The Indian tax system continues to effect changes to its tax system every year. One of the most important choices that taxpayers have to make while filing their returns is whether to opt for the old income tax regime or the new regime.
While the new income tax regime offers lower slab rates, this comes at the cost of foregoing several exemptions that were existent in the older regime. The differences between these regimes are most prominently effected within the areas of exemptions and deductions, especially under commonly referred sectors such as 80C, 80D, Leave Travel Allowance (LTA) and House Rent Allowance (HRA) among others.
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| Particulars | Old Tax Regime | New Tax Regime |
| Standard Deduction from Salary | YES (Rs. 50,000) | YES (Rs. 75,000) |
| Leave Travel Allowance (LTA) | YES | NO |
| Section 80TTA/Section 80TTB Deduction | YES | NO |
| Employment/Professional Tax u/s 16(iii) | YES | NO |
| House Rent Allowance (HRA) u/s 10(13A) | YES | NO |
| Exemptions for Free Food & Beverages through Vouchers/Food Coupons u/s 17(2)(viii) | YES | NO |
| Deductions up to Rs. 1.5 lakhs under Chapter VIA (80C, 80CCC, 80CCD, etc.) | YES | NO |
| Deductions u/s 80CCD(2) for Employer’s Contribution to Employee NPS Accounts | YES | YES |
| Deductions u/s 80CCD(1B) up to Rs. 50,000 | YES | NO |
| Medical Insurance Premium u/s 80D | YES | NO |
| Interest on Home Loan for Self-Occupied/Vacant Property | YES | NO |
| Set off of loss under the head “Income from house property” with any other head of income | YES | NO |
A quick glance through the above given table shows that the old regime is much more liberal in terms of the exemptions deductions provided, particularly to those who invest in tax-saving instruments, pay for medical insurance, claim HRA, or benefit from LTA, among others.
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In contrast, the new tax regime has quietly done away with almost all of the deductions except for the enhanced standard deduction and the employer’s contribution to the National Person System (NPS) under Section 80CCD(2) of the Income Tax Act, 1961.
However, the standard deduction under the new tax regime is placed higher, at ₹75,000 as compared to ₹50,000 as it was under the old system, offering a slight relief to salaried taxpayers.
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It goes without saying that the ones most affected are the taxpayers who actively use sections like 80C, 80D, and HRA to lower their taxable income. The inability to claim these deductions under the new regime means taxpayers need to carefully evaluate whether the lower slab rates actually result in savings for them.
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All things considered, the shift signifies a move towards simplifying the regime but comes at the cost of flexibility. Taxpayers should note that there is no rule that prevents them from switching their filing regimes every filing season; taxpayers must do a comparative calculation each year to determine which regime works best for their relevant individual financial situation.
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