Big relief has been given in the budget regarding income tax. Under the new tax regime, now no tax will have to be paid on earnings up to Rs 12 lakh. The slabs of the new tax regime have also been changed. However, no change has been made in the old tax regime.
However, in the new tax regime, exemption up to Rs 12 lakh has been given under Section 87A of the Income Tax Act. That is, under the new tax regime, the government will waive 5% tax on income of Rs 4-8 lakh and 10% tax on income of Rs 8-12 lakh. Whereas salaried people will get additional standard deduction of Rs 75 thousand. That means, if someone’s annual income from salary is Rs 12.75 lakh, then he will not have to pay any tax.
What is the difference between the old and new tax regime
If you choose the old tax regime, your income up to Rs 2.5 lakh will still remain tax free. However, under Section 87A of the Income Tax Act, you will have to pay zero tax on income up to Rs 5 lakh. In the new tax slab, the range of tax free income was increased from Rs 2.5 lakh to Rs 3 lakh, but tax deductions were taken away. At the same time, if you choose the old tax slab, you can take advantage of many types of tax deductions.
If you invest in EPF, PPF and Equity Linked Savings Scheme. So this income will be reduced from your total taxable income. At the same time, expenses incurred on medical policy, interest paid on home loan and money invested in the National Pension System also get reduced in your taxable income.
For whom is the old tax regime better?
If you want to take advantage of investments and tax benefits, then the old tax regime may be better for you. At the same time, if you want to avoid the hassles of low tax rate and tax deduction, then the new tax regime may be right for you.
In the old tax option, including deduction of 87A, income tax is not to be paid on annual income up to Rs 5 lakh. If your annual income is between Rs 5 lakh to Rs 10 lakh then you will be taxed at 20%. That means you will have to pay tax of Rs 1,12,500. But there are many such provisions i.e. tax exemptions in the Income Tax Act, through which you can earn income tax free up to Rs 10 lakh.
You will be able to save tax by investing
If you invest in EPF, PPF, Equity Linked Savings Scheme, Sukanya Samriddhi Yojana, National Savings Certificate, 5 year FD, National Pension System and Senior Citizen Saving Scheme, then you can get tax exemption.
A maximum investment of up to Rs 1.5 lakh will have to be made in any one of these or in a combination of several plans. If you have done this, now subtract Rs 1.50 lakh from Rs 10 lakh. Now the income covered by tax will be Rs 8.50 lakh. You can save tax up to Rs 1.5 lakh under Section 80C of Income Tax.
If you have taken a home loan, you can avail tax exemption on the interest paid on it. Under Section 24B of Income Tax, you can avail tax exemption on interest of Rs 2 lakh in a financial year. Deduct this from your taxable income. That is, now the income coming under tax will be Rs 6.50 lakh.
Expenditure on medical policy is also tax free
You can save tax up to Rs 25 thousand by taking a medical policy under Section 80D. Your name, your wife and children’s names should be there in this health insurance.
Apart from this, if your parents are senior citizens, then you can avail additional discount of up to Rs 50,000 by purchasing health insurance in their name. That is, now the income coming under tax will be Rs 5.50 lakh.
If you separately invest up to Rs 50,000 annually in the National Pension System (NPS), you will get an additional exemption of Rs 50,000 under Section 80CCD (1B). That is, now the income covered by tax will be reduced to Rs 5 lakh.