Choosing the Right Income Tax Regime

Salaried taxpayers have the option to switch between the old and new income tax regimes every financial year. This switch can also be made while filing the income tax return, typically due by July 31.

The old regime allows taxpayers to claim deductions on investments in options like PPF, ELSS, and about a dozen other instruments. However, the tax rates under this regime are higher. On the other hand, the new regime offers lower tax rates but does not allow most deductions.

Therefore, if you are a salaried taxpayer, carefully evaluate both regimes before making a choice. If you’re unsure which regime is more beneficial for you, consulting a tax expert can help.

Claiming Deductions Under the Old Regime

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If you are using the old income tax regime, you can claim a deduction of up to ₹1.5 lakh under Section 80C of the Income Tax Act, 1961. Additionally, you can claim an extra deduction of ₹50,000 for investments in NPS.

Under Section 80D of the Income Tax Act, you can claim a deduction of up to ₹75,000. An individual can claim a deduction of ₹25,000 on the premium paid for a health insurance policy for themselves and their family. Additionally, they can claim a deduction of ₹50,000 on the premium paid for a health insurance policy for their senior citizen parents.

By combining deductions under Sections 80C and 80D, the total deduction amounts to ₹2.25 lakh. If you include the additional ₹50,000 for NPS, the total deduction increases to ₹2.75 lakh.