Old Tax Regime 2025: Know Allowances, Deductions and Exemptions Allowed Under Old Tax Regime
The Old Tax Regime is the system of income tax calculation that existed before the introduction of the New Tax Regime under section 115BAC of the Income Tax Act. The old tax regime is best if taxpayers aim to achieve long-term financial goals, such as securing health and life insurance by paying premiums, covering children’s school fees or purchasing a house with a home loan. It includes several benefits and allowances which have different tax exemption rules for taxpayers.
Salaried Taxpayers with income between Rs 12 lakh and Rs 22 lakh can claim deductions. The old Tax regime could help them achieve lower tax liability despite the higher rate if they regularly invest in tax-saving schemes and receive exemptions like HRA and LTA.
Below are some of the deductions available under the old tax regime: –
- House Rent Allowance (HRA): Old regime allows deduction of the actual amount of HRA received or 50% of the basic salary (whichever is less).
- Leave Travel Allowance (LTA): Old regime permits deduction of the actual amount of LTA received or 40% of the basic salary (whichever is lower).
- Standard Deduction: Salaried employee can avail tax deductions of up to Rs 50,000.
- Section 80C: Investments in different tax-saving schemes, like ULIP, EPF, PPF etc. is allowed for deduction of up to Rs 1.5 lakh on
- Section 80D: Medical expenses incurred for self, spouse, parents or children are allowed for deduction of up to Rs 50,000
- Section 80TTA: Interest income from savings accounts and post office deposits is allowed for deduction of up to Rs 10,000.
- Section 80G: Old regime allows deduction of 50% or 100% of the donated amount to certain approved charitable institutions, relief funds and NGOs.
- Section 87A Rebate: Taxpayers can get a tax rebate of Rs 12,500 if their income is up to Rs 5 lakh.
- Section 80CCD(1B): Additional deduction of Rs 50,000 for contributions to the National Pension System (NPS)
- Section 10(10D): Tax exemption for the maturity proceeds from life insurance policies if certain conditions are satisfied.
Benefits of Opting for the Old Tax Regime
- Incentives for Investments/savings: The Old regime offers the double benefit of tax saving and investment, especially through deductions under Section 80C, Section 80CCA, Section 80CCD etc. Investing in schemes including Public Provident Fund (PPF), National Savings Certificates (NSC) or Equity-linked Saving Schemes (ELSS) will help in reducing the tax liability.
- Decision based on Financial Goals: Old tax regime offers flexibility to strategically utilize available deductions based on your financial goals.
- Beneficial for Property Owners: Under the old tax regime, taxpayers can set off losses from house property, such as high interest on home loans, against other income, up to Rs 2 lakh and it also offers capital gains exemptions under Sections 54, 54EC, and 54F for long-term capital gains, especially on the sale of property.
- Beneficial for Salaried Taxpayers: Old regime also offers multiple deductions like HRA, LTA and the standard deductions. also, deductions under sections 80C and 80D to plan their finances effectively and maximise tax savings.
- Beneficial for Existing Taxpayers: Old tax regime is an easy and reliable option for several taxpayers, particularly those who prefer a disciplined approach to managing their finances.
- Beneficial for the Family of a pensioner: The Old tax regime allows family members receiving a pension after the pensioner’s death to claim a deduction under Section 57.
Exemption of Old Tax Regime
- Section 10(11): provident Fund and Sukanya Samriddhi Account Interest
- Section 10(10): Gratuity
- Section 10(10AA): Leave Encashment
- Section 10(10A): Commuted Pension
- Section 10(10B): Retrenchment Compensation
- Section 10(10C): Voluntary Retirement Compensation
- Section 10(10D): Life Insurance Policy
- Section 10(13A): House Rent Allowance (HRA)
- Section 10(14)(II): Children’s Education Allowance
- Section 10(5): Leave Travel Allowance (LTA)
- Section 10(14): Exemption of Special Allowance
Understanding these above-mentioned exemptions and the conditions for claiming them can significantly reduce tax obligations. Therefore, it’s important for taxpayers to be aware of these exemptions.