Tax-free income: Under both Old and New Tax regimes, a certain amount of annual income above the respective basic exemption limits are free from any taxes.
Under both Old and New Tax regimes, a certain amount of annual income above the respective basic exemption limits are free from any taxes. Here’s a look at how much amount a person can earn without paying taxes per year under both tax regimes.
Old Tax Regime
Under the Old Tax Regime, there is a basic exemption of Rs 2.5 lakh for General Citizens and Rs 3 lakh for Senior Citizens. However, due to tax rebates allowed under Section 87A, income up to Rs 5 lakh becomes tax-free.
Salaried employees are also eligible for a standard deduction of Rs 50,000, which makes income up to Rs 5.5 lakh tax-free for salaried persons. Additionally, a salaried person can decrease his tax liability by making tax-saving investments and claiming deductions. For instance, an employee can claim
- Rs 1.5 lakh deduction for investments in schemes that qualify for Section 80C deduction
- Rs 50,000 deduction for the contribution towards NPS account
- Rs 2 lakh deduction for payment towards home loan interest
- Rs 25,000 (or even more) towards health insurance premium payment.
The above deductions will make an income up to Rs 9,25,000 tax-free for salaried persons. For this, however, the employee must be making such tax-saving investments. Employees are also eligible for various allowances (such as HRA), which can take the tax-free income limit even higher.
New Tax Regime
Under the New Tax Regime, there is a basic exemption of Rs 3 lakh for both general and Senior Citizens. However, due to the tax rebate allowed under Section 87A, income up to Rs 7 lakh becomes tax-free.
Salaried employees are also eligible for a of Rs 50,000, which makes income up to Rs 7.5 lakh tax-free for salaried persons under the new regime. Some is allowed for family pensioners under this regime.
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