Income Tax Regime, Deductions & Savings – Basic FAQs (India)

Understanding Tax Regimes, Deductions and Tax Saving in Simple Terms

Understanding income tax in India often begins with one fundamental question — how much tax do I need to pay and how can I legally reduce it? This is where tax regimes, deductions, and savings come into the picture. Many taxpayers, especially salaried individuals and first-time filers, feel confused about whether they should opt for the old tax regime or the new one, which deductions are allowed, and whether tax-saving investments are compulsory.

This FAQ section answers the most common questions related to tax regimes, deductions, and savings in simple language. It is designed to help individuals make informed choices without feeling overwhelmed by legal jargon or complex calculations.

FAQs on Tax Regime, Deductions & Savings

The old tax regime is the traditional system of income tax calculation in India. Under this regime, taxpayers are allowed to claim various deductions and exemptions to reduce their taxable income. Popular benefits include deductions under Section 80C for investments, Section 80D for health insurance, and exemptions like House Rent Allowance (HRA).

Although tax rates under the old regime are higher, the availability of deductions makes it beneficial for individuals who invest in tax-saving instruments or incur eligible expenses.

The new tax regime was introduced to simplify the income tax system. It offers lower slab rates but removes most deductions and exemptions. Under this regime, taxable income is calculated without considering common tax-saving deductions like 80C, HRA, or LTA.

The objective of the new tax regime is to reduce compliance burden and make tax calculation straightforward, especially for individuals who do not want to invest only for tax-saving purposes.

There is no universal answer to this question. The better regime depends on an individual’s income structure and deduction eligibility. Taxpayers who claim multiple deductions and exemptions often find the old tax regime more beneficial. On the other hand, those with fewer deductions may benefit from the lower rates under the new tax regime.

Comparing tax liability under both regimes before filing the return is the best approach.

Salaried individuals can choose between the old and new tax regime every financial year while filing their income tax return. This flexibility allows them to select the regime that results in lower tax for that year.

However, individuals having income from business or profession face restrictions and cannot switch regimes frequently once they opt out of the new tax regime.

Most deductions and exemptions are not allowed under the new tax regime. Common benefits like Section 80C, 80D, and HRA are not available. However, certain limited deductions such as standard deduction (where applicable) and employer contributions to retirement funds may still be allowed.

Taxpayers should review allowed benefits carefully before choosing this regime.

Income tax deductions are specific expenses or investments that reduce a taxpayer’s total taxable income. By lowering taxable income, deductions help reduce overall tax liability.

Deductions are provided to encourage savings, insurance coverage, healthcare spending, and long-term financial planning.

Section 80C is one of the most commonly used tax-saving provisions. It allows a maximum deduction of ₹1.5 lakh in a financial year for specified investments and expenses such as Provident Fund, life insurance premiums, ELSS mutual funds, and repayment of home loan principal.

Only eligible investments made during the year can be claimed under this section.

Section 80D provides tax deduction for health insurance premiums paid for self, spouse, children, and parents. Higher deduction limits are available if the insured person is a senior citizen.

This deduction encourages individuals to secure health insurance coverage while offering tax relief.

Yes. Salaried employees who receive House Rent Allowance as part of their salary can claim HRA exemption if they pay rent for residential accommodation. The exemption is calculated based on salary, rent paid, and city of residence.

Proper rent receipts and supporting documents should be maintained.

Life insurance premiums and health insurance premiums are tax deductible, subject to specific conditions. Life insurance premiums qualify under Section 80C, while health insurance premiums qualify under Section 80D.

Premiums must be paid through permitted modes and within prescribed limits to be eligible.

Yes. Senior citizens enjoy several additional tax benefits, including higher basic exemption limits, higher deductions for health insurance, and special provisions for interest income.

These benefits are designed to reduce the tax burden on retirees and elderly taxpayers.

While proofs may not be required at the time of filing the income tax return, taxpayers must keep valid supporting documents. The income tax department may request proof during assessment or verification.

Failure to provide proof when asked may result in disallowance of deductions.

No. If a taxpayer opts for the new tax regime, most deductions and exemptions are not available. Taxable income is calculated without reducing eligible expenses or investments.

Once selected for a year, the return must be filed accordingly.

No. Tax saving through investments is not mandatory. A taxpayer may choose to pay tax without investing, especially if the new tax regime results in lower tax liability.

Tax-saving investments should be a choice, not a compulsion.

No. Investments should primarily align with long-term financial goals such as retirement, education, or wealth creation. Tax benefits should be considered an added advantage rather than the sole reason for investing.

Well-planned investments provide both financial security and tax efficiency.

Closing Note

Choosing the right tax regime and understanding deductions can significantly impact your tax liability. Instead of blindly following one option, taxpayers should evaluate their income, expenses, and financial goals before making a decision. Periodic review and informed choices lead to better financial outcomes and stress-free compliance.

Indian professional reviewing income tax regime and deductions on a digital document

Further Reading

To deepen understanding, you may refer to:

Source

Information compiled based on provisions of the Income Tax Act, 1961 and general guidance issued by the Income Tax Department of India. This content is for informational purposes only and should not be considered professional or legal advice.