The new income tax regime has become attractive as the government has made 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 mistakes in filing income tax returns. 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 new regime does not provide the benefit of deductions.
If there is capital gain, you may have to pay more tax
Taxspanner CEO Sudhir Kaushik said that filing Income Tax Return is easy in the new regime. Taxpayers do not have to provide proof of investment. But the problem is regarding 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.
Deductions and exemptions are 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 rules 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 regime of income tax, 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.
Deductions and exemptions reduce tax liability
If a taxpayer takes full advantage of deductions and exemptions, his tax is reduced significantly in the old regime. Under Section 80C, deduction can be claimed on PPF, ELSS, life insurance policy, children’s tuition fees. A maximum deduction of Rs 1.5 lakh can be claimed in a financial year. Apart from this, deduction on health policy premium is allowed 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 benefited 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.”
