Switched to new tax regime? Deductions and exemptions you can no longer claim

The new income tax regime remains the default tax system for individual taxpayers, offering lower tax rates in exchange for missing out on several deductions and exemptions available under the old tax regime. However, taxpayers can still choose between the old and new regimes while filing their income tax returns.

Individuals opting for the new tax regime may not be able to claim a range of tax benefits linked to investments, insurance premiums, house rent allowance, home loans and other expenses. Hence, understanding the exemptions and deductions is crucial before making a choice.

What deductions and exemptions are only available in old regime?

The old tax regime provides various deductions and exemptions to taxpayers to lower their taxable income. As noted by ClearTax in a report, here are a few benefits that are exclusive to the old tax regime:

• House Rent Allowance (HRA): Salaried employees living in rented accommodation can claim HRA exemption under the old tax regime. This benefit is not available under the new tax regime.
• Home loan interest: Under the old regime, taxpayers can claim a tax deduction of up to ₹2 lakh on interest paid for self-occupied home property. For let-out properties, interest deductions against income are allowed without any limit under both regimes, but under the new regime, the benefit on interest is limited to the taxable rent, since the house property loss under the new regime has no carry forward benefit.
• Section 80C deductions: Investments and expenses eligible under Section 80C, such as EPF, PPF, ELSS, five year deposits and life insurance premiums are available only under the old regime.
• Employee's contribution to Pension Fund (NPS): A worker's contributions to the National Pension System (NPS) qualify for deduction up to ₹1.5 lakh limit under the old regime only.
• Medical insurance premium: Under the old tax regime, taxpayers can claim deductions on health insurance premiums paid for themselves and their families. The deduction limit is up to ₹25,000 for self, spouse and dependent children, while an additional deduction of up to ₹25,000 is available for parents. If the insured parents are senior citizens, the deduction limit increases to ₹50,000.
• Education loan deduction: Interest paid on education loans can be claimed as a deduction only under the old regime. This benefit is not available in the new tax regime.
• Leave Travel Allowance (LTA): A salaried individual can claim LTA deduction within the limits prescribed. This benefit is also available in the old tax regime only.
• Disability: Under the old tax regime, individuals with disabilities can claim a fixed deduction under Section 80U. A deduction of ₹75,000 is available for persons with at least 40% disability, while people with severe disability (80% or more) can claim a deduction of ₹1.25 lakh per financial year. This benefit is generally not available under the new tax regime.
• Donations to charitable institutions: Donations made to eligible charitable institutions qualify for deduction only under the old regime in most cases.
• Donations to political parties: Contributions made to political parties are also not eligible for deduction under the new tax regime.
  Tax slabs in new income regime vs old tax regime

Tax slabs in new income regime vs old tax regime

Under the old tax regime, annual income up to ₹2.5 lakh remains exempt from tax. Income between ₹2.5 lakh and ₹5 lakh is taxed at 5%, while income from ₹5 lakh to ₹10 lakh attracts 20% tax. Earnings above ₹10 lakh continue to be taxed at 30%. Under the old tax regime, salaried individuals are eligible for a standard deduction of ₹50,000.

Under the new tax regime, income up to ₹4 lakh remains tax-free. Earnings between ₹4 lakh and ₹8 lakh attract 5% tax, while higher income brackets are taxed progressively from 10% to 30%. Under the new tax regime, salaried individuals are eligible for a standard deduction of ₹75,000.

What taxpayers should know before opting for a tax regime

Although, the new tax regime do no offer many deductions and exemptions as compared to the old regime, it comes with lower tax rates and a simplified tax structure. Under the new regime, salaried taxpayers can claim a higher standard deduction of ₹75,000, compared to ₹50,000 under the old regime. Additionally, no income tax is applicable on annual income up to ₹12 lakh, making it attractive for taxpayers whose income lies within that threshold.

The old tax regime, on the other hand, continues to benefit taxpayers who make tax-saving investments or claim multiple exemptions. Due to these provisions in each tax regime, taxpayers should properly evaluate their salary structures, exemptions, deductions, and long-term investments before deciding which regime suits them better.