ITR filing 2024: New and old tax regimes: Six points that you need to bear in mind while filing returns

New tax regime is the default regime 2023-24 onwards

In the case you had missed explicitly indicating that you wished to stick to the old tax regime while submitting your proposed investment declarations in April 2023, your employer would have calculated your tax payable as per the new regime rules and rates and deducted tax (TDS) from your salary accordingly.

If you feel the old regime is more beneficial for you, ensure that you claim the deductions and exemptions under various sections such as 80C, section 80D, section 24(b) and so on while filing returns. If excess taxes have be deducted due to your employer computing your tax payable as per the new regime, you can claim a refund.

Also read: Income tax filing: Check out the 6 key changes new tax regime brings in

Maintain records of deductions claimed

While salaried employees can choose a tax regime that is different from the one selected in their investment declarations, those switching from new to old need to exercise caution.

Ensure that you are prepared with the necessary documentary proofs of the deductions claimed in order to be able to address any I-T queries that may arise due to mismatch in your returns and Form-16. Salaried tax-payers who claimed tax deductions without actually being eligible have had to deal with tax notices sent by the income tax department.

Know the tax breaks that the old tax regime offers

The old tax regime offers a host of tax sops under chapter VIA and other sections, which reduce tax liability by inducing tax-payers to save. For example, section 80C offers deductions on investments made in equity-linked saving schemes (ELSS), public provident fund, senior citizen saving schemes (SCSS), Sukanya Samriddhi Yojana, tax-saver fixed deposits and so on.

Even home loan principal repaid, employees’ provident fund (EPF) contributions deducted from your salary and children’s tuition fees qualify for deductions under this section.

Premiums paid towards your life insurance policy and National Pension System (NPS) contributions are also eligible for deductions. This apart, section 80CCD(1B) offers an additional deduction of Rs 50,000 for NPS contributions, while section 80CCD(2) provides tax break on employers’ contribution to employees’ NPS (up to 10 percent of basic salary and dearness allowance, if any).

Section 24(b) entitles you to a deduction of up to Rs 2 lakh on home loan interest paid during the financial year.

If your Form-16 does not reflect these deductions, you can avail of them while filing returns to bring down your tax liability.

Also read: Your guide to filing income tax returns for the financial year 2023-24

NPS tax benefits under the new regime

While the new tax regime’s proposition is elimination of compliance burden involved in claiming deductions in exchange for lower tax rates and liberalised tax slabs, it does offer some exemptions.

For instance, tax break on employers’ contribution to employees’ NPS to the extent of 10 percent (14 percent in the case of government employees) of their basic salary plus dearness allowance, if any.

Under both the regimes, though, the tax-free limit on benefits received from employers is capped at Rs 7.5 lakh a year. If the total benefits breach this cap, the excess amount will be treated as the employee's taxable perquisite.

Home loan interest deduction on rented properties

One important deduction that you can still claim under the new tax regime is deduction of interest on home loan for a property that has been rented out.

But the condition of ‘no negative loss from house property’ makes this deduction less attractive. That is, interest cost in excess of rental income (negative loss from house property) cannot be set off against other income the same year or carried forward to future years. Also, you cannot claim the home loan interest deduction for a self-occupied property, which is available under Section 24(b) of the old tax regime.

Under the old tax regime, you can claim this deduction for both self-occupied and properties given out on rent. In case of a rented property, the interest paid is deducted from the rent received (net of property taxes and standard deduction of 30 percent) to arrive at the income from house property. This helps you to lower your property income and hence the tax to be paid on it.

As long as the loss from house property (interest paid minus rent received after adjusting for property tax and standard deduction) does not exceed Rs 2 lakh, it can be set off against any other income in the same year to reduce your overall tax liability. Any loss from rented property, over and above Rs 2 lakh, gets carried forward and can be claimed over eight subsequent financial years.

Under the new regime, the negative loss from house property is not allowed to be set off against other income under this regime.

Tax exemption on leave encashment under the new regime too

As a salaried individual, you may be entitled to paid or privilege leave. Most employers allow their employees to carry forward any paid leave they have not used during a year. And, you can encash the accumulated paid leave later. That is, the employer pays you an amount in lieu of the unutilised paid leave.

Under the new tax regime, too, employees are entitled to tax exemption on leave encashment at the time of resignation or retirement. The tax-exemption limit depends on whether you are a government or a non-government employee.

As a government employee, your entire leave encashment is tax-exempt. Non-government employees can claim tax exemption on leave encashment of up to Rs 25 lakh from April 1, 2023.

If you encash your leave while still working for the organisation, the entire amount is taxable. This is applicable to both government and non-government employees under both tax regimes. However, if the employee dies while in service, the entire leave encashment will be tax-exempt in the hands of her legal heirs.