Deductions Allowed in Old Regime vs New Regime
- Rajesh Kumar Kar
- Oct 13
- 8 min read
Choosing between the old and new tax regimes significantly impacts tax savings for salaried and self-employed individuals in India. The old regime allows a wide range of deductions like 80C investments, 80D health insurance, HRA, and home loan interest, while the new regime offers lower tax rates but only permits a limited set of deductions such as the standard deduction and employer NPS contributions. Understanding which deductions are allowed under each regime is crucial for effective tax planning and ensuring optimal savings during ITR filing.
Table of Contents
Overview of Old and New Tax Regimes
India’s tax system allows taxpayers to choose between the old and new tax regimes. The old tax regime offers higher tax rates but includes a wide array of exemptions and deductions such as HRA, 80C, 80D, and home loan interest. The new tax regime, introduced in 2020, provides lower tax rates with minimal deductions and exemptions. Choosing the right regime depends on individual income, eligible deductions, and financial goals. Taxpayers with multiple exemptions often benefit from the old regime, while those seeking simplicity and lower rates may prefer the new regime.
Key Differences in Deduction Eligibility
The primary difference between the regimes is the scope of deductions. The old regime allows deductions under sections like 80C, 80D, 24(b), HRA, and more, which can significantly reduce taxable income. The new regime, however, limits deductions to a few items such as NPS employer contribution, EPF, and standard deductions, offering lower tax rates instead. Taxpayers must evaluate their eligibility for exemptions to determine which regime is more beneficial.
How 80C Works in the Old Tax Regime
Under the old regime, section 80C allows taxpayers to claim deductions up to ₹1.5 lakh on investments in instruments like PPF, ELSS, life insurance premiums, and principal repayment of home loans. This deduction directly reduces taxable income, offering substantial tax savings for salaried and business taxpayers.
Is 80C Allowed in the New Tax Regime?
Section 80C deductions are not allowed under the new tax regime. Taxpayers opting for the new regime cannot claim 80C investments, which simplifies filing but removes the benefit of traditional tax-saving instruments.
How Section 80D (Health Insurance) Works in the Old Regime
Section 80D provides deductions for premiums paid for health insurance policies. Individuals can claim up to ₹25,000 for themselves and family, with an additional ₹25,000 for parents (₹50,000 if parents are senior citizens). This deduction helps reduce taxable income while promoting financial protection against medical expenses.
Is 80D Allowed in the New Tax Regime?
The new regime does not allow deductions under section 80D. Taxpayers opting for the new tax regime will not receive tax benefits for health insurance premiums and must rely solely on the lower slab rates for savings.
HRA Exemption: Old vs New Regime
Under the old regime, salaried individuals living in rented accommodation can claim House Rent Allowance (HRA) exemptions based on salary, rent paid, and city of residence. The new tax regime eliminates HRA exemptions, which may increase taxable income for those relying on HRA benefits.
Standard Deduction Comparison
The old regime provides a standard deduction of ₹75,000 for salaried individuals and pensioners. The new regime offers a similar deduction, but overall tax savings are limited due to the absence of other exemptions.
Home Loan Interest Deduction (Section 24)
Under Section 24 of the Income Tax Act, taxpayers can claim a deduction on the interest paid on home loans for self-occupied residential properties. For the Financial Year 2024-25, the maximum deduction allowed is up to ₹2 lakh per year under the old tax regime. This deduction applies specifically to the interest component of the home loan, and it is designed to provide relief to homeowners by reducing their taxable income. It is important to note that this benefit is only available under the old tax regime, meaning that taxpayers who opt for the new tax regime, which offers lower slab rates but fewer exemptions, will not be able to claim this deduction. This can significantly reduce the tax savings for homeowners who rely on this benefit to optimize their finances. Homeowners should carefully consider their tax strategy when choosing between the old and new regimes, especially if they have significant home loan interest payments, as this deduction can have a substantial impact on overall tax liability.
Other Allowable Deductions Under Old Regime
Beyond Section 24, the old tax regime provides a wide range of deductions that make it particularly advantageous for taxpayers with diverse financial commitments. Section 80C allows deductions for investments such as life insurance premiums, Employee Provident Fund (EPF), Public Provident Fund (PPF), and National Savings Certificates (NSC), up to a maximum of ₹1.5 lakh. Section 80D provides deductions for health insurance premiums for self, spouse, and dependents, which can further reduce taxable income. Section 80E allows deduction of interest paid on education loans for higher studies, offering financial relief to students and parents who have borrowed for educational purposes. Section 80G provides deductions for donations made to approved charitable organizations, enabling taxpayers to contribute to social causes while reducing their tax burden. Section 80TTA allows deduction of interest earned on savings accounts up to a specified limit, offering additional savings for individuals with bank deposits. Collectively, these deductions make the old regime more attractive for taxpayers with multiple financial obligations, enabling them to optimize tax savings while meeting various personal and family needs.
This wide array of deductions under the old regime highlights the importance of carefully evaluating both tax regimes to determine which option provides the maximum financial benefit based on individual circumstances.
Policy Updates and Impact of Budget 2025
The Union Budget 2025 introduced several notable changes aimed at simplifying the tax structure while providing relief to taxpayers. One of the key adjustments was in the income tax slabs under the new tax regime. The revised slabs were designed to make taxation more straightforward, reducing the complexity for individuals who do not claim multiple exemptions. Alongside the slab changes, the standard deduction available to salaried taxpayers was increased, allowing for a higher portion of income to be exempt from taxation. Certain exemptions and deductions under the old tax regime were also enhanced, including adjustments in allowances like house rent allowance (HRA) and interest on home loans. These changes allow taxpayers to plan more strategically, optimizing their taxable income and maximizing available deductions. The Budget 2025 updates also emphasize alignment with inflation adjustments and the simplification of reporting procedures, making it easier for taxpayers to comply with filing requirements while taking advantage of exemptions and deductions.
Choosing the Right Regime for Maximum Tax Benefits
Selecting between the old and new tax regimes requires careful comparison of potential tax savings based on an individual’s financial situation. Taxpayers who have significant eligible deductions, such as investments under Section 80C, payments toward a home loan, HRA, or other specified deductions, usually benefit more from the old tax regime. This regime allows them to claim multiple exemptions and deductions, effectively reducing their taxable income and overall tax liability. On the other hand, individuals with fewer deductions may find the new tax regime advantageous, as it offers lower tax rates across broader slabs and reduces the need to track multiple deductions. The simplicity of the new regime makes it attractive for those with straightforward income sources. Using intelligent platforms like TaxBuddy can make this decision easier, as it analyzes income, deductions, and exemptions, providing a clear comparison of the tax payable under both regimes. This helps taxpayers choose the regime that maximizes their tax benefits while ensuring compliance with the latest tax rules.
Conclusion
Both tax regimes have distinct advantages. The old regime offers multiple deductions and exemptions for comprehensive tax planning, while the new regime simplifies filing and provides lower rates. Choosing the right regime depends on your financial situation, income structure, and long-term tax strategy. For anyone looking for assistance in determining the optimal tax regime and filing ITR accurately, it is highly recommended to download the TaxBuddy mobile app for a seamless, secure, and user-friendly tax filing experience.
FAQs
Q1: Can I switch between old and new tax regimes each financial year? Yes, taxpayers have the flexibility to choose between the old and new tax regimes every financial year. The choice must be made at the time of filing your ITR for that particular year. While the old regime allows multiple deductions and exemptions, the new regime offers lower tax rates but removes most deductions. You can evaluate your income, eligible deductions, and tax-saving investments each year to decide which regime is more beneficial.
Q2: Are HRA exemptions available under the new tax regime? No, House Rent Allowance (HRA) exemptions are not available under the new tax regime. Taxpayers opting for the new regime cannot claim HRA or standard deductions related to housing. Only under the old regime can salaried individuals claim HRA exemptions based on rent paid and basic salary.
Q3: Is section 80C applicable in the new tax regime? Section 80C deductions are not available under the new tax regime. Investments like Employee Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificate (NSC), and life insurance premiums can only be claimed as deductions under the old regime.
Q4: Can I claim health insurance deductions under the new regime? Deductions under Section 80D for health insurance premiums are not allowed under the new tax regime. To avail these deductions for yourself, your family, or senior citizen parents, you must file under the old tax regime.
Q5: What is the maximum 80C deduction allowed in the old regime? Under the old tax regime, the maximum deduction allowed under Section 80C is ₹1.5 lakh per financial year. This includes investments such as PPF, EPF, NSC, tax-saving fixed deposits, ELSS mutual funds, and life insurance premiums.
Q6: Are home loan interest deductions available in the new regime? No, deductions on home loan interest under Section 24(b) and principal repayment under Section 80C are not available under the new tax regime. Taxpayers who want to claim home loan-related deductions must opt for the old regime.
Q7: How does TaxBuddy help compare old vs new tax regimes? TaxBuddy provides a clear comparison tool that calculates your taxable income and tax liability under both regimes. By entering your income, deductions, and exemptions, the platform shows the potential tax savings for each regime, helping you choose the most beneficial option. It also guides on which deductions are allowed under each regime.
Q8: Can I claim education loan deductions under the new tax regime? No, deductions under Section 80E for interest paid on an education loan are not available under the new tax regime. These deductions can only be claimed under the old regime, helping reduce taxable income for eligible borrowers.
Q9: Is the standard deduction same in both regimes? The standard deduction of ₹50,000 (or updated as per latest regulations) is only available under the old tax regime. The new regime does not allow the standard deduction, so salaried taxpayers opting for the new regime cannot reduce their taxable income by this amount.
Q10: How do I calculate taxable income under the new regime? Under the new tax regime, taxable income is calculated by taking your gross salary, adding other incomes, and then subtracting only the allowed deductions (which are very limited). Most exemptions and deductions, such as 80C, 80D, HRA, and standard deduction, are not available. TaxBuddy can automate this calculation to ensure accuracy.
Q11: Are donations under 80G allowed in the new regime? Donations eligible under Section 80G are not allowed as deductions under the new tax regime. Taxpayers must opt for the old regime to claim deductions for donations made to approved charitable institutions.
Q12: Which regime is better for salaried individuals with multiple exemptions? For salaried individuals who have multiple exemptions such as HRA, 80C investments, 80D health deductions, or home loan benefits, the old tax regime is usually more advantageous. It allows them to reduce taxable income using available deductions. The new regime benefits those with fewer deductions who prefer lower tax rates and simpler filing. TaxBuddy helps simulate both regimes to identify which option maximizes savings.
Comments