FY 2023-24 Now only three days are left to file income tax. If you are still confused about which to choose, old or new tax regime and have not filed your return, then there is no need to worry. We are telling you which tax regime you should choose if your income is around Rs 10 lakh. Also, we will tell you how you can make income of Rs 10 lakh income tax free. That is, you will not have to pay any tax.
Changes made in the new tax regime in the budget
Major changes have been made in the New Tax Regime in Budget 2024, making it more attractive for taxpayers. The standard deduction has been increased from ₹ 50,000 to ₹ 75,000 in the new tax system announced in this year’s budget. The tax slabs have been changed. Also, individuals with income up to ₹ 7 lakh per annum will be exempted from paying income tax. These changes are aimed at providing relief to taxpayers and simplifying the tax system.
If your income is 10 lakh then choosing the old tax regime is beneficial
If your income is up to ₹10 lakh, choosing the old tax regime for tax saving will be beneficial. This is because a wide range of deductions and exemptions are available in the old system. You can easily make your income completely tax free by adopting the investment vehicle given below.
Section 80C: Investors in PPF, EPF, ELSS and other tax saving options can get tax exemption up to Rs 1.5 lakh. Tax exemption is also available on payment of principal on Equity Linked Saving Scheme (ELSS), 5-year FD, life insurance premium, children’s tuition fees, home loan. By reducing the standard deduction of Rs 50 thousand in the old tax regime, you can save an additional ₹ 1.50 lakh from the income of ₹ 9.50 lakh by investing. After this your taxable income will be ₹ 8 lakh.
Section 80CCD (1B): Apart from the limit of ₹1.5 lakh under Section 80C, contributions to NPS Tier I account get an additional tax exemption of up to ₹50,000 under Section 80CCD (1B). Depending on the tax bracket, you can save more money on taxes by investing up to ₹50,000 in NPS. In this case, the taxable income after deducting ₹50,000 from ₹8 lakh will be ₹7.50 lakh.
Deduction on home loan interest: Under Section 24B, you can get tax exemption on the interest paid on your home loan. Section 24(b) of the Income Tax Act allows homeowners to claim a deduction of up to ₹2 lakh on the interest paid on their home loan. This can substantially reduce their taxable income and, in turn, reduce their tax liability. After availing this exemption, the taxable income will be ₹5.50 lakh after deducting ₹2 lakh from ₹7.50 lakh.
Discount on health insurance premium: Health insurance premiums can be deducted up to ₹25,000 under Section 80D. If you or your spouse are senior citizens (aged 60 years or above), you can deduct an additional ₹25,000, taking the total deductible amount to ₹50,000. You can also deduct an additional ₹5,000 for costs associated with regular medical checkups for your dependent children, spouse and yourself.
The maximum deduction under Section 80D is ₹25,000 or ₹50,000 (for senior citizens), depending on your age. After deducting ₹75,000 from the taxable income of ₹5.50 lakh, your income is reduced to ₹4.75 lakh. Under the old tax regime, you will not have to pay any tax as income up to ₹5 lakh is tax-free. With this strategy, you can effectively earn up to ₹10 lakh tax-free.
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