Choosing between the Old Tax Regime and the New Tax Regime is a major annual decision for salaried employees in India. Let's break down the calculations and deductions to find out which option saves you more money.
Old Tax Regime (With Deductions) The Old Tax Regime offers high tax rates but permits various exemptions and deductions: * **House Rent Allowance (HRA):** Exempt under Section 10(13A). * **Section 80C:** Up to ₹1.5 Lakhs (EPF, PPF, LIC, ELSS, Home loan principal). * **Section 80D:** Medical insurance premium (up to ₹25,000 for self, ₹50,000 for senior citizen parents). * **Section 24(b):** Home loan interest deduction up to ₹2 Lakhs. * **Standard Deduction:** ₹50,000.
New Tax Regime (Section 115BAC) The New Tax Regime offers lower slab rates but removes almost all deductions. However, it provides: * **Standard Deduction:** ₹50,000 is now available under the new regime too. * **Rebate under Sec 87A:** No tax on taxable income up to ₹7 Lakhs.
The Breakeven Formula How do you decide? Use this rule of thumb: If your total deductions (80C + 80D + HRA + Home Loan Interest) exceed **₹3.75 Lakhs**, the **Old Tax Regime** is generally more beneficial. If your deductions are less than **₹2.5 Lakhs**, the **New Tax Regime** will save you more tax.
For incomes between ₹7 Lakhs and ₹15 Lakhs, you must calculate both tax liabilities side-by-side. In our **Income Tax Advanced Course**, we build calculation models in Microsoft Excel to make this comparison simple for clients.