Deductions under the Old Tax Regime
Under the old tax regime, taxpayers were allowed to claim various deductions and exemptions to reduce their taxable income. These deductions were available under various sections of the Income Tax Act, such as section 80C, 80D, 80E, 80G, and so on. Some of the popular deductions under the old tax regime are:
- Deduction under section 80C for investments in PPF, EPF, NSC, and other specified schemes.
- Deduction under section 80D for payment of health insurance premiums.
- Deduction under section 80E for payment of interest on education loans.
- Deduction under section 80G for donations made to specified charitable institutions.
These deductions were available only if the taxpayer opted for the old tax regime and had to be claimed while filing the tax return.
Deductions under the New Tax Regime
The new tax system introduced in the Union Budget 2020 offers lower tax rates to individuals but does away with most deductions and exemptions. Taxpayers who opt for the new tax regime are not allowed to claim deductions under sections 80C, 80D, 80E, 80G, and so on, except for a few specified deductions such as section 80CCD(1B) for contributions to the National Pension System (NPS).
Comparison of Deductions under Old and New Regimes
The new tax regime offers lower tax rates than the old tax system, but taxpayers need to forgo most of the deductions available under the old regime. The table below compares the tax rates and deductions available under the old and new tax regimes for the financial year 2021-22.
| Income Range | Old Tax Regime | New Tax Regime |
|---|---|---|
| Up to Rs. 2.5 lakh | Nil | Nil |
| Rs. 2.5 lakh to Rs. 5 lakh | 5% | 5% |
| Rs. 5 lakh to Rs. 7.5 lakh | 20% | 10% |
| Rs. 7.5 lakh to Rs. 10 lakh | 20% | 15% |
| Rs. 10 lakh to Rs. 12.5 lakh | 30% | 20% |
| Rs. 12.5 lakh to Rs. 15 lakh | 30% | 25% |
| Above Rs. 15 lakh | 30% | 30% |
As you can see from the table, the tax rates are lower under the new tax regime for most income ranges. However, taxpayers need to forgo most of the deductions available under the old tax system. Therefore, it is essential to carefully evaluate the available deductions and tax rates before choosing the tax system that suits you best.
| Deductions / Exemptions | Old Regime | New Regime |
|---|---|---|
| Standard Deduction | Available (up to Rs. 50,000) | Not Available |
| Deduction for Interest on Home Loans | Available (up to Rs. 2 lakh) | Not Available |
| Deduction for Medical Insurance Premium | Available (up to Rs. 25,000) | Not Available |
| Deduction for Donations | Available (up to specified limits) | Not Available |
| Deduction for Leave Travel Allowance | Available (for two domestic trips in a block of 4 years) | Not Available |
| Deduction for House Rent Allowance | Available (subject to certain conditions) | Not Available |
| Deduction for Savings under Section 80C | Available (up to Rs. 1.5 lakh) | Available (up to Rs. 1.5 lakh) |
| Deduction for NPS Contributions under Section 80CCD(1B) | Available (up to Rs. 50,000) | Available (up to Rs. 50,000) |
| Deduction for Interest on Education Loan | Available | Not Available |
Note: The above table is not exhaustive and only lists some of the popular deductions and exemptions under the old and new system of income tax. Taxpayers should consult with their tax advisor to determine which regime is best suited for their individual circumstances.
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