Tax planning is changing for millions of salaried individuals in India. Starting from the upcoming financial year (FY) 2025–26, the new tax regime will become the more attractive option for many, potentially making traditional deductions and exemptions unnecessary for those earning up to ₹12 lakh.
Here’s what you need to know about the shift:
The Big Change in the New Tax Regime
Under the new regime, the government has increased the rebate under Section 87A, which effectively makes income up to ₹12 lakh tax-free. This, combined with the standard deduction, means a significant portion of the salaried workforce will have zero tax liability. This simplification is the main reason why many taxpayers may no longer need to rely on the old tax regime’s complex deductions.
Old vs. New: A Quick Comparison
For the current tax-filing season (for FY 2024–25), you still have a choice. Here’s a rundown of how the two regimes differ:
- Rebate under Section 87A: The old regime offers a rebate up to ₹12,500 for incomes up to ₹5 lakh, while the new regime’s rebate is now much higher, reaching ₹60,000 for incomes up to ₹12 lakh.
- Standard Deduction: Both regimes now offer a standard deduction. It’s ₹50,000 under the old regime and a higher ₹75,000 under the new regime.
- Deductions and Exemptions: The key difference lies here. The old regime lets you claim popular deductions like those under Sections 80C (for investments like PPF, ELSS, etc.), 80D (health insurance), HRA, and interest on home loans. The new regime, however, has a flatter, simpler structure that removes most of these benefits. It only allows for a few limited deductions, like the standard deduction and some benefits under Sections 80CCD(2) and 80CCH(2) for NPS contributions.
This year’s tax filing for FY 2024–25 could be the last time many taxpayers earning less than ₹12 lakh will find it beneficial to use the old regime’s deductions. As the government continues to promote the simplified new regime, the incentive to invest solely for tax-saving purposes is expected to decrease.
If your income is below ₹12 lakh, it’s a good time to re-evaluate your tax strategy before filing your ITR.