When Old Regime Works For You

The FM’s move to limit most benefits to the new tax regime have confirmed the writing on the wall: that the old regime is on its last legs. Deloitte India and Outlook Money compared the tax payable under both the tax regimes for various salary brackets to figure out when old tax regime is better.

For the new tax regime, a standard deduction of Rs 75,000 is considered. For the old tax regime, we have taken a standard deduction of Rs 50,000; Rs 1.5 lakh under Section 80C for EPF, PPF, life insurance premiums, children’s tuition fees and others; Rs 50,000 under Section 80CCD(1B) for NPS; Rs 25,000 under Section 80D for health insurance premium for self; Rs 2 lakh for housing loan interest under Section 24(B)); and exemption of house rent allowance (HRA) of Rs 1.25 lakh.

We considered the above deductions and exemptions as we believe these are the most common deductions that individual taxpayers generally avail of.

Given the above deductions and exemptions, the old tax regime is better for all the income levels considered in the tables above for all the age groups. However, as you change the deduction level in the old tax regime, depending on where you invest and spend and what is your salary structure, the choice between the old and new tax regimes will change.

When New Regime Works For You

Even if you have certain investments and spends that count as deductions under the old tax regime, you may be better off in the new one

If you are earning up to Rs 7 lakh, there is Nil tax payable.

If you are up to 60 years, earn Rs 16 lakh or more with deductions of up to Rs 4.75 lakh* in old regime.

For the 60+ with deductions of up to Rs 4.75 lakh* in (old regime), tax payable under the new and old regimes are on a par for incomes of Rs 16 lakh or more.

For all ages, if you have deductions of up to Rs 2.75 lakh (minus Rs 2 lakh under Section 24(b)) under old regime, for all incomes considered.

For those up to 60 years and earning Rs 13 lakh or more, with deductions of up to Rs 4.25 lakh* (minus Rs 50,000 under Section 80CCD(1B)) in old regime.

For the 60+, with deductions of up to Rs 4.25 lakh* in old regime, both regimes are on a par between Rs 13 lakh and Rs 14 lakh. From Rs 15 lakh, the new regime is better.

*For the comparison, you would have availed of deductions worth Rs 4.75 lakh, which includes Rs 50,000 standard deduction, Rs 1.5 lakh under Section 80C, Rs 50,000 for NPS under Section CCD (1B), Rs 25,000 under Section 80D for health insurance premiums and Rs 2 lakh under Section 24(b) on interest paid on home loan. For the new regime, we have taken a standard deduction of Rs 75,000; Applicability of marginal relief on surcharge may change the analysis from case to case basis