ITR Filing: 5 Major Income Tax Provisions Taxpayers Need to Know in 2025
As taxpayers prepare to file their Income Tax Returns (ITR) for the recently concluded financial year, it’s crucial to be aware of the key provisions that will impact your tax liabilities. Choosing between the old and new tax regimes is mandatory, with each offering different exemptions and deductions. The filing process can be complex, so understanding the provisions ahead of time can make it easier. Here’s a guide to five major provisions you should know about while filing your ITR for FY 2024-25.
- Choosing the right tax regime is essential to optimize your tax savings.
- Understanding deductions, exemptions, and penalties can help avoid mistakes in filing your returns.
Old Tax Regime vs New Tax Regime
When choosing between the old and new tax regimes, there is no one-size-fits-all answer. The decision depends on your income, investments, and eligible deductions.
- New tax regime: Offers simplified tax slabs and exempts income up to Rs 7 lakh. The standard deduction has been raised to Rs 75,000 starting FY25. However, it has fewer options for claiming deductions and exemptions.
- Old tax regime: Allows a wider range of deductions and exemptions, including Section 80C, 80D, and housing rent allowance. The standard deduction here is Rs 50,000.
Depending on your specific financial situation, one regime may be more beneficial than the other.
- The old tax regime is often better for individuals with substantial deductions and exemptions.
- The new tax regime benefits those with fewer investments or deductions.
5 Major Income Tax Provisions to Keep in Mind
Tax-Saving via Investments
For those opting for the old tax regime, there are several ways to save taxes through investments. Under Section 80C, taxpayers can claim a deduction of up to Rs 1.5 lakh annually on investments in schemes such as PPF, EPF, ELSS, tax-saving fixed deposits, and Sukanya Samriddhi Yojana.
- The new tax regime offers limited options for tax-saving via investments, with only Section 80CCD(2), 80CCH, and 80JJAA available.
- The old tax regime is better suited for individuals looking to maximize deductions through strategic financial planning.
Deduction on Home Loan Interest
Under Section 24(b) of the Income Tax Act, taxpayers can claim deductions on the interest paid for home loans or housing improvement loans. This applies to both tax regimes, but there are key differences:
- In the old tax regime, the deduction on home loan interest is capped at Rs 2 lakh for self-occupied properties.
- The new tax regime does not impose such a cap and allows full deduction on interest payments for rented-out properties.
This provision can significantly reduce the taxable income for homeowners with ongoing loans.
Exemption for House Rent and Other Allowances
Employees living in rented accommodations may be eligible for a partial exemption on house rent allowance (HRA), provided their rent exceeds Rs 1 lakh annually. Additionally, several allowances are eligible for exemptions:
- Section 10(5): Leave travel allowance (LTA) exemptions.
- Section 10(10): Exemption on gratuity income.
- Section 10(10AA): Exemption for leave encashment.
- Section 10(14): Food and internet allowances exemptions.
- These allowances primarily apply to individuals under the old tax regime.
- Employees can claim tax exemptions for these allowances by submitting relevant receipts and documents.
Deduction Linked to Health Insurance
Section 80D offers a deduction for premiums paid towards health insurance policies. The limits are as follows:
- Rs 25,000 for premiums paid for self, spouse, or children.
- The deduction increases to Rs 50,000 if the insured is a senior citizen.
- An additional Rs 25,000 (or Rs 50,000 for senior citizens) can be claimed for premiums paid towards parents.
This provision helps individuals reduce their taxable income while ensuring financial security for themselves and their family members.
Penalty for Late Returns
Filing tax returns after the due date results in penalties. Under Section 234F, the penalties are:
- Rs 1,000 for individuals with an income of Rs 5 lakh or less.
- Rs 5,000 for individuals with a higher income.
- Repeated delays may also incur interest payments and additional fines.
- Late filing can lead to the loss of benefits, such as carrying forward capital gains/losses or delayed refunds.
Taxpayers should file their returns on time to avoid unnecessary penalties and complications.
Final Thoughts
Filing your Income Tax Returns can be overwhelming, but understanding these key provisions can help you make informed decisions. Whether you opt for the old or new tax regime, be sure to take full advantage of the deductions and exemptions available to you. By carefully considering tax-saving investments, home loan interest deductions, and allowances, you can reduce your tax liability and ensure a smoother filing process.
Ensure you file your returns on time to avoid penalties and take full advantage of available benefits.
Choosing the correct tax regime and utilizing deductions effectively can lead to significant savings.
