Income Tax News: In order to entice the majority of taxpayers to switch to the new tax system, the government is making some effort in this regard. If they choose to adopt the new tax regime, individuals with salary incomes up to Rs 7.5 lakh will thereby pay no taxes in the fiscal year 2023–2024. Unless you utilise deductions, the tax outlay under the new tax regime always stays far lower than under the previous tax regime, even at greater income levels.
Introduction to the New Tax Regime
For those who were not eligible for certain deductions and exemptions under the previous tax system, the new tax system is therefore generally preferable. But how can you choose between the old and new tax regimes if you are eligible for certain deductions?
Personalized Tax Evaluation
Your income level and the quantity of deductions you are able to take will determine the answer. There are numerous other deductions that are exclusive to a particular group of taxpayers and certain sorts of expenses, even while some deductions for salaried individuals are quite popular and widely used, such as the standard deduction, Section 80C, Section 80D, Section 24(b), and house rent allowance (HRA). Under the Old tax system, both assist taxpayers in lowering their tax expenditure.
Determining Tax Liability under Old and New Regimes
The amount of deduction you can take depending on your eligibility is the most important criterion that will help you determine whether you will be better off under the old or new tax regime. You will pay at most a tax that is equal to the new tax system or less if the entire deduction you are able to deduct is equal to or greater than this minimum deduction. In this case, you would be better off under the previous tax regime. You will benefit more from the new tax system, though, if your overall deductions are less than this cap. For example, in order to have the same tax liability of Rs 1.2 lakh under the previous tax system and the new tax regime, if your income is Rs 14 lakh, you would need to deduct at least Rs 3.75 lakh overall. Under the previous system, however, you would have paid less tax if you could have claimed a larger amount as a deduction.
Claiming Deductions Through Health Insurance Premiums
Check the other chances available to claim bigger deductions if you are confident that you can comfortably handle the minimal deduction required at your income level. You can quickly claim a deduction of Rs 5 lakh with the aid of a few commonly used choices. Section 80CCD(1B) allows for the deduction of Rs. 50,000 on NPS investment; Section 80D allows for health insurance premium; Section 80C allows for house loan interest or HRA; and Section 80D allows for the standard deduction of Rs. 50,000. A combination that may only be available to a select few can allow one obtain a much larger deduction: the interest on a home loan for a let-out residence plus HRA. Donations to organisations that are exempt from taxation may also be deducted.
Zero Tax Liability under Old Tax Regimes
Under the Old tax system, you may attain zero tax liability. A few deductions are exclusive to particular investments and expenses: Section 80EA (interest on loans for affordable housing), Section 80EEB (interest on loans for electrical vehicles), Section 80E (interest on education loans), Section 10 (13A)} (house rent allowance), Section 80G (donation to exempt institutions), Section 80DDB (expenses for treating specific diseases), and Section 80U (disability deduction).
Strategic Planning for Tax Deductions
To determine your eligibility for these tax deductions, you must review your past, present, and projected costs and investments in addition to creating a rough outline of your future investments and expenses. The previous tax system may have resulted in larger tax savings if you are able to maintain the deductions or are anticipated to qualify for larger deductions in the future.
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