Rs 9-12 lakh annual income: Old or new tax regime will help you save more tax?

After the Budget 2023 introduced a series of changes, the new tax regime has become very attractive for people with salary income of up to Rs 7.5 lakh as they will end up paying nil taxes. However, the moment your income rises above this level, you will have to pay taxes on your total income above Rs 3 lakh. This is because a rebate given by Section 87A will no longer be applicable if your taxable income goes above Rs 7 lakh.

Does the old income tax regime give an opportunity to save higher taxes as the income level goes up from Rs 9 lakh per annum to Rs 12 lakh per annum?

The answer is yes, but it will largely depend on your ability to utilise various deductions under the old tax regime.

Most taxpayers will be interested to know the minimum amount of deduction they require under the old tax regime to match the tax liability under the new tax regime. We will tell you that in the later part of this story.
Moreover, if you can claim higher deductions than this level, then you will be better off with the old tax regime as the tax outflow would be lower.

So let us see how this works at the annual income levels of Rs 9 lakh, Rs 10.5 lakh and Rs 12 lakh.

The minimum deductions needed if annual income is Rs 9 lakh: If your annual income is Rs 9 lakh, then there is no other way for salaried employees to save taxes than by claiming a standard deduction of Rs 50,000. You will have to pay an income tax of Rs 40,000 under the new tax regime. If you go for the old tax regime and claim deductions of Rs 2,12,500, you will end up paying the same amount of tax as under the old tax regime.

How to save more taxes in the old regime if income is Rs 9 lakh: If you wish to save a higher amount of tax, which is possible only in the old tax regime, you will need to check your eligibility for various deductions. The more deductions you claim over and above Rs 2.13 lakh, the higher your tax saving in the old regime compared with the new tax regime . If you claim a total deduction of Rs 4 lakh, you can even end up with zero tax.

The minimum deductions needed if annual income is Rs 10.5 lakh: If your annual income is Rs 10.5 lakh, then you will have to pay an income tax of Rs 60,000 under the new tax regime. The only way you can save this tax is if you opt for the old tax regime and utilise deductions in such a way that your total deduction is Rs 2,62,500. In such a case, you will end up paying the same amount of tax as under the old tax regime.

How to save higher taxes in old regime if income is Rs 10.5 lakh: Look for possible deductions if you want to save a higher amount of taxes. The more deductions you claim over and above Rs 2.63 lakh, the higher will be your tax saving in comparison with the new tax tegime. If you claim a total deduction of Rs 5.5 lakh, it can help you pay zero tax.

Minimum deductions needed for annual income of Rs 12 lakh: For an annual income is Rs 12 lakh, your income tax amount will be Rs 60,000 under the new tax regime. To pay the same amount as tax under the old tax regime, you will need to utilise deductions in such a way that your total deduction is Rs 3 lakh.

How to save higher taxes in old regime if income is Rs 12 lakh: The more deductions you claim over and above Rs 3 lakh, the higher your tax saving will be when compared with the new tax regime. You may have to pay zero tax if you claim a total deduction of Rs 7 lakh.

Based on your income and expense pattern you may be eligible for many widely used tax deductions – as shown in the example above – then you can still achieve nil tax liability under the old tax regime. There are few deductions which are specific to certain expenses and investments – including interest on loan for affordable housing (Section 80EEA), interest on loan for electrical vehicle (Section 80EEB, interest on education loan (Section 80E), house rent allowance {Section 10 (13A)}, donation to exempt institutions (Section 80G), expenses for treatment of specific diseases (Section 80DDB) and deduction for disabled person (Section 80U). You need to check your past, current and future expenses, and investments to understand the eligibility for these tax deductions. If you can continue previous eligible deductions or are likely to become eligible for higher deductions in future, the old tax regime may deliver higher tax savings for you.