Whether one should opt for the old or new tax regime depends upon the extent of tax benefits claimed in the form of deductions. Practically speaking, basic deductions like 80 C and 80D are inevitably claimed by majority under the old regime. Then many investors also invest in NPS to claim additional Rs.50,000 under subsection 80 CCD (1B). Further, those who have a home loan claim interest deduction up to a maximum Rs.2 lakh under section 24. I have tried to work out 3 scenarios where people are claiming a combination of these deductions under the old regime.
Scenario 1: Where a tax payer is claiming total deduction of Rs.1.75 lakh under section 80C and 80D –
For anyone who is earning a total income till Rs.8 lakh, the old tax regime is beneficial. For income above Rs.8 lakh, an individual is better off choosing the new tax regime. (Refer to column D)
Scenario 2: Where a tax payer is claiming total deduction of Rs.2.25 lakh under section 80C, 80D and NPS 80 CCD (1B) –
For anyone who is earning a total income till Rs.9 lakh, the old tax regime is beneficial. For income above Rs.9 lakh, an individual is better off choosing the new tax regime. (Refer to column G)
Scenario 3: Where a tax payer is claiming total deduction of Rs.3.75 lakh under section 80C, 80D and interest on home loan deduction of Rs.2 lakh under S/24:
For anyone who is earning a total income till Rs.15 lakh, the old tax regime is beneficial. For income above Rs.15 lakh, it does not make a difference whether an individual is choosing the new tax regime or the old, tax payable is the same (Refer to column J). Note, this is possible only when the tax payer is claiming Rs.3.75 lakh deduction.
A tax payer should be aware of the tax benefits which can be possibly claimed considering his financial situation & needs and accordingly choose the old or new tax regime.