If you have taken a home loan, which one to choose between old and new tax regime? Let’s find out 

In the latest budget, the new tax system has made annual income up to Rs 12 lakh completely tax-free. Plus, those in the salary bracket get an additional standard deduction of Rs 75,000. This means that if you earn Rs 12.75 lakh a year, you won’t owe any income tax. Now, if you have a home loan, you might be wondering which tax regime is better for you. Let’s break down the calculations for both tax systems based on your income.

What’s the home loan tax benefit?

First off, let’s look at the tax benefits you can get from your home loan. You can claim tax deductions under several sections, including 80C and 24(b). Under section 80C, you can deduct up to Rs 1.5 lakh for the principal repayment.

Then, under section 24(b) of the Income Tax Act, you can get a tax exemption on interest payments up to Rs 2 lakh. So, in total, you could claim a maximum of Rs 3.5 lakh in tax benefits for your home loan in a financial year.

Benefits in the old tax regime

Now, what about the old tax regime? You can still claim a maximum of Rs 3.5 lakh for your home loan. Additionally, you can get Rs 50,000 by investing in the NPS, another Rs 50,000 for health insurance (including for your parents), Rs 75,000 under LTA, and Rs 50,000 as a standard deduction. This means you could potentially claim up to Rs 5.75 lakh in tax exemptions. However, not everyone will qualify for all these deductions.

Tax professionals indicate that for an annual income of Rs 12.75 lakh, opting for the new tax regime is advantageous. Under the old tax regime, you would incur a tax liability of Rs 3,375, even after applying all possible exemptions. In contrast, the new tax regime allows you to pay no tax at all. For an income of Rs 13 lakh, the old tax regime would require a tax payment of Rs 4,250, while the new regime would result in a tax of Rs 75,000. If your income reaches Rs 15 lakh, the old tax regime would impose a tax of Rs 11,250, whereas the new regime would demand Rs 1.05 lakh.

For individuals with higher salaries, the old tax regime may prove to be more beneficial

In summary, if your annual income is Rs 12.75 lakh, the new tax regime is the better choice. Conversely, for incomes of Rs 14 lakh, Rs 14 lakh, or Rs 20 lakh, the old tax regime could be more advantageous, provided you fully utilize all available tax exemptions. It is essential to invest wisely; failing to do so may lead to financial disadvantages.