Earning above Rs 15 lakh? This much deduction will always save you more money in the old tax regime

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Going by the last four budgets, the government’s intent is quite clear: make the new tax regime attractive so that more taxpayers will migrate to it. The new regime works very well for people with a salary income of up to Rs 7.5 lakh as they have to pay nil tax. Even in the highest income tax slab, the new regime helps you pay much lower taxes than the old tax regime if you do not claim enough deductions, which are allowed under the old tax regime. So, what is the deduction amount you have to reach to make sure you do not pay more tax in the old regime; also, will your savings rise if you increase your deduction amount?

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 20lakh income

Deductions Amount
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.

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