Possible to switch back to old tax regime?

Pankaj, 34, works in an IT firm with an annual CTC of Rs 16 lakh. At the start of the financial year, he had opted for the new tax regime, but as it comes to a close, he realises that he has a surplus of little more than Rs 2 lakh in his kitty, which can be used to make tax-saving investments. Pankaj now wonders if he should switch back to the old regime and, more importantly, whether it is advisable. Monthly income and expenses (in Rs) In-hand salary Rent Expenses Surplus 1.08 lakh 30,000 60,000 18,000 Pankaj's salary structure (in Rs) Basic salary 8,00,000 House rent allowance 4,00,000 Special allowance 2,40,000 Employee's contribution to NPS 80,000 Employer's contribution to NPS 80,000 Gross total income 16,00,000 Tax benefit under the new tax regime Pankaj contributes Rs 6,667 every month to the National Pension System (NPS) Tier I. His employer matches that contribution, too. Under the new tax regime, he can claim his employer's contribution to the NPS - which comes to Rs 80,000 (Rs 6,667 x 12) for the year - to reduce his taxable income. (This provision is available to everyone in the new tax regime. But do keep in mind that the exemption is limited to 10 per cent of the Basic Pay and Dearness Allowance for private employees). After considering the NPS deduction of Rs 80,000 and a standard deduction of Rs 50,000, Pankaj's taxable income reduces from Rs 16 lakh to Rs 14.7 lakh. As a result, his tax liability comes to Rs 1.44 lakh. Advantages of shifting to the old tax regime Pankaj lives in a rented accommodation. If you check his salary structure, he receives a House Rent Allowance (HRA) as a part of his salary. It can be used to reduce his taxable income by a further Rs 2.8 lakh. While the HRA is Rs 4 lakh, it comes down to Rs 2.8 lakh after considering a few government criteria. He can claim a deduction of Rs 18,000, which he pays as a health insurance premium for himself, his wife and his two-year-old son. In fact, Section 80D of the Income Tax Act allows claiming a deduction of up to Rs 25,000. There's another provisi

This article was originally published on February 15, 2024.