Income Tax: The financial year 2024–25 has come to an end and the tax filing season has kicked off. As the last date to file Income Tax Returns (ITR) is July 31, taxpayers now have nearly three months to file their returns.
Meanwhile, taxpayers are required to choose between the two available tax regimes. Some are drawn to the lower tax slabs offered by the new tax regime, while others prefer the old tax regime for the deductions and exemptions it allows.
Here are some situations where opting for the old tax regime is more beneficial than choosing the new tax regime.
Choose old tax regime for these reasons
I. When you have investments made in tax-free investments: The old tax regime allows taxpayers to claim income tax deductions on a wide range of investments and expenses under sections such as 80C, 80D, 80G, and 80DD. If you have made investments or payments qualifying under these provisions, it is advisable to opt for the old tax regime to maximise tax savings.
However, under the new tax regime, deductions are limited. You can still claim deductions under a few specific provisions, such as sections 80CCD(2), 80CCH, and 80JJAA. These are detailed in this Livemint article.
II. When you are entitled to large HRA exemption: Under the old tax regime, salaried individuals can claim House Rent Allowance (HRA) exemption under section 10(13A), which can significantly reduce taxable income. This exemption is not available under the new tax regime, making the old regime a better choice.
III. When your tax rate is highest: In the old tax regime, the highest tax rate of 30 per cent came into effect when income was over ₹10 lakh, whereas in the new tax regime, the highest tax rate came into force at ₹15 lakh.
So, taxpayers in the highest tax bracket have no extra incentive to opt for the new tax regime.
IV. When the tax calculator suggests you opt for it: As they say, there is always more than what meets the eye. Therefore, to make an objective assessment, it is recommended to use the income tax calculator, which gives the tax computation under both regimes. So, one may opt for the one that gives a lower tax computation.
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