Mumbai: With the start of the new financial year 2025-26, salaried individuals are once again facing the common dilemma — which tax regime to choose: old or new? Employers are asking for declarations from their employees, and many are unsure which one is better for their specific case.
Understanding Both Regimes
The Old Tax Regime allows you to claim various deductions and exemptions such as:
- House Rent Allowance (HRA)
- Investments in Public Provident Fund (PPF), National Pension Scheme (NPS), and ELSS
- Deductions under sections like 80C, 80D, etc.
This regime works well for those who have made significant tax-saving investments or pay rent and can claim HRA.
On the other hand, the New Tax Regime offers lower tax rates but no deductions or exemptions. This is beneficial for those who do not have many tax-saving investments or deductions to claim. It simplifies the process and is ideal for people in higher salary brackets who want to reduce paperwork.
Budget 2025 Announcements: Major Relief
In the Budget presented on 1st February 2025, Finance Minister Nirmala Sitharaman announced key changes:
- No tax up to an income of Rs 12 lakh under the new tax regime
- Standard deduction increased from Rs 50,000 to Rs 75,000
This means if your annual income is up to Rs 12.75 lakh, you might end up paying zero tax under the new regime starting 1st April 2025 (applicable for FY2025-26, ITR filed in FY2026-27).
However, for current ITR filing, rules from Budget 2024 still apply.
How to Choose the Right Regime?
The new tax regime is now the default option. If you wish to continue with the old tax regime, you must inform your employer. Evaluate your investments and deductions before deciding.
