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Income Tax Deduction: The government is trying to make the new income tax system attractive. Last year, Finance Minister Nirmala Sitharaman had made several big announcements in the Union Budget to make the new system attractive. The government wants to increase the interest of individual taxpayers in the new tax system. Currently, individual taxpayers have the option to choose between the new and old tax regime. The option to switch between the two is also open for him. Many taxpayers are not able to decide which of the new and old systems is beneficial for them.
Benefits of old tax system
The new and old tax systems have their own advantages and disadvantages. Tax rates are lower in the new tax regime. But, deduction is not available under various sections of income tax. The most prominent among these are deduction under section 80C, deduction under section 80D and deduction under section 24B. Section 80C deals with deductions on life insurance policies, PPF, ELSS and children's tuition fees. 80D is related to the deduction available on health policy. Section 24B deals with deduction on interest payment on home loan.
Who benefits from the new tax system?
Deduction facility under Section 80C, Section 80D and 24B is not available in the new tax system. Experts say the new tax regime is beneficial for taxpayers who do not claim any deductions. If a person has taken a home loan and claims deduction on home loan interest every financial year, then his tax liability reduces significantly. Similarly, tax liability is reduced by deduction on premium of life insurance policy and health policy.
new tax cuts
Finance Minister Nirmala Sitharaman had also allowed two types of deductions under the new tax system in the Union Budget presented in 2023. The first annual standard deduction in this is Rs 50,000. The second section is the deduction available on employer's contribution to NPS under section 80CCD(2). Pensioners can also avail standard deduction. They can claim either Rs 15,000 or 33.33 per cent of their pension, whichever is less.
These benefits also in the new tax system
One thing that is important to keep in mind is that pensioners can claim standard deduction only if the pension is taxable as salary income. If a taxpayer selects pension under other income, he will not get the benefit of standard deduction. The new tax regime provides exemptions on voluntary retirement, gratuity and leave encashment. Under the new system, disabled people also get deduction on transport allowance.
