Old tax regime vs new regime: Which income tax system to choose for max savings

Old or new, it’s not just a tug-of-war between ideologies anymore. With the latest updates in the income tax slabs, here is a quick recap of deductions you can claim under the new and old tax regimes.

However, be warned—this is just for information purposes. It is always advisable to approach a professional tax and savings adviser or a certified CA to help you with the nitty-gritty of tax savings.

Deductions under the old tax regime

Let’s first take a look at the old tax regime. With PPF, EPF, ELSS, and life-insurance premiums, all rolled in a single section, Section 80C gives you a total of ₹1.5 lakh per year in deductions. Health insurance premiums are housed under Section 80D, which allows ₹25,000 for general taxpayers, and ₹50,000 for senior citizens. A ₹5,000 deduction can be added to it as expenses towards preventative health check-ups.

The IT department also has deductions under Section 80DDB for medical treatment expenses for specified diseases, with prescribed limits for each. These include haematological disorders, chronic renal failure, AIDS, malignant cancers, and neurological diseases of certified disability level equal to or above 40 per cent.

If you do not have the HRA component, you can also claim a deduction under Section 80GG. This is calculated as an excess of 10 per cent of total income—with a max deduction at ₹5,000 a month (or 25 per cent of income). Interest on savings bank deposits of up to ₹10,000 can be claimed under Section 80TTA and Section 80TTB. For senior citizens, the cap is ₹50,000.

People with disability can claim ₹75,000 in deductions under Section 80U. For certified severe disability, this can go up to ₹1,25,000, as per prescribed conditions.

Of course, over and above these are house rent allowance (HRA) and leave travel allowance (LTA), which are in line with your salary structure.

Deductions under the new tax regime

Now, coming to the new regime, there are significantly lower number of deductions, but they are significant.

Section 16 (ia) allows for a standard deduction of ₹75,000. Section 80 CCD 2 provides deductions for your employer’s NPS contribution for up to 14 per cent of your salary.

If you are a new employee, do check if you are eligible for additional employee cost deduction under Section 80JJAA. Any amount deposited in the Agniveer Corpus Fund can be deducted under Section 80CCH.

Under prescribed statutory limits, Section 10C allows deductions for voluntary retirement, Section 10(10) for gratuity, and Section 10(10AA) for leave encashment. Under Section 10(14), transport allowance for differently abled persons, conveyance, and daily allowances for official needs (subject to conditions) may be deducted.

In the new regime, Section 56(2)(x) enables the deduction of gifts with an aggregate value of up to ₹50,000 and Section 24(b) allows deductions on interest on let-out property.

Armed with this knowledge, please consult a CA or professional taxation adviser and select the best regime that serves your savings and deductions profile.

Disclaimer: This article is for information purposes only. Please consult a professional financial adviser or certified CA before any investments or filing.

Business