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Nirmala Sitharaman, the Finance Minister of India, recently announced the New Income Tax Regime in the February 2023 Union Budget. Since then, parallels have been drawn between both the regimes to establish similarities and differences and find out which one has more benefits. Speaking from a tax-saving point of view, there are more provisions in the Old Income Tax Regime to enjoy tax benefits on Home Loan. On the other hand, the New Income Tax Regime provides substantial savings on the new income tax slabs. You can better calculate your savings using an income tax calculator available online. In this article, we try to identify savings you can avail under both regimes so that you can decide which one to go for yourself. Note that the figures and facts mentioned in this article should not be used as an expert advice to base your financial decisions.

Savings under the Old Income Tax Regime

Some of the exemptions and deductions that are still available under the Old Tax Regime are mentioned below.

Savings under section 80C

One of the most popular features of the old income tax regime is the section 80C that allows a blanket deduction of a maximum of Rs.1.5 Lakh for various eligible expenses and investments made in a given financial year. This includes ELSS funds, tax-saving fixed deposits, PPF, NSC, Senior Citizen Savings Scheme, Sukanya Samriddhi Yojana, etc. Under section 80C, you are eligible for a deduction on Home Loan Principal Amount, Life Insurance Premium Payment and even Payment made towards your child’s education.

Savings under section 80D

This section encourages healthcare by providing deductions on the health insurance of self, spouse children, and also dependent parents. The eligibility depends on the age of the applicant and their dependent parents.

Savings under section 80CCD (investment in NPS)

NPS or the National Pension Scheme aims to provide easy retirement solutions to Indian citizens. By investing in NPS, taxpayers can save tax under section 80C and 80CCD. 80CCD provides an additional deduction of Rs.50,000 after the tax savings made under 80C of a maximum of Rs.1.5 Lakh.

Savings under section 80E

Under section 80E, you can claim deduction on education loan taken towards higher education of self, spouse or your children. There is no maximum deduction cap and hence you can enjoy excellent savings for taxpayers belonging in the higher tax brackets.

Savings under section 80EEA

This section is a relief for the first-time homeowners who have availed of a home loan. Such people can claim a deduction of Rs.50,000 over the maximum deduction of Rs.1.5 Lakh provided they qualify for the eligibility criteria as mentioned under section 80EEA.

Savings under Section 24

This is a deduction on the Home Loan interest payment of a maximum of Rs.2 Lakh in a financial year. It is in addition to section 80C which is applicable on the principal component of the Home Loan.

Savings under Section 80G

Section 80G provides for a deduction against any contribution or donation made by the taxpayer during any financial year to a charitable institution/trust/relief fund. The deduction under this section ranger from 30% to 100% of the contribution made depending on the nature of the trust or institution or the fund. Note that only particular contributions qualify for this deduction.

Deductions in the New Tax Regime 

Savings in NPS/EPF account

Employees contributing towards EPF, NPS and superannuation are eligible for a maximum tax exemption of Rs.7.5 Lakh. Employees will not be taxed on the employer contribution to EPF as long as it is under the threshold of 12% of their gross salary (Basic + DA). Deductions under employer contribution can be claimed under section 80C up to Rs.1.5 Lakh.

An additional deduction of Rs.50,000 can be claimed under Section 80CCD(1b) for employer additions to NPS accounts for up to 10% of the gross salary.

If employee contribution to an EPF account is more than Rs 2.5 Lakh within a fiscal year, interest on those contributions is taxable (including TDS) to the employee. If the interest earned during a year on the EPF scheme does not exceed the limit of 8.10%, you can avail of tax exemption benefits.

 Savings under Gratuity

Employees can enjoy deduction on their gratuity amount – an amount that every employee is liable to receive after 5 years of working for an organisation – up to a specific limit. Under New Tax Regime, the deduction for gratuity earned in the lifetime of a government employee is capped at Rs.20 Lakh exceeding which the surplus amount shall become taxable. Note that the gratuity received upon employees’ death is non-taxable.

Savings on Life Insurance Maturity Amount

While a taxpayer cannot avail of tax deduction on the life insurance premium, the taxpayer can enjoy deduction on the maturity amount received from the life insurance company under section 10(10D) in the New Tax Regime.

Savings on PPF & Sukanya Samriddhi Account Interest and Maturity Amount

The interest earned and the maturity amount of the PPF Account and Sukanya Samriddhi Yojana are both eligible for tax exemption under the New Tax Regime.

Payment received under National Pension Scheme

You can enjoy tax deduction under NPS scheme on a maximum of 60% of the NPS corpus. The corpus is tax-free on Tier-1 NPS account on maturity. All partial withdrawals remain tax-exempted. Individuals can enjoy tax exemption benefits on maximum withdrawals of 25%.

As you can see, both the tax regimes – previous and new – provide certain benefits that are common and exclusive. To identify the best for yourself, it is recommended that you consult a financial expert.

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June 2024