Taxpayers can pick either the old or the new tax regime to fulfil their tax obligations for the financial year 2025-26. While filing one's income tax returns (ITR) is mandatory for those earning above the basic exemption limit, not the entire income is taxable. The government offers many eligible deductions to reduce taxable income.
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There are some popular deductions offered under sections such as 80C, 80CCD, Section 24(b), among others, that can help taxpayers maximise their savings.
80C offers up to Rs 1.5 lakh tax benefits every financial year for eligible taxpayers. Similarly, 80CCD is available for taxpayers who have opted for the National Pension Scheme. Other key deductions include savings on home loan interest, donations, etc.
But taxpayers must note that not all deductions are available in both regimes. While the old tax regime has higher tax rates, it offers many deductions. On the other hand, the new regime offers fewer deductions but has lower tax rates, making it highly attractive for taxpayers.
Deductions Under New Regime:
1. Standard deduction of Rs 75,000 is available to salaried individuals under the income tax rules for the new regime. Another benefit comes under Section 80CCD(2), which allows tax deduction on employer contributions to the National Pension System (NPS).
2. Under Section 80CCH, individuals enrolled under the Agnipath Scheme can claim a deduction on contributions made to the Agniveer Corpus Fund from Nov. 1, 2022 onwards. Any contribution made by the central government to the individual's Agniveer Corpus Fund is fully deductible while computing total taxable income, reducing overall tax liability.
3. Retirement-related exemptions are available under the new tax regime in certain cases. These include gratuity under Section 10(10), leave encashment under Section 10(10AA), and VRS compensation under Section 10(10C), subject to specific conditions and limits.
4. Family pension recipients can also claim a deduction while calculating taxable income. The deduction allowed is Rs 25,000 or one-third of the pension received, whichever is lower.
5. Taxpayers opting for the new tax regime can also claim a deduction on the interest paid on a home loan taken for the purchase or construction of a let-out property under section 24 (b).
Deductions Under Old Regime:
1. In the old regime, the deductions are more attractive and extensive compared to the new one. For instance, in addition to employer's contribution, individuals can claim deductions for NPS and APY contributions under Section 80CCD(1) up to Rs 1.5 lakh. For salaried employees, the limit is 10% of salary, while for self-employed it is 20% of gross total income. An extra deduction of up to Rs 50,000 is available under Section 80CCD(1B) for own NPS or NPS Vatsalya contributions. Overall, total deduction for own NPS investment can go up to Rs 2 lakh in the old regime.
2. Under Section 80D, taxpayers in the old regime can claim deductions on health insurance premiums. Individuals below 60 years can claim up to Rs 25,000, while senior citizens are eligible for deductions of up to Rs 50,000. This includes premiums paid for self, spouse, children and parents, helping reduce taxable income.
3. Home loan borrowers can claim tax benefits on interest payments in the old regime. Under Section 24(b), deduction of up to Rs 2 lakh is allowed for self-occupied property. First-time buyers may get an additional Rs 1.5 lakh under Section 80EEA. Under Section 80G, donations to approved charities qualify for deductions.
4. Old regime taxpayers also get a standard deduction of Rs 50,000, which is lower compared to the Rs 75,000 deduction offered in the new regime.
5. Section 80EEB allows a deduction on interest paid for loans taken to purchase an electric vehicle. The loan must be sanctioned between April 1, 2019 and March 31, 2023. Taxpayers can claim a maximum deduction of Rs 1.5 lakh on the interest paid.
6. House rent allowance is another aspect where salaried individuals can claim exemption in the old regime. Self-employed individuals cannot claim HRA exemption. However, they can claim deduction under Section 80GG.
Other deductions under the old tax regime include donations made for scientific research or rural development, and contributions to political parties or electoral trusts. Taxpayers can also claim deduction on interest earned from savings bank accounts. Resident senior citizens can claim deductions on interest income from deposits.
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