Najeeb is gearing up for filing his Income Tax Returns for the financial year 2023-24. He has a few tax saving investments that has been active for the past few years and hence he had continued to file ITR under the old regime. The recent flurry on tax regime choice has made him doubt if he is on the right track.
Finance Act 2023 made the New Tax Regime as “default” regime, nudging the assessees opting for old tax regime to file Form 10 IEA before filing of Income Tax Returns for the financial year 2023-24. This also pushes the individual tax payers opting for old regime to file their Income Tax Returns on or before July 31st (due date for filing ITR) as a belated return filed will not provide an option to file ITR under the old regime.
There are multiple factors that determines the choice of regime for a tax payer. A few of the key deciding factors for individual tax payers are listed below.
1. FOUR Vs SIX
OLD TAX REGIME – Four Slabs
| INCOME SLAB | TAX RATE |
|---|---|
| Up to ₹ 2.5 lakh | No tax |
| ₹ 2.5 – 5 lakh | 5% |
| ₹ 5 – 10 lakh | 20% |
| Above ₹ 10 lakh | 30% |
NEW TAX REGIME – Six Slabs
| INCOME SLAB | TAX RATE |
|---|---|
| Up to ₹ 3 lakh | No tax |
| ₹ 3 – 6 lakh | 5% |
| ₹ 6 – 9 lakh | 10% |
| ₹ 9 – 12 lakh | 15% |
| ₹ 12 – 15 lakh | 20% |
| Above ₹ 15 lakh | 30% |
2. REBATE LIMIT u/s 87A
Under old tax regime, if net income after all deductions does not exceed Rs. 5 lakh, there is a full tax relief u/s 87A. Under the new tax regime, if the net income does not exceed Rs. 7 lakh, there is a full tax relief u/s 87A.
3. INTEREST ON HOME LOAN & EDUCATIONAL LOAN
An assessee can claim Interest paid on home loan of up to Rs. 2 lakh in a financial year as deduction u/s 24B if he opts for old tax regime. This benefit will not be available if one files the ITR under the new tax regime.
Interest paid on educational loan can be claimed as deduction u/s 80E for a maximum period of 8 years or till the interest is repaid, whichever is earlier. This deduction is also available only under the old tax regime.
Since home loan and educational loan are big ticket items that have financial impact on multiple years for growing families, ignoring these while opting for a specific regime could become a costly mistake.
4. HRA & LTA
House Rent Allowance is linked to one’s salary structure. Many companies have these as a default line item in their pay slip. Many may miss out claiming this due to the paperwork (active rental agreement, Landlord’s PAN details in case annual rent crosses ₹ 1 lakh, etc) while submitting investment proof to employer.
Leave Travel Allowance is tax-free if claimed twice in a block of four years. This deduction is not available in the new regime.
5. NPS – Sec 80CCD(1B)
Employees contribution to NPS is an allowable deduction under the new tax regime. But the deduction u/s 80CCD(2) for employer’s contribution to NPS is still available under both regimes.
6. DEDUCTION u/s 80C & 80D
Tax saving investments u/s 80C like investment in PPF, tax saver FD, life insurance premium etc are considered only in the old regime. Similarly deduction u/s 80D for health insurance of self and family (Rs. 25K) and for parents above 60 years of yage (Rs. 50K) are left out in the new regime.
How can we help you?
Various clauses from the Income Tax Act may be simplified in online contents. But most of the time, it requires professional help in identifying suitable route for specific instances. Similar to nurturing and taking care of personal health, it is important to also keep a tab on one’s financial health. We at Chockalingam Unnamalai & Associates, can help you understand the pros and cons of various choices you make in the context of personal taxation. You can bank on us for a stress free tax filing and related compliances.
Call us at +91 73050 56628 or drop a mail to frontoffice@onesourcevault.com
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