Income Tax News: The decision between the old and new tax regimes has become more complex for individuals with annual incomes exceeding Rs 6 lakh. As income levels rise, especially between Rs 6 lakh and Rs 9 lakh, choosing the right tax regime involves careful consideration of two crucial factors: income level and eligible deduction level. Let’s explore the dynamics of tax liability and savings at different income levels and deduction scenarios.
Income: Rs 6 Lakh Annually
For individuals earning Rs 6 lakh annually, the new tax regime offers nil tax liability. In contrast, under the old tax regime, a salaried individual might face a tax liability of Rs 22,500 (excluding cess) without utilizing any deduction except the standard deduction of Rs 50,000. However, many already enjoy nil taxes under the old regime by leveraging deductions like Rs 50,000 under Section 80C. If bringing taxable income to Rs 5 lakh is challenging under the old regime, the new tax regime becomes a more favorable option.
Deduction options and exemptions for Rs. 6 lakh income in FY 2024
| Paticulars | Old Tax Regime Without Deduction | Old Tax Regime With Deduction | New Tax Regime |
| Yearly Earnings | Rs 6 lakh | Rs 6 lakh | Rs 6 lakh |
| Deduction for standard expenses | Rs 50,000 | Rs 50,000 | Rs 50,000 |
| Deduction under Section 80C | 0 | Rs 50,000 | 0 |
| Taxable income after deductions | Rs 5.5 lakh | Rs 5 lakh | Rs 5.5 lakh |
| Tax payable | Rs 22,500 | Rs 12,500 | Rs 12,500 |
| Deduction for Section 87A rebate | 0 | Rs 12,500 | Rs 12,500 |
| Total tax due | Rs 22,500 | 0 | 0 |
Income: Rs 7.5 Lakh Annually
For those earning Rs 7.5 lakh annually, the new tax regime still provides nil tax liability. Leveraging the standard deduction of Rs 50,000 brings the income down to the nil-tax level of Rs 7 lakh. In contrast, a salaried individual under the old tax regime, without deductions, might face a tax liability of Rs 52,500. Strategic use of popular deductions like Rs 1.5 lakh under Section 80C, Rs 50,000 standard deduction, and Rs 50,000 exemption under Section 80CCD(1B) can bring the net taxable income to Rs 5 lakh, resulting in nil taxes.
Deduction options and exemptions for Rs. 7.5 lakh income in FY 2024
| Paticulars | Old Tax Regime Without Deduction | Old Tax Regime With Deduction | New Tax Regime |
| Yearly Earnings | Rs 7.5 lakh | Rs 7.5 lakh | Rs 7.5 lakh |
| Deduction for standard expenses | Rs 50,000 | Rs 50,000 | Rs 50,000 |
| Deduction under Section 80C | 0 | Rs 1,50,000 | 0 |
| Deduction under Section 80CCD(1B) in NPS | 0 | Rs 50,000 | 0 |
| Taxable income after deductions | Rs 7 lakh | Rs 5 lakh | Rs 7 lakh |
| Tax payable | Rs 52,500 | Rs 12,500 | Rs 25,500 |
| Deduction for Section 87A rebate | 0 | Rs 12,500 | Rs 25,000 |
| Total tax due | Rs 52,500 | 0 | 0 |
Income: Rs 9 Lakh Annually
Once the income surpasses Rs 7.5 lakh, the new tax regime offers no room for tax savings. Section 87 rebate is not applicable beyond this point. Without the 87A rebate, taxpayers end up paying taxes on incomes between Rs 3 lakh and Rs 7 lakh, totaling Rs 40,000. Despite this, the new regime still provides more tax savings compared to the old regime, where a taxpayer, without deductions, might face a tax liability of Rs 82,500.
Deduction options and exemptions for Rs. 9 lakh income in FY 2024
| Paticulars | Old Tax Regime Without Deduction | Old Tax Regime With Deduction | New Tax Regime |
| Yearly Earnings | Rs 9 lakh | Rs 9 lakh | Rs 9 lakh |
| Deduction for standard expenses | Rs 50,000 | Rs 50,000 | Rs 50,000 |
| Deduction under Section 80C | 0 | Rs 1,50,000 | 0 |
| Deduction under Section 80CCD(1B) in NPS | 0 | Rs 50,000 | 0 |
| Deduction under Section 80D, health insurance premium (Rs 25,000 each for self and parent*) | 0 | Rs 50,000 | 0 |
| Deduction under Section 24(B) home loan interest | 0 | Rs 1,00,000 | 0 |
| Taxable income after deductions | Rs 8.5 lakh | Rs 5 lakh | Rs 8.5 lakh |
| Tax payable | Rs 82,500 | Rs 12,500 | Rs 40,000 |
| Deduction for Section 87A rebate | 0 | Rs 12,500 | 0 |
| Total tax due | Rs 82,500 | 0 | Rs 40,000 |
Considering Deductions
Assuming parents are not senior citizens, leveraging various deductions, such as Section 80EEA, 80EEB, 80E, 10 (13A), 80G, 80DDB, and 80U, can significantly impact tax savings under the old regime. Individuals should assess past, current, and future expenses and investments to maximize eligibility for these deductions. If ongoing or potential deductions align with the old tax regime, it may offer higher tax savings.
Disclaimer: This information is intended for general knowledge only. Any financial decisions should be made in consultation with a qualified professional. DNP News Network Private Limited is not liable for any financial losses incurred based on the information provided here.
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