Most citizens find themselves in a fix over the old versus new tax regime debate. While both have advantages and disadvantages, the choice could vary based on the individual’s income and financial goals.
Age could also be a significant consideration. For instance, senior citizens may have different needs than the general working-class taxpayers. Suppose they have achieved most of their long-term financial goals, like building a house or children’s education and marriage, their needs will differ.
Explains Ankit Jain, partner at Ved Jain & Associates: “The decision for the new regime versus the old rule depends on the senior citizen's income.”
An estimate shows tax paid by senior citizens rose over 35 per cent to about Rs 1.13 lakh crore in 2022-23 from the prior year, suggesting elders continue to wield significant taxable income.
The Case For New Regime
A lot of seniors have lower income in the absence of a regular salary. “The new regime would be more beneficial for most seniors because income up to Rs 7 lakh wouldn’t require paying tax. So, they would not need to invest, leaving them with more cash,” says Jain.
The government has added several new benefits to the new tax regime in the Union Budget 2023-24 to make it popular. The standard deduction of Rs 50,000 was introduced that will benefit both the salaried employees and pensioners. Full rebate for income not exceeding Rs 7 lakh. Besides, there is a conveyance allowance for the salaried class, and in the case of family pensioners, a standard deduction of Rs 15,000 under Section 57 (IIA) will be available.
Moreover, the new tax regime eases compliance, which many senior citizens may prefer.
The Case For Old Regime
On the other hand, the old regime might be better for seniors who still receive a salary or higher pension as they can claim allowances and deductions for house rent, health insurance, etc.
For instance, the old regime allows availing of deductions up to Rs 1.5 lakh on investments, insurance premiums, etc., under Section 80C of the Income-tax Act, 1961.
Parth D. Shah, founder of Parth D Shah & Co., a tax consultancy firm, says, “They will get Rs 50,000 deduction under 80D for expenses in the absence of medical insurance. Up to Rs 50,000 under 80TTB for interest income on investments, and up to Rs 1 lakh under 80DDB for expenses on medical treatment for specific diseases.” There are also other benefits.
Hence, Shah says, “They get deductions naturally under the old tax regime without making any additional efforts to save tax.” However, he says, senior citizens must check the final tax liability in both old and new tax regimes.
