The new income tax regime has become better than before after the fresh announcements by Finance Minister Nirmala Sitharaman. With no tax payable up to Rs 12.75 lakh, many taxpayers are expected to shift to the new tax regime.
In contrast, the budget had nothing for the old income tax regime, which had been the preferred choice for salaried individuals with more annual income and investments. This is why it could see a massive drop in adoption from the next financial year.
But what if someone earning above Rs 12.75 lakh annually chooses the old regime and claims the maximum deductions? Will it result in tax savings? This article explores the key deductions available under the old income tax regime and the maximum amount one can claim
KEY DEDUCTIONS THAT REDUCE TAXABLE INCOME
Under the old income tax regime, taxpayers can claim deductions under different sections of the Income Tax Act, 1961, to lower their taxable income. These include:
Standard Deduction: Salaried individuals and pensioners can claim a standard deduction of Rs 50,000 under Section 16.
Investments under Section 80C: Contributions to instruments like Employees’ Provident Fund (EPF), Public Provident Fund (PPF), Equity-Linked Savings Schemes (ELSS), National Savings Certificates (NSC), tax-saving fixed deposits, and life insurance premiums qualify for a deduction of up to â¹1,50,000.
Additional Deduction for NPS: Under Section 80CCD(1B), an additional â¹50,000 deduction is available for contributions to the National Pension System (NPS), over and above the Section 80C limit. Employer contributions to NPS under Section 80CCD(2) are also deductible, up to 10% of salary (or 14% for government employees).
House Rent Allowance (HRA): Taxpayers living in rented accommodation can claim HRA deductions under Section 10(13A). The deductible amount is the least of:
- Actual HRA received
- 50% of salary (for metro cities) or 40% (for non-metro cities)
- Rent paid minus 10% of salary
Home loan interest deduction: A deduction of up to Rs 2,00,000 is allowed under Section 24(b) on interest paid for a home loan on a self-occupied property. For rented properties, there is no upper limit on the interest deduction, but the maximum loss that can be set off against other income in a year is Rs 2,00,000.
CHECK ADDITIONAL TAX BENEFITS
Beyond these common deductions, taxpayers can claim additional benefits under specific sections:
Medical Insurance (Section 80D):
- Up to Rs 25,000 for self, spouse, and children
- An additional Rs 50,000 for senior citizen parents
- Maximum deduction: Rs 1,00,000
Education Loan Interest (Section 80E): Interest on education loans for higher studies is fully deductible without an upper limit, but only for eight years from the start of repayment.
Savings Interest (Sections 80TTA & 80TTB):
- Rs 10,000 deduction for savings account interest (for non-senior citizens).
- â¹50,000 deduction for senior citizens (includes fixed deposit interest).
Donations to Charities (Section 80G): Donations to specified funds and institutions are eligible for a 50% or 100% deduction, subject to conditions. For example, contributions to the PM CARES Fund and the National Defence Fund qualify for a 100% deduction without a limit.
WHAT IS THE MAXIMUM DEDUCTION POSSIBLE?
Pallav Pradyumn Narang, Partner at CNK, suggested that deductions of up to Rs 8.50 lakh can be claimed under the old tax regime.
“The old tax regime is beneficial if the exemptions and deductions such as HRA, LTA, and Chapter VI-A deductions are more than Rs 8 lakh and the total income is up to Rs 5 crore. In these instances, the taxpayer will pay less tax under the old regime compared to the new tax regime,” Narang said.
Consider a salaried individual earning Rs 25 lakh per year. If they maximise their deductions, the taxable income could be significantly reduced:
| Deduction Component | Maximum Deduction (â¹) |
| Standard Deduction | 50,000 |
| Section 80C (EPF, PPF, ELSS, etc.) | 1,50,000 |
| NPS (80CCD(1B)) | 50,000 |
| Home Loan Interest (Self-Occupied) | 2,00,000 |
| Medical Insurance (Self & Senior Citizen Parents) | 1,00,000 |
| Education Loan Interest (80E) | No limit (assume Rs 1,00,000) |
| HRA (for a metro city) | 2,50,000 |
| Savings Interest (80TTA/TTB) | 50,000 |
| Total Deduction | Rs 8,50,000 |
With these deductions, the taxable income reduces to Rs 16.5 lakh. However, a simple calculation shows that the new income tax regime is still better for someone earning Rs 25 lakh. Therefore, even after claiming Rs 8.50 lakh in deductions under the old regime, the tax outgo will slighlty more in comparison to the new tax regime.
OLD VS NEW REGIME: WHICH ONE TO CHOOSE?
For taxpayers who have minimal deductions, the new tax regime with lower slab rates is the obvious option. And for individuals with high investments, home loans, and eligible expenses, the old regime may lead to lower tax outgo.
However, with the reduced tax slabs and rates under the new regime, only a handful of individuals with very high annual incomes and investments may benefit slightly.
Simply put, the new income tax regime seems to be the easier and better choice for most taxpayers after the massive changes in the Union Budget 2025.
