Rs 4.25 lakh or higher deduction will save more tax for income above Rs 15 lakh
As your income goes up, there are fewer avenues left to save tax that is proportional to the rise in income. While the new tax regime hardly offers any deduction, you have plenty of deduction options under the old tax regime to bring down your taxable income and pay lower tax. If you are a salaried person with an annual income above Rs 15 lakh, then the minimum deduction that you need is Rs 4.25 lakh to have the same tax outgo under both the regimes. The higher the deduction above this you can claim, the higher will be your tax saving under the old tax regime. However, if you are not able to claim Rs 4.25 lakh worth of total deduction, you will be better off with the new tax regime.
Minimum deduction needed for old tax regime to save more
|Gross income||Minimum deductions (old regime)||Equal tax outgo (under both regimes)|
|Rs 7.5 lakh||Rs 2.5 lakh||0|
|Rs 10 lakh||Rs 3 lakh||Rs 52,500|
|Rs 12 lakh||Rs 3.5 lakh||Rs 82,500|
|Rs 15 lakh||Rs 4.08 lakh||Rs 1.4 lakh|
|Rs 15.5 lakh||Rs 4.25 lakh||Rs 1.5 lakh|
|Rs 20 lakh||Rs 4.25 lakh||Rs 2.85 lakh|
|Rs 25 lakh||Rs 4.25 lakh||Rs 4.35 lakh|
|Rs 30 lakh||Rs 4.25 lakh||Rs 5.85 lakh|
|Rs 50 lakh||Rs 4.25 lakh||Rs 11.85 lakh|
|For income in FY24, figures are rounded off|
Save Rs 7,500 tax for each Rs 25k additional deduction
If your gross annual income is Rs 15.5 lakh or above, then additional deduction of Rs 25,000 above Rs 4.25 lakh will fetch you a saving of Rs 7,500. This happens because of the 30% income tax slab applicable above the income level of Rs 10 lakh. This is why this incremental benefit has a limitation as it works only up to a post-deduction income of Rs 10 lakh. If your post-deduction income level goes below Rs 10 lakh, the deduction will give you a benefit at the applicable tax rate of 20% under the old regime, which is Rs 5,000 saving for further additional deduction of Rs 25,000.
For annual income of Rs 15.5 lakh or above: Higher deduction helps you save more
|Total deduction claimed||Tax saved*|
|Rs 4.25 lakh||0|
|Rs 4.5 lakh||Rs 7,500|
|Rs 4.75 lakh||Rs 15,000|
|Rs 5 lakh||Rs 22,500|
|Rs 5.25 lakh||Rs 30,000|
|Rs 5.5 lakh||Rs 37,500|
|Rs 5.75 lakh||Rs 45,000|
|Rs 6 lakh||Rs 52,500|
|For income of Rs 15.5 lakh and above in FY24; *in old tax regime in comparison to new tax regime|
What are the widely used deduction options you have?
Some widely used options can help you easily claim a deduction of Rs 5 lakh. These are Rs 50,000 standard deduction, Rs 1.5 lakh under Section 80C, Rs 2 lakh on home loan interest or house rent allowance (HRA), Rs 50,000 on NPS investment under Section 80CCD(1B) and Rs 50,000 on health insurance premium under Section 80D. A combination — which may be available to few people — of a home loan interest on a let-out house and HRA can help one get significantly higher deduction. You will also get a deduction if you make donations to exempted institutions.
As shown in the table below, all these options can help you take the total deduction up to Rs 10.25 and pay very little tax on a salary income of Rs 20 lakh. So, the more deductions you can utilise, the higher your tax saving.
Possible deductions for a salaried person with Rs 20–lakh income
|Standard deduction||Rs 50,000|
|Section 80C||Rs 1.5 lakh|
|Section 80CCD(1B) for NPS||Rs 50,000|
|Section 80D for health insurance premium for self||Rs 25,000|
|Section 80D for health insurance premium for senior citizen parent||Rs 50,000|
|Home loan interest under section 24(B) (self-occupied or let-out house||Rs 2 lakh|
|Deduction for house rent allowance under Section 10 (13A)* (assumed 15% of gross income)||Rs 3 lakh|
|Education loan interest under Section 80E (assumed an average Rs 10 lakh outstanding at interest of 10% p.a.)||Rs 1 lakh|
|Donation to exempt institution under Section 80G (assumed Rs 5% of gross income)||Rs 1 lakh|
|Total||Rs 10.25 lakh|
|For income in FY24; *For person living on rent in city of his work but repaying a home loan for a let-out house or a self-occupied house in a different city.|
Special deductions that you can utilise
Once you have factored in the easily manageable deductions, the next thing you need to check is the additional opportunities available to claim higher deductions. In the old tax regime, there are some deductions that are specific to certain expenses and investments — including interest on loan for affordable housing (Section 80EEA), interest on loan for electrical vehicle (Section 80EEB), expenses for treatment of specific diseases (Section 80DDB) and deduction for disabled persons (Section 80U).
You have to check your past and current expenses and investments — and make an estimate about your future expenses and investments — to understand the eligibility for these tax deductions. If you can continue with the deductions or are likely to become eligible for higher deductions in future, the old tax regime may deliver higher tax savings.