Tax Planning for Individuals: Old vs New Regime
Paying taxes is a duty, but saving tax is an art. Understand the difference between the Old and New Tax Regimes and how deductions like 80C can lower your tax burden legally.
Key Takeaways
- Old Regime: Offers deductions (80C, HRA, etc.) but higher tax rates.
- New Regime: Lower tax rates but zero deductions. Default for most.
- Section 80C: Save up to ₹1.5 Lakhs tax-free (PPF, ELSS, LIC).
- Section 80D: Save tax on Health Insurance premiums.
1. Financial Year vs Assessment Year
Before diving in, know the difference:
- Financial Year (FY): The year you earn money (e.g., April 1, 2024 – March 31, 2025).
- Assessment Year (AY): The year you file returns for that income (e.g., AY 2025-26).
2. Old vs New Tax Regime: Which is Better?
The government offers two ways to calculate tax. You must choose wisely.
| Feature | Old Regime | New Regime (Default) |
|---|---|---|
| Tax Rates | Higher | Lower |
| Deductions (80C, HRA) | Available | Not Available |
| Best For | People with many investments/loans | People who want simplicity & cash in hand |
3. The "Tax Saving Bucket" (Old Regime Only)
If you choose the Old Regime, you must fill these buckets to reduce taxable income.
Simple Calculation
If your taxable income is ₹8 Lakhs and you invest ₹1.5L in 80C, your new taxable income becomes ₹6.5 Lakhs. Tax is calculated on this reduced amount.
Frequently Asked Questions
What is the maximum deduction under Section 80C? ▼
The maximum deduction available under Section 80C is ₹1.5 Lakh per financial year. This includes investments in PPF, ELSS Mutual Funds, LIC premiums, and Employee Provident Fund (EPF).
Can I switch between Old and New Tax Regimes? ▼
Yes, salaried individuals can choose between the regimes every year at the time of filing returns. However, individuals with business income can only switch once in their lifetime.
Is health insurance premium tax deductible? ▼
Yes, under Section 80D , you can claim a deduction of up to ₹25,000 for yourself/family and an additional ₹50,000 if you pay for senior citizen parents.