The question uppermost in everyone’s mind is will the old tax regime be abolished in the Budget 2025? Well, this remains to be seen…
Currently, India’s income tax structure offers two distinct regime: the old regime with various exemptions and deductions, and the new tax regime with simplified, lower tax rates but fewer benefits.
The new Income-Tax (I-T) regime, which was introduced from financial year 2020-21 for individual taxpayers, is now the default regime, unless the taxpayer opts otherwise.
The Finance Act, 2024, no doubt made the new regime more attractive, concessional slab rates are available on income up to Rs 15 lakh with changes introduced within the slabs. Under the new tax regime, taxpayers can claim a rebate under Section 87A of up to Rs 25,000 if their total income does not exceed Rs 7 lakh, whereas the old regime allows a rebate of up to Rs 12,500 if the total income does not exceed Rs 5 lakh. Old regime offers a standard deduction of Rs 50,000 for salaried taxpayers and New regime offers a revised standard deduction of Rs. 75,000 for salaried taxpayers.
While the new regime has its benefits, an individual cannot claim various deductions and exemptions. From the perspective of the salaried employee, the various tax benefits that are denied are: House Rent Allowance, Leave Travel Allowance, deductions under various sections of Chapter VI-A, which include investments say to EPF which otherwise would have meant a deduction claim under section 80C.
Tax slab rates as per old and new tax regimes:
If a taxpayer does not have a home loan, does not pay rent, nor has significant exemptions or deductions, the new regime often proves more beneficial.
However, there are two deductions that tax experts state should ideally be allowed in the new regime also.
Allow a deduction for Mediclaim premium under the new regime: Section 80D allows a tax deduction of up to Rs.25,000 for medical insurance premiums paid (it is Rs.50,000 for senior citizens). Preventive health check-ups up to Rs.5,000 are included in these limits. The new regime of taxation does not allow the deduction under section 80D.
“While various other deductions that are also disallowed under the new regime, are to encourage investments and savings, the expenses towards Mediclaim premiums and health check-ups are more of a necessity. Such deductions should be made available, irrespective of the regime opted for,” states Kinjal Bhuta, chartered accountant.
Tax experts also point out the need for a suitable increase in the deduction limits, especially with the increase in costs of health covers.
Allow a deduction to the differently abled:
Under section 80U of the Income-tax (I-T) Act (applicable only under the old tax regime) some monetary respite is available to individuals with disabilities, depending on the degree of their disability, by offering a deduction against their total income. For disability between 40-80% the maximum deduction allowed is Rs. 75,000; in cases of severe disability (80% or more) the deduction limit increases to Rs. 1.25 lakh
A range of disabilities (set conditions are prescribed) are covered by this section, which include blindness, visual impairment, deformities arising owing to leprosy, locomotion disability, mental retardation, mental illness and multiple disabilities (combination of two or more disabilities in these specified categories). For a claim under this section a medical certificate from a recognized medical authority, specifying the nature and percentage of disability is required.
Vishesh Sangoi, partner at DPS & Co, a firm of chartered accountants points out that the Memorandum to the Finance Bill, 2016, which had revised upward the deduction limit under section 80U had pointed out its necessity. “The government had clearly acknowledged the fact that the medical costs have been increasing and the needs of disabled people need to be given special emphasis. By taking away these deductions under the new tax regime, an ordinary person and a person with disability stand on the same footing as far as income tax is concerned,” said Sangoi.
He adds, “Deduction under section 80U, which is aimed at providing financial relief to individuals with disabilities, is fundamentally different from investment-based tax breaks. Unlike deductions under sections 80C or 80D, which incentivize savings and insurance investments, section 80U offers a flat deduction directly addressing the additional costs incurred due to disability. This essential support is not available under the new tax regime with its lower rates, making it crucial to understand that such deductions serve distinct purposes and should not be compared. The choice between tax regimes must consider the unique benefits that deductions like Section 80U provide, beyond mere tax savings. Inclusion of these deductions would not only provide equitable tax relief to taxpayers but also uphold the principles of fairness and inclusivity in our tax system.”
