In the union budget 2023-24, presented last month, the government introduced some changes like increase in Standard Deduction limit and tweaking of income tax slabs under the new tax regime. There were no changes announced by the government with respect to old tax regime, which has most deductions and exemption provisions for tax savings. In this article, we will try to understand which income tax regime is better for senior citizens with an annual income of up to Rs 10 lakh. Tax deductions and exemptions under old tax regime: The old tax regime allows various deductions and exemptions to be claimed by taxpayers. As a senior citizen, you can benefit from deductions under Section 80C (up to Rs 1.5 lakh), 80D (for health insurance premiums), and the standard deduction of Rs 50,000, among others. These deductions can significantly lower your taxable income, making this regime potentially more beneficial if you actively utilise these provisions. The old regime allows flexibility in tax planning through various investment options, feels Siddharth Chandrashekhar, Advocate & Counsel, Bombay High Court. If someone regularly invests in tax-saving instruments, prefers to claim deductions, or foresees increasing medical expenses (which can be deducted), sticking with the old regime might be more beneficial in the long run, according to him. On the other hand, if the individual doesn't plan to make these investments or want to keep finances simpler, the new regime could suit his or her needs better, he said. Also read: Income Tax Returns: THIS platform makes ITR filing as easy as WhatsApp messaging | Know who and how can file returns Let's understand from this calculation how much a senior citizen with an annual income of Rs 10 lakh will pay in income tax under the old tax regime. Assuming the following: Standard Deduction: Rs 50,000 Section 80C Deduction (Investments in PPF, LIC, etc.): Rs 1,50,000 Section 80D (Health Insurance Premium): Rs 25,000 Total Deductions: Rs 2,25,000 Taxable Income: Rs 10,00,000 - Rs 2,25,000 = Rs 7,75,000 Tax Calculation: Up to Rs 3 lakh: Nil (since the person concerned is a senior citizen) Rs 3 lakh - Rs 5 lakh: 5% of Rs 2 lakh = Rs 10,000 Rs 5 lakh - Rs 7.75 lakh: 20% of Rs 2.75 lakh = Rs 55,000 Total Tax: Rs 65,000 Rebate under Section 87A: Nil (since taxable income is above Rs 5 lakh) Health and Education Cess (4%): Rs 2,600 Total Tax Payable: Rs 67,600 New Tax Regime - Lower tax rates but no deductions: However, the new tax regime offers lower tax rates but does not allow for most exemptions and deductions. The new regime is straightforward and easier to comply with since it doesn't involve claiming deductions and exemptions, feels Chandrashekhar. If a taxpayer prefers a simpler tax filing process and does not want to track multiple investments for tax savings, the new regime might be more appealing, he added. However, if someone is comfortable with the existing system and can maximise the deductions, the old regime could still be advantageous, he said. Now, let's take an example with a calculation showing how much a senior citizen with an annual income of Rs 10 lakh will pay in income tax under the new tax regime. New Tax Regime: No deductions / exemptions are available. Tax slabs under the new regime are different: Tax Calculation: Up to Rs 2.5 lakh: Nil Rs 2.5 lakh - Rs 5 lakh: 5% of Rs 2.5 lakh = Rs 12,500 Rs 5 lakh - Rs 7.5 lakh: 10% of Rs 2.5 lakh = Rs 25,000 Rs 7.5 lakh - Rs 10 lakh: 15% of Rs 2.5 lakh = Rs 37,500 Total Tax: Rs 75,000 Rebate under Section 87A: Rs 12,500 (since income is below Rs 7 lakh) Health and Education Cess (4%): Rs 3,000 Total Tax Payable: Rs 78,000 Comparison: Old Regime Tax Payable: Rs 67,600 New Regime Tax Payable: Rs 78,000 Conclusion: The old tax regime offers a lower tax liability of Rs 67,600 compared to Rs 78,000 under the new regime, primarily due to the deductions available. If you can claim substantial deductions, the old regime might be more efficient (in terms of your savings).
