Kolkata: Almost a month has passed after the expiry of FY25. In another few weeks we have to file out income tax (without penalty, that is). One can file income tax returns (ITR) in any one of the two systems — the old tax regime and the new one. The chairman of Central Board of Direct Taxes Ravi Agarwal said that 75% of the taxpayers have adopted the new tax regime and the share of those switching to the new system will touch 95% before long.
However, there are a few conditions under which it makes more sense to stick to the old tax system, point out experts. While the new system has almost no deductions, its tax rates are lower and it is simple to file since there are hardly any investment records to furnish. Now, let’s have a look at the exceptions when you can save more in the old tax regime.
Large HRA: If a taxpayer enjoys a huge HRA (house rent allowance) it makes more sense to stick to the old regime. The new tax system does not allow any deduction on HRA. Under the old tax regime, a salaried individual can claim exemption on HRA under section 10(13A) of the Income Tax Act 1961. The HRA considered under this section is not included in salary of the taxpayer.
Large home loan and interest outgo: Section 24(b) of the Income Tax Act allows one to claim tax deductions on interest paid up to Rs 2 lakh on self-occupied house/flat. However, if you want to claim tax deduction on the principal repayment, you have to abide by Section 80(c) of the Income Tax Act and is within the Rs 1.5 lakh ceiling per financial year.
Himadri Mukhopadhyay, secretary, Income Tax Bar Association Calcutta told News9live.com that they have carried out necessary calculations and found that if an individual repays a huge amount of principal and interest component on home loan, and is also making significant use of the provisions of Sections 80C and 80D etc, it could be more profitable to remain in the old tax regime. “If a taxpayer has a big HRA component, it could save more taxes in the old tax system,” said Mukhopadhyay. A few weeks ago, consultancy major Deloitte made these calculations and showed that those with big income — in excess of Rs 24 lakh a year — can remain in the old system only if they can claim deductions more than Rs 8 lakh a year.
By the way section 80C includes a maximum investment of Rs 1.5 lakh a year and includes instruments such as tax saver FD, PPF, NSC, Sukanya Samriddhi Yojana, etc. Section 80D of the Income Tax Act deals with tax deductions on health insurance premiums for self, spouse, dependent children and dependent parents.
