ITR Filing: Choosing Best Tax Regime for 15, 20, and 25 Lakh Salary

The season for filing Income Tax Returns (ITR) is currently underway, and for salaried individuals, the most significant dilemma remains the choice between the Old Tax Regime and the New Tax Regime. With the New Tax Regime now serving as the default option, it offers lower tax rates across various income slabs. However, the Old Tax Regime continues to provide numerous benefits through exemptions and deductions such as House Rent Allowance (HRA), Section 80C, Section 80D, and the National Pension System (NPS). For employees earning annual salaries of 15 lakh, 20 lakh, or 25 lakh rupees, making the right choice can lead to substantial tax savings.

Expert Insights on Tax Regime Selection

According to Akhil Chandna, Partner at Grant Thornton Bharat, the decision on which tax regime is superior depends entirely on the volume of tax exemptions and deductions an individual can claim. The structure of one's salary and their investment habits play a pivotal role in this calculation, while while the new system simplifies the process with fewer slabs and lower rates, the old system rewards those who actively invest in tax-saving instruments and have specific expenses like house rent.

Basis of Comparison Between the Two Regimes

To provide a clear comparison, certain common deductions have been assumed under the Old Tax Regime. 5 lakh rupees under Section 80C, an additional NPS investment deduction of 50,000 rupees, health insurance premiums of 25,000 rupees under Section 80D, and HRA exemptions up to 2 lakh rupees. 75 lakh rupees.

In contrast, the New Tax Regime only includes a standard deduction of 75,000 rupees. Most other deductions, such as 80C, 80D, HRA, and 80CCD(1B), aren't available under this regime. However, exemptions on employer contributions to NPS continue to be available within specified limits under the new system.

Tax Calculation for 15, 20, and 25 Lakh Salaries

For an employee with an annual salary of 15 lakh rupees, the tax liability under the Old Tax Regime would be approximately 1,24,800 rupees. Under the New Tax Regime, this amount reduces to 97,500 rupees, resulting in a saving of 27,300 rupees. This indicates that for this income level, the new regime is often more attractive unless deductions are Importantly higher.

For those with an annual income of 20 lakh rupees, the tax under the Old Tax Regime amounts to approximately 2,80,800 rupees. In the New Tax Regime, the tax liability is 1,92,400 rupees, leading to a substantial saving of 88,400 rupees. The gap between the two regimes widens as the income increases, favoring the new system for many taxpayers.

Similarly, an employee earning a salary of 25 lakh rupees would have to pay approximately 4,36,800 rupees in tax under the Old Tax Regime. Under the New Tax Regime, the tax would be 3,19,800 rupees. 17 lakh rupees by opting for the new regime. These figures highlight the potential for significant tax reduction under the simplified tax structure.

When Does the Old Tax Regime Become Beneficial?

Despite the lower rates in the new system, the Old Tax Regime can still be advantageous for specific individuals. 5 lakh rupees under Section 80C, contribute an additional 50,000 rupees to NPS, pay health insurance premiums, and claim interest on home loans may find the old system more beneficial.

5 lakh rupees or more. So, the most prudent step before filing an ITR is to calculate the tax liability under both regimes and compare the results based on individual financial circumstances.