income is up to Rs 12 lakh, then rebate is available under section 87A, which makes the tax zero. But, capital gains have been excluded from this benefit.
Deduction and exemption not allowed in the new regime
This can be understood with the help of an example. Suppose a person has an annual income of Rs 9 lakh from salary and short term capital gains of Rs 70,000. According to the rule applicable from July 23, 2024, 20 percent tax is applicable on short term capital gains. This will result in a tax of Rs 14,000 on short term capital gains of Rs 70,000. On the other hand, in the old income tax regime, deduction is available on section 80C, 80D and exemption on HRA, LTA and NPS. This reduces the tax liability of the taxpayer on the same income.
Tax liability reduces due to deductions and exemptions
If a taxpayer takes full advantage of deductions and exemptions, then his tax in the old regime is reduced significantly. In this, deduction can be claimed on PPF, ELSS, life insurance policy, children’s tuition fees under section 80C. A maximum deduction of Rs 1.5 lakh can be claimed in a financial year. Apart from this, deduction is allowed on health policy premium under section 80D. Under section 24B, deduction on home loan interest, exemption on HRA and standard deduction of Rs 50,000 is also available. This takes the total deduction to Rs 3-4 lakh.
Many taxpayers benefit from the old regime for FY25
Tax experts say that despite the government’s efforts to increase the use of the new regime, the old regime is more beneficial for many taxpayers for the financial year 2024-25. Niyati Shah, vertical head (personal tax) at 1 Finance, said, “The price of convenience should not be higher tax liability. If a salaried taxpayer is entitled to deductions, then the old regime may be beneficial for him.”
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