Good news for everyone. In the latest budget, the new tax system allows for an annual income of up to Rs 12 lakh to be tax-free. Additionally, individuals in the salary bracket are granted a separate standard deduction of Rs 75,000. This means that those earning Rs 12.75 lakh annually will not have to pay any income tax. This raises the question of which tax regime is more advantageous if you have a home loan. Let’s break down the calculations for both tax systems based on income.
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What tax benefits can you get from a home loan?
First, let’s explore the tax exemptions available for home loans. You can claim tax deductions under various sections, including section 80C and section 24(b). Under section 80C, you can deduct up to Rs 1.5 lakh for the repayment of the principal amount. Meanwhile, section 24(b) allows for a tax exemption on interest payments up to Rs 2 lakh. Therefore, the total maximum exemption you can receive on a home loan in a financial year is Rs 3.5 lakh.
Exemptions in the old tax regime
What exemptions are available under the old tax regime? You can still claim a maximum exemption of Rs 3.5 lakh on your home loan. Additionally, you can receive Rs 50,000 for investing in the National Pension System (NPS), another Rs 50,000 for health insurance policies (including those for parents), Rs 75,000 under Leave Travel Allowance (LTA), and Rs 50,000 as a standard deduction. This means you could potentially claim a total tax exemption of Rs 5.75 lakh. However, it’s important to note that not everyone will qualify for all these exemptions.
Let’s explore which option might be more advantageous.
According to tax experts, if your annual income is Rs 12.75 lakh, opting for the new tax regime is the better choice. In the old tax regime, you would end up paying Rs 3,375 in taxes, even after utilizing all available exemptions. In contrast, the new tax regime allows you to pay no tax at all. For an annual income of Rs 13 lakh, the old tax regime would require you to pay Rs 4,250, while the new one would result in a tax of Rs 75,000. If your salary reaches Rs 15 lakh, the old tax regime would mean a tax payment of Rs 11,250, whereas the new tax regime would require Rs 1.05 lakh.
For those with higher salaries, the old tax regime can be more beneficial
In summary, if your annual income is Rs 12.75 lakh, the new tax regime is advantageous. However, if your salary is Rs 14 lakh, 14 lakh, or even 20 lakh, the old tax regime could be more profitable. To maximize benefits, it’s essential to take full advantage of all tax exemptions available in the old tax regime and invest wisely. Failing to do so could lead to potential losses.
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