The question that everyone is most concerned about is, will the 2025 budget abolish the old tax system? Well, that remains to be seen…
Currently, India’s income tax structure offers two distinct regimes: the old one with various exemptions and deductions, while the new one is simplified, with lower rates and fewer benefits.
The new income tax (IT) regime introduced for individual taxpayers from the financial year 2020-21 has now become the default regime unless the taxpayer chooses otherwise.
The Finance Bill, 2024 has definitely made the new regime more attractive with concessionary slab rates available for those earning up to Rs 15 lakh and several changes have been introduced in the slab. Under the new tax regime, taxpayers can claim tax refund of up to Rs 25,000 under Section 87A if their total income does not exceed Rs 7 lakh, whereas under the old tax regime, taxpayers could claim tax refund of up to Rs 12,500 if their total income did not exceed Rs 12,50050 Ten thousand. The old system provided a standard deduction of Rs 50,000 to salaried taxpayers and the new system provides a revised standard deduction of Rs 50,000 to salaried taxpayers. 75,000 for salaried taxpayers.
While the new system has its benefits, individuals cannot claim various deductions and exemptions. From the perspective of salaried employees, the various tax benefits that have been denied include: house rent allowance, leave travel allowance, deductions under various sections of Chapter A of Chapter VI, which include investments in EPF which would otherwise mean Section 80C.
Tax rates according to the old and new tax regimes:
The new system tends to be more advantageous if the taxpayer has no home loan, no rent payments, and no significant exemptions or deductions.
However, tax experts say it would be better if the new system also allows for two deductions.
Deduction of health insurance premiums allowed under new regime: Section 80D allows tax deduction up to Rs 25,000 (Rs 50,000 for senior citizens) on health insurance premiums paid. These limits include preventive health check-up up to Rs 5,000. The new tax regime does not allow deduction under Section 80D.
“While various other deductions are also not allowed under the new system to encourage investments and savings, medical insurance premiums and expenses for health check-ups are more necessary. Such deductions should be provided no matter which system is chosen,” said Kinjal Bhuta, Chartered Accountant express.
Tax experts also point out that it is necessary to appropriately increase the deduction limit, especially as medical insurance costs increase.
Deductions are allowed for persons with different abilities:
Under Section 80U of the Income Tax (IT) Act (applicable only in the old tax regime), persons with disabilities can get a certain amount of monetary respite by deducting certain amount from their total income, depending on the degree of their disability. For disability between 40-80%, the maximum deduction allowed is Rs. 75,000; in case of severe disability (80% or more), the deduction limit will be increased to Rs. 125,000
This section covers a range of disabilities (with certain conditions specified), including blindness, visual impairment, deformities caused by leprosy, motor disability, mental retardation, mental illness and multiple disabilities (a combination of two or more of these specified disabilities) category). For claims under this section, a medical certificate from a recognized medical authority specifying the nature and percentage of the disability is required.
Vishesh Sangoi, partner at chartered accountancy firm DPS & Co, pointed out that the Finance Bill 2016 Memorandum revised upward the deduction limit under Section 80U, pointing out its necessity. “The government clearly acknowledges the fact that medical costs are increasing and that special attention needs to be paid to the needs of persons with disabilities. By eliminating these deductions under the new tax regime, ordinary people and persons with disabilities are on the same footing when it comes to income tax,” Sangoi said.
He added: “The deduction under Section 80U is intended to provide financial relief to persons with disabilities and is fundamentally different from investment-based tax deductions. Unlike the deduction under Section 80C or 80D which encourages savings and investment in insurance, Section 80U This important support is not available under the new tax regime with lower rates, so it is important to understand that such deductions serve different purposes and should not be compared. The choice between tax regimes must consider the unique benefits offered by deductions such as Section 80U, beyond tax savings. Incorporating these deductions not only provides fair tax relief to taxpayers, but also preserves fairness and inclusivity in our tax system. in principle.
