Under the current tax structure, the new income tax regime continues as the default system for salaried and individual taxpayers. Though it provides the benefit of lower tax rates, it excludes many deductions and exemptions associated with the old regime. Taxpayers can decide which regime suits them better while filing their annual returns.
While the new tax regime offers lower tax rates, those selecting it may not be eligible for many traditional tax breaks linked to investments, rent allowances, insurance contributions and home loan benefits. Understanding the impact of these lost exemptions is essential before opting for the regime.
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Exemptions And Deductions Not Available Under New Regime
Here are some of the benefits you stand to lose by opting for the new regime:
House Rent Allowance (HRA)
Under the old tax structure, salaried individuals staying in rented homes are eligible to claim tax relief through House Rent Allowance (HRA). Taxpayers choosing the new regime cannot avail this exemption.
Home Loan Interest
Individuals under the old regime may avail a deduction of up to Rs 2 lakh on home loan interest for self-occupied property. In the case of let-out properties, both tax regimes permit interest deductions, though the new regime confines the relief to taxable rental income because house property losses are not eligible for future adjustment.
Section 80C Deductions
The old tax structure retains deductions under Section 80C for eligible investments and expenses, including EPF, PPF, ELSS, tax-saving fixed deposits and life insurance payments. Taxpayers under the new regime cannot avail these concessions.
NPS Contribution
Taxpayers opting for the old regime can claim deductions of up to Rs 1.5 lakh on investments made in the National Pension System. This benefit is not available under the new regime.
Premium On Medical Insurance
Health insurance premiums remain eligible for deductions under the old tax regime. Taxpayers can claim up to Rs 25,000 for policies covering themselves, their spouse and dependent children, along with an extra deduction for parents. In cases where parents are senior citizens, the additional relief can go up to Rs 50,000.
The same is not available under the new regime.
Disability
Under Section 80U of the old tax framework, differently-abled individuals can avail fixed tax deductions. A relief of Rs 75,000 is granted for disabilities of 40% or above, whereas persons with severe disabilities are entitled to claim deductions of up to Rs 1.25 lakh in a financial year. Such benefits are generally excluded from the new regime.
To conclude, for taxpayers with significant investments and multiple deduction claims, the old tax regime may still offer greater benefits. Individuals should evaluate their income, available exemptions and future investment plans in detail before deciding between the two regimes.
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