The Union Budget 2025 has brought cheers on the face of the middle class and crores of people. Because you need not pay any tax if you are earning an aggregate of Rs. 12 Lakhs or less during financial year on fulfillment of some terms and conditions. But what is for those who are earning more than Rs. 12 Lakhs in FY. Since rate of tax has also been changed to give relief to people having income more than Rs. 12 Lakhs.
In the OLD Tax Regime, there are various tax deductions and rebates are available by enjoying these you can enjoy less tax payment than NEW Tax Regime.
We are going to discuss, which tax regime is suitable for you after Budget-2025.
Equilisation point for tax-savings under old and new tax regime.
The table below explains how much tax deductions under the old tax regime you need to claim to achieve the equalisation point where tax paid under the old and new tax regime remains the same.
If you claim higher deductions than the amounts mentioned below in the equilisation table, then you will pay less tax in the old tax regime as compared to the new tax regime.
This equilisation point is important to take the judgement call for opting for a new or old tax regime if your salary income is above Rs 12.75 lakh.
|
Gross taxable income |
Income tax payable under old tax regime (Source: EY India) |
Proposed income tax under new tax regime |
Deductions to pay same tax in both tax regimes |
|
Rs 12,75,000 |
Nil |
Nil |
Rs 7,75,000 |
|
Rs 15,00,000 |
Rs 97,500 |
Rs 97,500 |
Rs 5,93,750 |
|
Rs 16,00,000 |
Rs 1,13,100 |
Rs 1,13,100 |
Rs 6,18,750 |
|
Rs 20,00,000 |
Rs 1,92,400 |
Rs 1,92,400 |
Rs 7,58,333 |
|
Rs 24,75,000 |
Rs 3,12,000 |
Rs 3,12,000 |
Rs 8,50,000 |
|
Rs 25,00,000 |
Rs 3,19,800 |
Rs 3,19,800 |
Rs 8,50,000 |
PLEASE NOTE THAT:
1. In the above table it is assumed that a salaried individual is claiming only Rs 75,000 as standard deduction and is not claiming NPS deduction for employer contribution.
2. In the above table, say you earn a salary income of Rs 15 lakh in a year. So, if you can claim Rs 5,93,750 as income tax deductions for the old tax regime then you need to pay Rs 97,500 income tax under both the old and new tax regime.
3. So, in theory if you can claim more than Rs 5,93,750 as deduction under the old tax regime say Rs 5,93,751 then you will save more tax in the old tax regime than the new tax regime. The more deductions you claim in the old tax regime above this equalisation point the higher amount of tax you can save.
DEDUCTIONS THAT CAN BE CLAIMED UNDER THE NEW TAX REGIME
Only two deductions-
1. Standard deduction (only salaried) and
2. NPS contribution made by the employer under Section 80CCD (2) can be claimed in the new tax regime.
3. The maximum amount of deduction that can be claimed under Section 80 CCD (2) is 14% of basic salary plus dearness allowance.
DEDUCTIONS THAT CAN BE CLAIMED UNDER THE OLD TAX REGIME
Some of the deductions which you can claim under the old tax regime are:
Section 80C: For making investments in eligible instruments taxpayers can claim up to Rs 1.5 lakh as tax deduction under section 80C. Your investment into EPF, PPF, SCSS, NPS, SSY, ELSS, ULIP and tax saving FD qualify for 80C deduction. Similarly expenses like school fee for children, life insurance premium, principal component of home loan etc qualify for 80C deduction.
Section 80D: If you are below the age of 60, you can claim up to Rs 25,000 deduction for paying health insurance premium. An additional deduction for insurance (premium) for parents is available up to Rs 25,000 if they are less than 60 years of age. If the parents are 60 years old or above, the deduction amount could go up to Rs 50,000.
In a normal scenario a person with senior citizen parents can easily claim a deduction of Rs 75000.
Section 80CCD(1B): For making investment in the National Pension System, taxpayers can claim up to Rs 50,000 as tax deduction over and above the Section 80C limit. Do note salaried employees can also claim Section 80 CCD (2) tax deduction for employer contribution to NPS.
Home loan Interest u/s 24B
If you have taken a home loan to purchase a flat or construction of a house then you can very well claim a deduction on interest paid for a home loan. The total deduction that can be claim under this section in a given financial year is Rs 2 lakh.
House Rent Allowance (HRA)
This is one of the most significant deductions for a salaried person who is living on rent. CA (Dr.) Suresh Surana, says, "The House Rent Allowance (HRA) is a common component of the salary structure. Employees who stay on rent can avail of the deduction of HRA based on the actual rent paid by them. With respect to HRA, Section 10(13A) provides for an exemption of least of the following amounts:
- 40 % or 50%, in case of metropolitan cities, of the salary amount.
- Actual amount received as HRA.
- Amount of rent exceeding 10 per cent of the salary."
In case of a rented house in metro city the HRA allowance goes up to 50% of the basic salary. It is 40% for the non-metro cities. So, a person with an annual salary income of Rs 12 lakh could typically have basic salary of Rs 50,000 per month or above, which means HRA of Rs 25,000 per month and above in metro cities, making the annual HRA component of Rs 3 lakh or above. The final deduction amount will depend upon the actual rent and basic salary.
A salaried person with a higher basic salary like Rs 1 lakh can easily claim HRA up to Rs 6 lakh if he lives in metro city and gets HRA as part of salary and actually pays this rent. The tax deduction amount would be lower than the HRA, though. The final tax deduction amount will be actual rent paid (up to HRA or 50%/40% of the basic) deducted by 10% of the salary.
Donations: If you make donations to eligible institutions, you can get deductions for such donations up to 100% of the donated amount. However, such deduction is limited to 10% of gross adjusted income. So, if your gross adjusted income is Rs 15 lakh then you can very well get a deduction up to Rs 1.5 lakh for such donation.
ILLUSTRATIVE LIST OF DEDUCTIONS AVAILABLE IN THE OLD TAX REGIME
|
Deductions under the Old Tax Regime |
Amount |
Deductions under New Tax Regime |
Amount |
|
Section 80C (Investment in PPF, NSC, Life Insurance Premium, ELSS, etc.) |
Up to Rs 1.5 lakh |
Not available |
- |
|
Section 80D (Health insurance premium) |
Varies based on premium, age. Varies Rs. 25000 to 75000 |
Not available |
- |
|
Standard Deduction (for salaried individuals) |
Rs 50,000 |
Available |
Rs 75,000 (FY 2024-25, 2025-26) and Rs. 50,000 (FY 2023-24) |
|
House Rent Allowance (HRA) |
Available (based on actuals) |
Not available |
- |
|
Leave Travel Allowance (LTA) |
Available (based on actuals) |
Not available |
- |
|
Interest on Housing Loan (Section 24) (for self-occupied property) |
Deduction up to Rs 2 lakh |
Not available |
- |
|
Interest on Housing Loan (Section 24) (for let out property) |
Available (based on actuals) |
Available (based on actuals) |
|
|
Section 80E (Interest on education loan) |
Available |
Not available |
- |
|
Section 80G (Donations to charitable institutions) |
Available (based on donation amount) |
Not available |
- |
|
Section 80TTA/80TTB (Interest on savings bank account/interest for senior citizens) |
Up to Rs 10,000 under section 80TTA(Rs 50,000 for senior citizens under section 80TTB) |
Not available |
- |
|
Entertainment Allowance |
Available for government employees |
Not available |
- |
|
Professional Tax (for salaried individuals) |
Actual amount paid, up to Rs 2,500 annually |
Not available |
- |
|
Additional Depreciation (Section 32(1)(iia)) |
Available for businesses |
Not available |
- |
|
Income from House Property Loss Set-off |
Allowed (set off with other income) |
Not available |
- |
|
Children's Education Allowance |
Rs 100 per month per child (up to two children) |
Not available |
- |
|
Transport Allowance (for especially abled) |
Rs 1,600 per month |
Not available |
- |
|
Section 80CCD(1B) |
Up to Rs 50,000 made to NPS |
Not available |
|
|
Section 80EEA |
Up to Rs 1.5 lakh deduction for interest payments on loan for first-time residential house property acquisition (loan sanctioned between 1st April 2019 to 31st March 2022) |
Not available |
|
|
Section 80EEB |
Up to Rs 1.5 lakh deduction for interest payments on loan for purchase of Electric Vehicle (loan sanctioned between 1st April 2019 to 31st March 2023) |
Not available |
|
|
Section 80CCD(2) - Employer's Contribution to NPS |
Available -Govt - 14% of their salary (basic + DA)Others - 10% of salary (basic + DA) |
Available |
Government - 14% of their salary (basic + DA)Others - 14% of salary (basic + DA) |
PLEASE NOTE: To arrive at Rs. 5,93,750 you can utilise below mentioned investment details.
|
Sr. No. |
Instruments |
Amount(Rs.) |
|
Section 80 |
Investment in PPF, NSC, Life Insurance Premium, ELSS, etc. Principal Paid on Housing Loan |
1,50,000 |
|
Section 80D |
Medical Insurance Premium |
25,000 |
|
Section 10(13A) HRA |
HRA in case of Salary ( Actual) |
1,68,750 |
|
Section 80E |
Education Loan |
|
|
Section 8080CCD(1b) |
NPS Contribution |
50,000 |
|
Section 24(b) |
Interest on Housing Loan |
2,00,000 |
|
TOTAL |
|
5,93.750 |
CONCLUSION
Do tax planning and if you utilise the majority of deductions and exemptions given in the OLD Tax Regime then you are able to save more and more taxes and create a good corpus for your future and retirement.
DISCLAIMER: The article presented here is only for sharing information with readers. The views expressed here are personal views of the author, which should not be considered as professional advice. In case of necessity do consult with professionals.
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