Navigating through the complexities of the tax system can be challenging, especially when it comes to understanding the deductions available under the old tax regime. While the new tax regime introduced in recent years offers lower tax rates with fewer exemptions, the old tax regime deductions still hold significant value for those who qualify for various exemptions and deductions. This guide will help you understand the key benefits and guidelines for maximising your tax savings through old tax regime deductions.
What are old tax regime deductions?
The old tax regime allows taxpayers to claim numerous deductions and exemptions that can substantially reduce their taxable income. These deductions cover a wide range of expenses, investments, and contributions, making them a vital tool for effective tax planning.
Key benefits of old tax regime deductions
Lower taxable income: The primary advantage of claiming deductions under the old tax regime is the reduction in taxable income. By leveraging these deductions, you can bring down your total income, thus lowering your tax liability.
- Increased savings: Reduced taxable income translates to lower taxes, allowing you to save more. These savings can be redirected towards other financial goals, such as investments, retirement planning, or purchasing a home.
- Financial security: Tax deductions encourage savings and investments in various financial products. Contributions to provident funds, insurance policies, and pension schemes not only provide tax benefits but also ensure long-term financial stability.
- Encouragement for investments: The tax benefits associated with certain investments motivate individuals to invest in financial products like mutual funds, insurance policies, and National Savings Certificates (NSCs), fostering a habit of saving and investing.
Major old tax regime deductions
1. Section 80C deductions
Under Section 80C of the Income Tax Act, you can claim deductions up to Rs. 1.5 lakh for investments in specified financial products. These include:
- Public Provident Fund (PPF): A long-term savings scheme with attractive interest rates and tax-free returns.
- Employees’ Provident Fund (EPF): A retirement savings scheme for salaried employees.
- National Savings Certificates (NSCs): A government savings bond with a fixed interest rate and tax benefits.
- Life insurance premiums: Premiums paid for life insurance policies qualify for tax deductions.
- Equity-Linked Savings Scheme (ELSS): A mutual fund scheme with potential for high returns and tax benefits.
- Tuition fees for children’s education: Tuition fees paid for up to two children are eligible for deductions.
- Principal repayment of a home loan: The principal portion of your home loan EMI can be claimed as a deduction.
2. Section 80D deductions
Section 80D provides deductions for premiums paid towards health insurance for self, spouse, children, and parents. The maximum deduction limit is Rs. 25,000 for individuals and an additional Rs. 25,000 for parents. For senior citizens, the limit is Rs. 50,000.
3. Section 24(b) deductions
Interest paid on a home loan can be claimed as a deduction under Section 24(b). The maximum deduction limit for a self-occupied property is Rs. 2 lakh per annum. For a rented property, there is no upper limit on the deduction, but the overall loss that can be set off under the head 'Income from house property' is restricted to Rs. 2 lakh.
4. House Rent Allowance (HRA)
House Rent Allowance (HRA) is a component of your salary that can be claimed as an exemption if you live in a rented house. The amount of HRA exemption is the least of the following
- Actual HRA received
- 50% of salary (for metro cities) or 40% of salary (for non-metro cities)
- Rent paid minus 10% of salary
5. Leave Travel Allowance (LTA)
Leave Travel Allowance (LTA) can be claimed for expenses incurred on travel within India while on leave. The exemption is available for travel expenses only and does not cover food or lodging expenses.
6. Section 80E deductions
Interest paid on an education loan for higher studies can be claimed as a deduction under Section 80E. There is no upper limit for this deduction, and it is available for a maximum of 8 years or until the interest is fully paid, whichever is earlier.
7. Section 80G deductions
Donations made to specified charitable institutions and funds qualify for deductions under Section 80G. The extent of the deduction varies depending on the type of institution and the donation amount.
Comparison: Old regime vs new regime
| Net Annual Taxable Income | New tax regime (excluding the exemptions and deductions) | Old tax regime (including the exemptions and deductions) |
| Up to Rs. 2,50,000 | Exempt | Exempt |
| Rs. 2,50,001 to Rs. 3,00,000 | Exempt | 5% |
| Rs. 3,00,001 to Rs. 5,00,000 | 5% | 5% |
| Rs. 5,00,001 to Rs. 6,00,000 | 5% | 20% |
| Rs. 6,00,001 to Rs. 9,00,000 | 10% | 20% |
| Rs. 9,00,001 to Rs. 10,00,000 | 15% | 20% |
| Rs. 10,00,001 to Rs. 12,00,000 | 15% | 30% |
| Rs. 12,00,001 to Rs. 15,00,000 | 20% | 30% |
| Above Rs. 15,00,000 | 30% | 30% |
Guidelines for claiming old tax regime deductions
- Maintain proper documentation: Ensure that you maintain all necessary documents, such as rent receipts, medical bills, investment proofs, and loan certificates, to substantiate your claims.
- Plan your investments: To maximize your tax benefits, plan your investments at the beginning of the financial year. Spread your investments across various tax-saving instruments to diversify your portfolio and minimize risk.
- Keep track of deadlines: Be aware of the deadlines for making tax-saving investments and submitting proofs to your employer. Missing these deadlines can result in losing out on potential tax benefits.
- Stay updated: Tax laws are subject to change, and staying informed about the latest amendments can help you take advantage of new benefits and avoid any compliance issues.
- Consult a tax advisor: If you find it challenging to navigate the complexities of tax deductions, consider consulting a tax advisor. A professional can provide personalised advice and ensure that you make the most of the available deductions.
Integrating home loans into tax planning
Home loans are not just a means to fulfil your dream of owning a house; they also offer substantial tax benefits under the old tax regime. As mentioned earlier, under Section 80C, you can claim deductions on the principal repayment of a home loan, up to Rs. 1.5 lakh. Additionally, under Section 24(b), you can claim deductions on the interest paid on your home loan, up to Rs. 2 lakh per annum for a self-occupied property.
These deductions can significantly reduce your taxable income, making a home loan a wise choice for both investment and tax planning. Moreover, opting for a reliable home loan provider can simplify the process and enhance your overall experience.
Why choose Bajaj Housing Finance for your home loan?
When considering a home loan, choosing the right financial partner is crucial. Bajaj Housing Finance offers competitive interest rates, long repayment tenure, and easy application process. Our home loan is designed to cater to diverse needs, ensuring a seamless and hassle-free borrowing experience.
With Bajaj Housing Finance Home Loan, you not only fulfil your dream of owning a home but also enjoy substantial tax benefits that can enhance your financial stability. Take advantage of their expertise and embark on your homeownership journey with confidence.
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