Will the Finance Minister wrap up the Old Tax Regime, bringing all concessions under 80C to an end?
Will the New Tax Regime be left as the only tax structure with reduced tax slabs and Income Tax rates and zero concession?
If reports are to be believed, Nirmala Sitharaman is gearing up to merge important features of both tax regimes to make on consolidated tax structure.
Will Concessions Be Abolished?
This tax structure may emerge after all concessions available now under 80C, 80D and HRA are abolished.
Following are the investments that come under 80C deductions:
Employees’ Provident Fund (EPF)
Contribution towards PPF
Life Insurance Premium
National Pension Scheme (NPS)
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Home Loan Principal Repayment
Tax SaverFixed Deposits
Equity Linked Savings Scheme (ELSS)
ULIP Investment
Concessions Under 80D
Taxpayers can get a deduction of Rs 5,000 under 80D for any payment made towards preventive health check-ups.
This deduction can also be claimed by the individual for himself, his spouse, dependent children, or parents and will be under the overall limit of Rs 25,000.
Concessions Under HRA
A taxpayer can claim a concession of the actual HRA received by the employee. It can be 40% of the salary for a non-metro city or 50% of the salary if the rented property is in metro cities like Mumbai, New Delhi, Kolkata, and Chennai. However, Actual rent paid should be less than 10% of salary.
If media reports are to be believed, all these concessions or most of them may be abolished under the new tax regime to be designed.
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There are reasons for abolishing the old tax regime. The number of taxpayers opting for the new tax regime is increasing as they are being attracted by low tax rates.
Will Nirmala Sitharaman Increase Standard Deduction?
Tax experts believe the government may keep the standard deduction at Rs 75,000 or even increase it. Standard deduction is the amount that is deducted before the tax liability is calculated.
The present tax regime may be applicable for 2025-26. The government may abolish all concessions afterward.
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However, it is expected that the Finance Minister may continue with major income-tax-related concessions, especially with regard to housing loans.
If Nirmala Sitharaman gives a reprieve to the taxpayers in old tax regime, she may increase the tax deduction limit for home loan interest from Rs 2 lakhs to Rs 5 lakhs. She may also hike the deduction under Section 80(C) from Rs 1.5 lakhs to Rs 5 lakhs.
Analysts believe, much depends on what decision the Finance Minister takes on the twin tax regimes: whether she merges the two regimes or continues with the present system at least for now.
